Taxation Law



Taxation Law

Introduction

Today, it has become necessary for government of a country to levy a compulsory payment on every resident of the country as to provide him with the benefits such as national defense, social security, better standard of living and overall economic growth. In order to achieve such goals, a certain sum of money is required from every resident of the country as he is a part of that economy. That compulsory payment is known as tax (Hughes and Moizer, 2005 pp. 85). Tax is levied not to put burden on any individual hence it requires a payment only when a person earns enough that he could contribute to the society. It has certain rules for different type of incomes and different transactions so that no one is taxed unfair or unjust. Person earning more can contribute more hence pays more tax. It is a payment depending on the amount of earnings of a person. Greater the earnings greater will be the amount of tax and vice versa (Barro and Sahasakul, 1986 pp.555).

Discussion

The case under discussion is an individual who works as a locksmith and rents his business premises. He is a sole proprietor running his own business with two of his employees. In this paper we will be discussing about the different incomes and expenditures of Mr. David Koslowski. Likewise other countries, Australia also has defined law for taxation. The Income Tax Assessment Act (ITAA) is followed all over Australia. According to ITAA, income tax is levied upon “the taxable income derived during that tax year by any person”. In case of a real person, different to a natural person in the capacity of a trustee, tax is imposed on taxable income of that year of that person in accordance with Income tax (Individuals) Act applicable to that year, at rates declared by the Income tax (Rates) Act. In case of a company, it is a separate legal entity, incorporated within the country or major of its management and control is available in the country then it is termed as a resident company or else otherwise a non resident company.

A company, other than a company that comes in the capacity of trustee, tax is imposed on taxable income of that company by the Income Tax (Companies, Superannuation funds and Corporate Unit Trusts) Act applicable to that particular year of income. A company is defined in section 6 as “an artificial body that includes all bodies or associations, corporate or incorporated, but does not include partnerships”. Section 95 describes the calculation of taxable income of a person or a company other than a trustee. A year of income is defined in section 6 of ITAA which states that in relation to the company (except a company in the capacity of trustee), a financial year next preceding the next taxable year, or the accounting period, if any as adopted under section 18 of the Income tax Assessment Act in lieu of that financial year (Australain Taxation Office ...