Introduction to Taxation

Question 1

What are the two basic categories of taxes?

Answer 1

Direct taxes and indirect taxes.

Question 2

What tax number is each individual issued with?

Answer 2

Tax file number.

Question 3

What does TFN stand for?

Answer 3

Tax file number.

Question 4

What tax number is each business issued with?

Answer 4

Australian business number

Question 5

What does ABN stand for?

Answer 5

Australian business number

Question 6

How is income tax primarily adminstered?

Answer 6

Through a PAYG tax system.

Question 7

What does PAYG mean?

Answer 7

Pay as you go.

Question 8

Who do the PAYG requirements generally fall on?

Answer 8

Payers of income.

Question 9

Who are payers of income?

Answer 9

Employers, self-employed income earners and superannuation funds

Question 10

What are the different types of income?

Answer 10

Assessable income, ordinary income, statutory

income, exempt income, non-assessable non-exempt income and taxable income.

Question 11

What is medicare levy?

Answer 11

Income tax to contribute to Australia’s public health system.

Question 12

What is taxable income?

Answer 12

Assessable income - allowable deductions.

Question 13

What is taxable payable?

Answer 13

Tax on taxable income – Non-refundable tax offsets

Question 14

What is total tax payable?

Answer 14

Tax payable + Medicare levy + Medicare levy surcharge.

Question 15

What is net tax payable?

Answer 15

Total tax payable – Prepaid tax and refundable tax credits.

Question 16

Are life insurance premiums tax deductible when relating to life, TPD or trauma?

Answer 16

No, when the policy is owned by an individual.

Question 17

Are income protection policies tax deductible?

Answer 17

Yes.

Question 18

Why are income protection policies tax deductible?

Answer 18

Because they relate to earning an income.

Question 19

What type of credits are franking credits?

Answer 19

Tax credits.

Question 20

What are franking credits?

Answer 20

Investors receive tax credits (franking credits)
for dividends they receive from Australian companies that have already paid tax on
franked dividends.

Question 21

Does Australia have a progressive tax system?

Answer 21

Yes.

Question 22

Why does Australia have a progressive tax system?

Answer 22

Taxpayer’s average tax rate increase as their income increases.

Question 23

As a general rule, who is allowed tax offsets?

Answer 23

Australian residents.

Question 24

What are three conmmon offsets?

Answer 24

Low income tax offset (LITO), low and middle income tax offset (LIMTO), and the senior Australians and pensioners tax offset (SAPTO)..

Question 25

What is Adjustable Tax Income used for?

Answer 25

Income tests related to tax offsets, levies and social security payments to prevent manipulation of circumstances to achieve more favourable payment outcomes.

Question 26

Why is unearned income of resident minors subject to special tax rates?

Answer 26

TO prevent incomes from shifting income to their children.

Question 27

What is CGT?

Answer 27

Capital Gains Tax.

Question 28

When are residents of Australia liable for capital gains tax?

Answer 28

Disposal of assets wherever the asset is situated, subject to relief from double taxation if the gain is derived in another country and is taxed there.

Question 29

How is a capital gain or loss generated?

Answer 29

By an asset is determined by deducting the cost base

from the disposal value.

Question 30

What is a Fringe Benefit?

Answer 30

A fringe benefit includes any right, privilege, service or facility provided directly or indirectly as the result of an employment arrangement.

Question 31

What is fringe benefits tax?

Answer 31

Fringe benefits tax (FBT) is payable by employers’ fringe benefits they provide to their employees and their employees’ associates in place of, or in addition to, salary or wages.

Question 32

What are FBT free benefits?

Answer 32

Superannuation contributions, items used for employment, items that would normally be tax deductible by the employee, minor benefits valued
below $300, and provision of child care on the employer’s premises.

Question 33

What is GST?

Answer 33

The GST is an indirect, multi-stage tax collected at all stages of production and distribution in the supply of both goods and services.

Question 34

Who is GST levied on?

Answer 34

Consumers.

Question 35

Who collects GST?

Answer 35

Businesses on behalf of the government.

Question 36

For companies, what is income taxed at?

Answer 36

30%

Question 37

For companies, can income be retained in the company?

Answer 37

Yes.

Question 38

For companies, what are payments to directors and employees taxed at?

Answer 38

Individual tax rate.

Question 39

For companies, what are payments to shareholders taxed as?

Answer 39

Dividends.

Question 40

What are the two ways payment to shareholders can be taxed?

Answer 40

Franked or unfranked.

Question 41

What is personal services income?

Answer 41

Income that is mainly a reward for, or the result of,

a taxpayer’s personal efforts or skills and can apply to sole traders, partnerships, companies or trusts.

Question 42

What are common tax strategies?

Answer 42

Salary sacrificing, deferring income and accelerating deductions.

Question 43

Is tax evasion a crime?

Answer 43

Yes.

Question 44

What does tax evasion generally involve?

Answer 44

The concealment or falsification of facts or creation of complex structures to conceal liabilities.

Question 45

Who regulates tax practioners?

Answer 45

TPB.