TAXATION LAW

What is a taxation law?

TABLE OF CONTENTS

TOPIC                                                                                                          PAGE

INTRODUCTION……………………………………………………………………………..3

CALCULATION OF ADJUSTED TAX BENEFIT…………………………………….3

OPINION ANALYSIS…………………………………………………………………………4

CONCLUSION………………………………………………………………………………….5

REFERENCES……………………………………………………………………………………6

INTRODUCTION

Income tax is a major source of income to the government and therefore in its efforts to enhance compliance and equity it ensures that all those with multiple sources of income are taxed. This will ensure that it is able to provide all the required services to the public and be able to meet its budgetary obligations.

Adjusted taxable income is used in situations where there is only one main income earner in a household and the other partner stays at home to offer parental care to the child. The income from the main earner undergoes an income test and if it qualifies they become entitled to the taxable benefits B(Pewson, n.d). For the income from the main earner to undergo the income test, various considerations are made especially on the other benefits apart from the main income. They include  fringe benefits, tax free pensions or benefits, expected foreign earnings plus other expected earnings which if not considered , the tax payer will have been treated unjustly. These benefits when considered will definitely alter the amount of tax liability to the earner and it enhances equity in the tax administration system.

CALCULATION OF ADJUSTED TAXABLE INCOME

The taxable income is the amount indicated by a tax payer on the tax return form. This is normally done every year and its therefore important to make sure that one files the returns in time. The adjusted taxable income is calculated as follows; all the following benefits are first calculated and added to the taxable income; adjusted fringe benefitsx0.535, tax free pensions or benefits, target foreign income, any super contributions, net investment loss; then from the derived total you less any child maintenance expenditure. The net amount from this is the adjusted taxable income.  Fringe benefits are the benefits provided to employees by their employers in recognition of their service to the company. They include private cars, low interest rates on loans, house allowances and even medical cover. These benefits range from employer to another. Net investment losses results if the deductions for financial investments are more than the gross income from those investments for the period of one year. There is rental property loss if the total income from a property is less than the total deductions from the property. These losses are added together and they are referred to as the total net investment losses. Tax free pensions include disability support pensions, wife pensions, partner service pensions, income support supplement and defense income support allowance.

Adjusted income taxable income is used to ensure there is equality in the tax system. If it is not used the other residents or non residents who do not receive any additional benefits either from within or outside will be at a disadvantage in comparison with others. Therefore to ensure equity and compliance with the relevant laws, these benefits must be taxed.

OPINION ANALYSIS

To those who are earning above 150,000 dollars per annum, they lose the tax benefit B because it is not applicable to anyone earning above this amount. Therefore if as suggested by the union spokeswoman the employers can agree to give non cash benefits to their workers, they will benefit because they won’t have to spend on the offered services like train tickets. This will ensure they have more disposable income. Also most of the non cash benefits will not add any tax liability to the employees. They will therefore end up with low taxable incomes which mean their tax liability will also be low. The inclusion of non cash tax benefits will also guarantee majority of these workers qualification because they will all be within the required threshold of 150,000 dollars per annum unless one gets promotion to higher income grades.

The workers through their union must come to agreement with their employers on the actual amounts payable for each category of fringe benefits. This means that the employers will bargain hard to offer low value for the benefits to ensure that the employees remain within the required thresh hold to qualify for the tax benefit B.  This can be counter productive because the levels agreed with employers may be so low such that they will leave the employees worse off. Also some of the benefits incorporated in the income test like foreign income cannot be controlled or negotiated on. If the employer offers non cash benefits and the foreign earnings to an employee increase and make the adjusted taxable income go beyond the 150,000 dollar threshold the effects of the non cash benefits will have been curtailed. Therefore the proposal of non cash benefits will best be enjoyed by those who have no foreign sources of income.

CONCLUSION

The Family Tax Benefit Law aims at assisting the families which have few sources of income and this recognizes the immense duty of child support. The subjection of the income to an income test ensures that it is only those who qualify get the benefit. However it would be prudent for the authorities to consider raising the income level for those who qualify to reflect the changing lifestyle demands and requirements.

References

Pewson, F (n.d) “ The Taxation Benefits Law A and B”( Online). (Available from http://www.csa.gov.au/ (Accessed on 23rd April 2012)

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