Question

Outline key aspects and principles of the Income Tax Law covering concepts of: Tax Accounting, Income test definitions that include reportable superannuation and FBT, application of CGT, FBT and termination payment rules for individuals, GST.

Answer 1

Tax Accounting

Tax accounting is a structure of accounting methods focused on taxes rather than the appearance of public financial statements. Tax accounting is governed by the Internal Revenue Code, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.

Tax Accounting for an Individual

• For an individual taxpayer, tax accounting focuses solely on items such as income, qualifying deductions, investment gains or losses, and other transactions that affect the individual’s tax burden.
• This limits the amount of information that is necessary for an individual to manage an annual tax return, and while a tax accountant can be used by an individual, it is not a legal requirements.

Tax Accounting for a Business

• From a business perspective, more information must be analyzed as part of the tax accounting process.
• While the company’s earnings, or incoming funds, must be tracked just as they are for the individual, there is an additional level of complexity regarding any outgoing funds directed towards certain business obligations.

Tax Accounting for a Tax-Exempt Organization

• Even in instances where an organization is tax-exempt, tax accounting is necessary.
• This is due to the fact that all organizations must file annual returns.
• They must provide information regarding any incoming funds, such as grants or donations, as well as how the funds are used during the organization’s operation.

Other definations

1. Reportable superannuation :  

Reportable superannuation contributions, for an individual and an income year, means the sum of:

• the individual's reportable employer superannuation contributions (if any) for the income year, and
• the individual's deductions (if any) under Income Tax Assessment Act 1997 subdivision 290-C for the income year.

2. FBT ( FRINGE BENEFITS TAX)

Fringe Benefits Tax (FBT) is a tax payable by employers for benefits paid to an employee (or an employee's associate e.g. a family member) in place of salary or wages. This is separate to income tax and is calculated on the taxable value of the fringe benefits provided.

Example of fringe benefits are

A . Car

B. Car parking.

C. Low interest loan.

3. Application of CGT (Capital gain tax)

A capital gains tax is a tax levied on capital gains or profits from the sale of specific types of assets. This tax is calculated on the profits or positive difference between the sale price and the original purchase price of the asset.

4. GST ( GOODS AND SERVICES TAX)

• The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption.
• The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
• In effect, GST provides revenue for the government