Question

URGENT!!!
Jamee is a resident tax payer. For the year ended 30 June 2020 he recived:

- Gross salary of $82,000 from which PAYG of 20,100 had been withheld.

- Net interest of $745 afterTFN with holding tax of $715 had been withheld.

- In September 2019, Jamee received $1,100 as his share in winnings from a punters club with his work colleagues.

- In Jan 2020,he received a holiday valued at $3,400 from his employer for achieving the highest sale in the previous year.

- In June 2020, Jamee’s employer announced that he would be giving Jamee a pay rise effective from 1 April 2020. He is therefore to receive backpay of $2000 of which $1000 will be paid on 27 June 2020 and the remaining of $1000 will be paid on 4 july 2020.

-Dividend of $12,000 deposited to his bank account in May 2020 in respect of 70% franked Australian dividend. ( company tax rate 30%).

- Interest on term deposit with a Swedish bank  of $3,600 (10% withholding tax had been deducted).

a. Advise Jamee how each payment would be treated, provide relevant section, case law and other supporting evidence.

b. Calculate Jamee’s assemble income for the current year ended 30 June, 2020.

Answer 1

Answer:

The gross salary and PAYG

When Jamee's employer makes payments to him, he needs to withhold an amount from the payment and send it to the Australian Taxation Office (ATO).

This is called PAYG withholding, and this will work to prevent Jamee and other workers from having a large amount of tax to pay at the end of the financial year.

Out of the $82,000 that the employer gave to Jamee, $20,100 had already been deduct from the amount and sent to Australian Tax Office.

.

TFN withholding tax

If your bank does not have your tax file number (TFN), it will withhold tax from your interest at the highest marginal tax rate.

However, Jamee can claim a credit for the extra amount of tax withheld when he lodges his tax return.

Winnings

When you receive an amount of money from a gambling activity, the amount is usually not assessable income unless you are a professional gambler.

Jamee does not have to include his share of winnings as assessable income.

Taxation Ruling IT2655 - Income tax: betting and gambling

.

Back pay

The back pay payment made no more than 12 months after accrual, the gross amount of all payments is assigned to gross payments; the amount withheld is assigned to the total tax withheld.

Because Jamee received the second payment the next financial year. He will have to include the first payment of $1,000 to his gross salary.

.

Partially franked dividend

Because the dividend tax is partially paid, Jamee has to include both the divided amount and the franking credit as assessable income. Again, he will be required to add or he may offset the credit difference with his marginal tax rate.

.

Interest on a term deposit with a Swedish bank

Jamee will need to include the credit income as assessable income; he may offset the tax difference.

.

A holiday he received

The amount will be considered as fringe benefit and fringe benefits tax will apply

FBT is paid by employers on certain benefits they provide to their employees or their employees' family or other associates.

Jamee will not include the amount as his assessable income.

.

Jamee's assessable income for the current year ended 30 June 2020.

Item                                                               amount

Gross income+                                             $83,000

Back pay

Interest with TFN withholding                       $1460

Franked dividend +                                      $15,600

Franking credit

Interest from Swedish bank +                    $3,960

Withholding

Total assessable amount                            $104,020

.

Workings:

Dividend of $12,000 in respect of a 70% franked Australian dividend

Dividend - $12,000

Franking credit

($12,000 x 30% / 70%) x 70% = $3,600

.

Interest from Swedish bank withholdings

Interest - $3,600

Withholding

$3,600 x 10% = $360