TAX STRATEGIES

Case study

Case study

Question1. Net Tax Payable for the current year for Scott and Carmen

Tax rates 2011-12 Taxable income

Tax on this income

0 - $6,000

Nil

$6,001 - $37,000

15c for each $1 over $6,000

$37,001 - $80,000

$4,650 plus 30c for each $1 over $37,000

$80,001 - $180,000

$17,550 plus 37c for each $1 over $80,000

$180,001 and over

$54,550 plus 45c for each $1 over $180,000

Tax Payable Calculation for Scott

Total Taxable income for Scott

Net profit from business

160,000

Net rental income in investment unit

8,400

Total Incomes from business activities

168,400

Fixed Tax in the bracket of $80,001 - $180,000, Scott's total income for the year is $168,400.

Tax Bracket in which Scott is Falling

$80,001 - $180,000

$17,550 plus 37c for each $1 over $80,000

Total taxable income = 168,400

Fixed Tax = $17, 550

Variable Percentage = 37c per $

Calculation

= 168,400 - 80,000 = 88,400

= 88,400 * .37 = 32,708

= Fixed Tax = 17,550

Taxable Income = 50,258

The net tax payable for Scott is $50,258.

Tax Payable for Carmen

Tax Structure for Carmen

Tax rates 2011-12 Taxable income

Tax on this income

0 - $6,000

Nil

$6,001 - $37,000

15c for each $1 over $6,000

$37,001 - $80,000

$4,650 plus 30c for each $1 over $37,000

$80,001 - $180,000

$17,550 plus 37c for each $1 over $80,000

$180,001 and over

$54,550 plus 45c for each $1 over $180,000

Taxable Income for Carmen

Expected Salary for Carmen $24,000

Total Incomes from business activities

$24,000

= $37,000 - $ 24,000 = $13,000

Taxable income for this year is $13,000; 15c applies on the taxable income

Calculation

= $37,000 - $ 24,000 = $13,000

= 13,000 * .15 = $ 1,950

= Fixed Tax = $ 0 Taxable Income $ 1,950

Question 2:

There are a number of tax strategies for business owners and salaried persons. Tax planning is required for every business at each and every step. Selection of right business structure is one of the main strategy through which a salaried as well as, a business owner can save tax and reduce headache. The main objective of a business is to advance its profits and minimize its expenses.

Firstly, Scott has the opportunity to advance loan to his own business instead of going to bank. The main advantage of advancing loan to his own business is that his net profit becomes low and therefore the net taxable amount also shows a lower picture. There are two advantages of taking this step:

The business can have the required capital without a number of legal issues.

The business can expand its growth and the owners show more involvement because directly their profits are re-invested in the business

The business can also have some tax advantage in order to expand the business. For example if the business can start a new project with this capital and ask the government to help because from developing this business a large number of people got employed the government would lower down the tax rate for certain time period for the sake of providing employment for a large number of ...