Taxation : Act 1953 Imposes Assessment Answer

Describe about the Report for Taxation for Act 1953 Imposes an Obligation.

1. The Tax Administration Act 1953 imposes an obligation on the payer entity to collect tax from the payee at the time of making payment to employee or business so that they can meet their tax liability at the year-end. The term employee is not defined under TAA 1953 so Taxation Ruling 2005/16 in Para 6 states that for the purpose of section 12-35 of the TAA 1953 the term “employee” will have the ordinary meaning. The section 12-190(1) of the TAA 1953 states that an entity is required to withhold tax at the time making the payment to another entity if the payment is made for supply and if the none of the exception is applicable. The section 12-190(2)-(6) of the TAA 1953 sets out the exceptions and the primary exception as provided under the section is that if the entity quotes the ABN in the document related to the supply. The Taxation Ruling 2002/09 states that if the ABN is not quoted by the entity then it is required to withhold the payment. In the given case the company has an employee and an IT contractor that has not quoted the ABN so in both the cases the business is required to withhold the amount form payment (Woellner et al. 2016).

In the given case the business withhold $25000.00 or less therefore it is a small withholder. The small withholder is required to report and pay the withhold amount on quarterly basis. In case of employee the tax withheld amount is $2197.00. The calculation is provided in the appendix.  It is provided in the act that if a supplier does not provide the ABN then 49% of the amount should be withheld and is required to be paid in the tax office. The calculation provided below shows that the tax withhold from the suppler is $2940.00 and the total tax withheld is $5137.00.

Calculation showing Tax withhold
Particulars	Amount
Payment to Supplier	$  6,000.00
Tax withhold from supplier td>	$  2,940.00
Tax Withhold form the employee	$  2,197.00
Total Tax withheld	$  5,137.00

If a business pays its employee $450 or more then the company is required to pay superannuation on the wages. The superannuation contribution should be 9.5% of the earning of the employee and it is required to be paid by the employer on a yearly basis.

2. The public listed company is required to pay multiple taxes like income tax, payroll tax, fringe benefit tax, goods and service tax, monthly instalment of BAS etc. The taxes are required to be paid on due date and it is necessary that at the due date the company should have enough cash to pay the taxes that are due. In order to avoid any shortage of cash at the due dates the company is required to adopt two fold approach of the financial management strategy. The first step is that the company should be able to correctly estimate the tax. The correct estimation is necessary because without correct estimation the tax that will be due cannot be estimated. Then the next step is that the company should develop a cash budget. The cash budget is the estimated cash inflow and outflow during a period. It is necessary because it helpful in planning the expenses so that enough cash balance is maintained for payment on due date.

 

3. In the given case the forecast of Company A is required to be prepared. The figures provided in the case for preparing forecast were all inclusive of GST and the impact of GST was required to be considered while preparing the forecast. In the section 17-15 of the Income Tax Assessment Act 1997 it is stated that in calculating the assessable income the amount that is equal to GST payable or receivable should be adjusted so that the amount receivable or payable does not include GST amount (Barkoczy 2016). The New Tax system (Goods and Services tax) Act 1999 provides that the GT rate is 10%. Therefore while preparing the forecast all the GST amounts are excluded. The calculation of forecast is given below:

 

Statement showing financial forecast of Company A
Particulars	2015 (Actual)	2016 (Forecast)
Sales Volume	333	366
Charges per client	$        2,727.27	$        2,727.27
Sales	$    908,181.82	$    999,000.00
Less: Expenses
Utilities	$      (1,818.18)	$      (1,872.73)
Rent	$      (9,090.91)	$      (9,363.64)
Salaries	$    (50,000.00)	$    (51,500.00)
Superannuation	$      (4,750.00)	$      (4,892.50)
Advertising	$          (909.09)	$          (936.36)
Water	$          (400.00)	$          (412.00)
Net profit Before Tax	$    841,213.64	$    930,022.77
Tax (30%)	$ (252,364.09)	$ (279,006.83)
Profit After Tax	$    588,849.55	$    651,015.94

4.

The benefit that is provided to the employer by the employee in addition to the salary or wages is termed as fringe benefit. The fringe benefits are guided by the legislation Fringe Benefits Tax Assessment Act 1986. The section 7 of the FBTAA 1986 states that it is considered as car fringe benefit if the employer provides car facility to the employees that are used by the employee for personal use (Taylor and Richardson 2013). The taxable value of car fringe benefit can be calculated by using statutory formula as provided in section 9 of the FBTAA 1986 or operating cost basis as provided in section 10 of the FBTAA 1986. The calculations of the value of the car fringe benefit are given below:

Statutory Formula Method
Statement showing value of Car fringe benefit
Particulars	Amount
Cost of the Car	$  50,000.00
Statutory Rate	20%
Number of days the car was used for private purpose	90
Number of days in the FBT year	365
Taxable Value of the Car Fringe Benefit	$    2,465.75

 

Operating Cost Method
Statement showing value of Car fringe benefit
Particulars	Amount
Registration	$    1,000.00
Insurance	$    1,000.00
Fuel	$    5,000.00
Total operating Cost	$    7,000.00
Total Kilometer Travelled	10000
Total Kilometer travelled for business use	8000
Total kilometer travelled for personal use	2000
Private use percentage	20%
Taxable Value of the Car Fringe Benefit	$    1,400.00

Advantages & Disadvantages

There are two methods of computing taxable value of car fringe benefit and each method has its own advantages and disadvantages. The advantage of the statutory method is that under this method a detailed record keeping is not necessary. The disadvantages of the statutory method is that as the taxable value of the fringe benefit is computed based on the cost of the asset so generally the value is more than the other method. The other method is the operating cost method and under this method, the advantage is that the taxable value computed is generally less than that of statutory method (Snape and De Souza 2016). The disadvantage of the operating cost method is that under this detailed record is required to be maintained.

Recordkeeping

The record keeping requirement varies between the statutory method and the operating cost method. The general requirement states that reasonable record should be maintained in English so that FBT could be assessed. The records are required to be maintained for five years for the purpose of FBT as per section 135F of the FBTAA 1986.  The logbook is required to be maintained if the operating cost method is used for calculating the value of car fringe benefit. If the logbook is not used then the odometer should be used for record keeping (Saad 2014). In the statutory method, maintaining logbook record is not mandatory.

5. The Tax system in Australia is a mix of direct and indirect tax and it is levied by the both the state government and commonwealth government. The company that has a turnover of $50000000.00 per month and employs more than 100000 employees is required to pay a number of taxes. The taxes that are applicable to the company are provided below:

Income Tax

The company is required to pay tax on assessable income under Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997. The tax rate that is applicable is 30% .

Capital Gain Tax

The companies are required to pay taxes on all gains made by the company by selling assets of the company. The CGT is not a separate tax but is assessed under Income Tax Assessment Act 1997.

Goods and Service Tax

The GST is applicable on most of the goods and services including goods that re imported in Australia. The tax is applied at the flat rate of 10% and is governed by the legislation A New Tax System (Goods and Services Tax) Act 1999.

Fringe Benefit Tax

The FBT is applicable to the non-cash benefits that are provided by the company to the employees. This tax is governed by the legislation of the Fringe Benefit Tax Assessment Act 1986 and a flat rate of tax 49 % is applied.

Custom Duty

The custom tax is imposed on all goods that are imported in Australia. The company is required to pay tax on imported goods under the Custom Act 1901.

Excise Duty

The excise duty is imposed on the goods that are produced or manufactured in Australia. The company that are producing or manufacturing goods in Australia is required to pay excise tax under Excise Act 1901 and Excise Tariff Act 1921.

Stamp duty

The company is required to pay stamp duty on certain transfer of property as per Stamp Duties Act 1923.

Pay roll Tax

The payroll tax is imposed on the employer if the employee is paid above the threshold limit. The tax rate is generally 3% to 7% based on the Pay roll tax act.

The important lodgment dates for the companies for the financial year 2016 is given below:

• The Income tax return is to be lodged by 28^th February 2017.
• The businesses that have employees is required to submit the payment summary by 14^th July 2016.
• The company is required to lodge a “Pay As You Go” withholding annual report by 14 August 2016.
• The quarterly super annulations contribution should be paid by 28 July 2016.
• The quarterly GST return is due on 28 July 2016.
• The monthly GST return should be paid on the 21^st of the next month.

6.

Calculation showing  payroll tax liability for the month of August
Particulars	Amount	Amount
Annual Wages	$        1,000,000.00
Monthly wages (A)		$         84,932
Less
Threshold	$           750,000.00
Number of days employing	$                      31.00
Number of days in period	$                    365.00
Threshold for the month of July (B)		$       (63,699)
Balance (A-B)		$         21,233
Rate of tax		5.45%
Tax Payable		$            1,157

7.

The Tax agent service is governed by the multiple legislations that includes Tax Agent Service Act 2009, Tax Agent Service Regulations 2009, Tax Agent Service (Transitional Provisions and Consequential Amendments) Act 2009 and Tax Laws Amendment Act.   The registration and regulations of the tax agents, BAS agents and financial advisers are included in the Tax Agent Service Act 2009 (Cooper 2016). The qualification and the experience requirements of the agents are included in the Tax Agent Service Regulation act 2009. The Regulation 7 of the act states that in order to become a BAS agent an individual is required to satisfy at least one requirement of Division 1 of Part 1 of schedule 2. The Regulation 8 of the Act states that in order to become eligible for becoming tax agent an individual is required to satisfy the requirement of Division 1 of Part 2of Schedule 2. In order to become the financial adviser an individual is required to fulfill the conditions that are provided in the Division 1 of part 3 of Schedule 2 as per the regulation 8A of the TASRA 2009. An individual can register as a tax agent through any of the option provided in item 201to 206 of the schedule 2. This items are:

• As per item 201 accountancy qualification and experience of 12 months in last 5 years;
• As per item 202 qualification in other disciplines and experience of 12 months in last five years;
• As per item 203 higher qualification in accountancy and experience of 2 years in the last 5 years;
• As per item 204 qualification in law and experience of 12 months in the last 5 years;
• As per item 205 the work experience of 8 years in last 10 years;
• As per item 206 the member of a professional body and experience of 8 years in last 10 years.

The registered tax agent is only allowed to prepare and lodge tax return and charge fees. Therefore any individual not registered with ATO cannot charge fees for the preparing and lodging tax return. On the basis of the analysis it can be said that the staffs that are not registered but lodging and preparing tax return is violating the Australian taxation regulation (Richardson et al. 2013).

8. The Fringe Benefit tax is the tax that is applied if the employer provides non-cash benefit to the employee and it is governed by the Fringe Benefit Tax Assessment Act 1986. The section 58X of the FBTAA 1986 states that benefit that are provided to the employee for work related items are exempted from the FBT (Richardson et al. 2013). This work related items include electronic device, computer software, protective clothing, briefcase, tools of trade. In the given case, the company A has provided the staff a phone and laptop for work related use therefore this are exempted FBT.

The section 16 of the FBTAA 1986 states that if the employer provides interest free loan or loan at an interest rate below benchmark rate then it is considered as loan fringe benefit. In the given case, the company has provided a loan of $50000.00 to employee at an interest rate 3% but the benchmark rate is 5.95% so the company is required to pay the FBT. The calculation is given below.

The section 58H of the FBTAA 1986 the newspapers and periodicals that are used for the purpose of business is exempted from FBT. In the given case, the company has provided a magazine to the staff that is related to the business so it is exempted from FBT (Potter et al. 2013).

The section 39A of the FBTAA 1986 states that if the employer provides facility of car parking to the employee then it is taxable car fringe benefit. The section also provides various conditions that should be fulfilled before the FBT could be applied. The one of the condition for applicability is that commercial car parking facility should be available within one kilometer. In the given case the company has provided the car parking facility to the employee but as there is no car parking facility within 1 km radius so the car benefit is not applicable (McKerchar et al. 2013).  

The Fringe benefit that is required to be shown in the PAYG summary is $1551.24. The calculation is given below.

Statement showing calculation of FBT liability
Particulars	Amount
Loan Fringe Benefit
Loan amount	$  50,000.00
Benchmark interest rate	5.95%
Interest rate charged by the employer	3%
Interest rate considered as Fringe Benefit	2.95%
Taxable Value of Loan Fringe Benefit	$    1,475.00
Gross Up rate	2.1463
Fringe Benefit Taxable amount	$    3,165.79
FBT rate	49%
FBT liability	$    1,551.24

9.

The Business Activity Statement is a tax reporting requirement that is issued by the Australian Tax office on a monthly or quarterly basis to the business. The BAS is useful for reporting and paying tax such as Goods and Services Tax, PAYG and other tax liability. If there is not enough cash to pay it is still advisable to lodge Business Activity Statement within the due date and the payment can be made later (Oats 2012). Then in such case the company will have pay interest on delay in payment but the penalty for non-submission of BAS within due date can be avoided. In the given case the profit of the company has drooped so it does not have enough cash for payment of tax. Therefore in this case it is advised that the BAS should be lodged within due date and the tax can be paid at the later stage.

10. The BAS is required to be lodged on monthly or quarterly basis and there are various mistakes that are made in the process which are given below:

• It is important to identify whether cash or accrual basis of accounting is adopted so that correct report could be printed;
• At the time of preparing the quarterly BAS the wages for one month is required to be declared;
• The sales amount should be GST free;
• It is advised that the PYAG instalment amount should not be varied without proper consultation of the management;
• The BAS should be lodged within the deadline;
• The PYAG and the GST should be reconciled;

The preparation of BAS is a complicated process so it is advised that management should follow the strategy of closely working with the bookkeeper and the accountant to ensure that the BAS is correctly lodged (Burton and Karlinsky 2016).

Reference

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Burton, H.A. and Karlinsky, S., 2016. Tax professionals’ perception of large and mid-size business US tax law complexity. eJournal of Tax Research,14(1), pp.61-95.

Cooper, G.S., 2016. Implementing BEPS, or Maybe Not-the Australian Experience One Year On.

McKerchar, M., Bloomquist, K. and Pope, J., 2013. Indicators of tax morale: an exploratory study. eJournal of Tax Research, 11(1), p.5.

Oats, L. ed., 2012. Taxation: a fieldwork research handbook. Routledge.

Potter, B., Ravlic, T. and Wright, S., 2013. Developing accounting regulations that reflect public viewpoints: The Australian solution to differential reporting. Australian Accounting Review, 23(1), pp.18-28.

Richardson, G., Taylor, G. and Lanis, R., 2013. Determinants of transfer pricing aggressiveness: Empirical evidence from Australian firms. Journal of Contemporary Accounting & Economics, 9(2), pp.136-150.

Richardson, G., Taylor, G. and Lanis, R., 2013. The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), pp.68-88.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press.