TAXATION ACCOUNTING

Taxation Accounting



Taxation Accounting

Introduction

Taxes on income are levied at the federal and the debate between levels of government - central and federal - on the distribution of these revenues and duplication of expenditure functions is a perennial issue in Australian politics. Australian public services are funded largely by general taxation, much of which is achieved through a tax from the income of citizens. However, in recent times, the Australian government has made significant reforms in the tax system, in order to reduce income taxes by increasing the indirect tax base and improving tax fairness (Leow, Murphy & Hooper 2009). In this paper, I compute total and taxable income of Allan Samuel Jackson, a carpenter in Australia employed by ABC Pty Ltd.

Total and Taxable Income for James

In computing the taxable income for Mr Allan Jackson, we must first categorize and total his total income for the year 2011-2012. Also, we need to consider his pay-as-you-go summary that provides a brief description from his employer regarding the source tax deductions and payments by his employer. The following table provides the PAYG summary of Mr. Allan:

PAYG PAYMENT SUMMARY -

For the year ended

30 June 2011

Tax File Number: 123 456 489

Reportable Fringe Benefits

NIL

TAXPAYER'S NAME:

Allan JACKSON

Address

151 Hill St, Hillsdale NSW 2040

Salary Sacrifice Amounts

NIL

Payee

ABC PTY LTD

ABN: 12 111 121 112

Total salary & wages paid

Forty eight thousand five hundred and sixty five dollars

$48565

PAYG deducted from salary

Twelve thousand one hundred and forty-four dollars

$12144

Other amounts deducted from salary

Union fees

Registration fees

$330

$185

As seen from the above table, ABC Pty Ltd. gives $48565 in salary and wages to Mr. Allan. However, the employer deducts $12144 from this gross amount so that Allan's tax is deducted at the source. This gives a net take home income of $36421 from his employer. Mr. Allan's salary and wages were also adjusted for union fees and registration fees, with amounts $330 and $185 respectively. Given the summary of the PAYG and the related tax deductions, I move now towards calculation of client's income and expenses from sources other than ABC Pty Ltd. These are presented in the table given below:

Items of Income/expenses

Working

Taxable income/expense

Franked Dividends

1172/0.7=1674*30%

502

Mobile Phone (80% work related)

110*80%=$88per month 88*12

1056

Income Received

Amount

Expenses

Amount

Bank Interest from Commonwealth Bank

$655

Mobile Phone

$112

Dividends from Telstra (30% taxable)

$1172

Steel Capped boots- lost receipt

$70

Interest from Mother's estate in England net of Foreign tax paid of $50

$550

Materials, Nails, Glue etc

$338

Rental Property Income

$ 15860

Ladder

$ 1200

Overtime meal allowance (24 days @ $15 per meal)

$360

Last year's tax return preparation fees

$250

Donations to Red Cross

$120

Medical claims (Expenses= $6758, Medicare refunds = $3543)

$3215

Traveling ($2080+$420+$360+$465 ($400*12)+ $1256

$9381

Rental expenses

$1510

Interest on Mortgage

$15259

Refinanced loans ($12000 + $5400 + $1257+ $152+ $2320)

33129

Miscellaneous ($560+$1710+$1810+ $242+$112)

21129

Covered Floor Boards

$6500

Total Income

$18237

Total Expenses

$75804

As the above table suggests, the total income from others sources was $18237. Also, Allan incurred various expenses some of which are exempt from taxes. In the following table I calculate the exempted items appearing in the expenses part of the table, since these expenses will net off the total income from other ...