Income Tax Basics Flashcards
What is the calculation to work our your income tax (income tax liability)?
Income Tax liability = (Taxable income x rate) - tax offsets
What is the authority for the income tax equation?
Section 4-10 of the ITAA 1997
What is taxable income?
Taxable income = assessable income - deductions
What is the authority for the taxable income equation
Section 4-15(1) ITAA 1997
What is assessable income?
Ordinary and statutory income
What is the authority for the assessable income definition?
Section 6-1(1) of the ITAA 1997
What is the section for ordinary income?
Section 6-5(1) ITAA 1997
What is the section for statutory income?
Section 6-10 ITAA 1997
What is the section for deductions
Division 8 ITAA 1997
Where do you find the tax rates?
Income Tax Rates Act 1986 (Cth)
What is the case for determining whether a person is carrying on a business?
Ferguson v. Federal Commissioner of
Taxation 79 ATC 4261
What is the definition of a business? Also cite the authority
Includes “any profession, trade, employment,
vocation or calling, but does not include
occupation as an employee” - s 995-1(1)
What are the factors which were held in Ferguson to be relevant to determining whether an individual is ‘carrying on a business?’
- Nature of activities - commercial or hobby
- a profit-making purpose exists
- profit is made from activities
- repetition and regularity of activities
- organisation of activities in a business like manner, i.e. keeping of records, use of a system
- time engaged in activities
- volume of operations - size and scale; and
- amount of capital used
What are the broad steps for calculating the income tax liability
- calculate taxable income
- calculate income tax
- calculate medicare levy
- calculate tax offsets
- calculate credits
- calculate income tax liability
Provide an example of what the entire income tax liability formula would look like
Income tax liability = (taxable income x rate) + medicare levy - (tax offsets and credits)
