Taxation Part 4 Flashcards
What are progressive taxes?
The tax rate increases as the income increases
What are proportional taxes?
The same percentage of tax is levied for all taxpayers, regardless of income or profit
What are regressive taxes?
The same dollar amount of tax is paid by all taxpayers. which results in taking a larger percentage of income from a low-income person than a high-income person
Why is income tax a progressive tax?
The higher your individual income, the greater the percentage of tax you must pay
Why is company tax a proportional tax?
The same rate of tax is used for all companies, regardless of the profit earned
Why is the GST a regressive tax?
A low income earner will pay the same amount of GST on the same item as a high income earner
What are some examples of progressive taxes?
Income tax, medicare levy, capital gains tax
What are some examples of regressive taxes?
Property rates, payroll tax, stamp duty, land tax, GST, fringe benefits tax, customs duty, excise and departure taxes
What is income?
The amount of money earns from personal exertion and investments
What is assessable income?
Gross income on which income tax must be paid, before any deductions are allowed
What is included in assessable income?
Salary, wages, dividends, interest, rent, net capital gains, allowances, welfare benefits and tips
What is exempt income?
Income which is non-assessable and no income tax is payable on
What is included in exempt income?
Gifts, pocket money, inheritance, prize money, lottery winnings
What are deductions?
Money you spend to enable you to earn income, such as stationery, equipment, electricity and tools
How do you calculated taxable income?
Assessable Income - Allowable Deductions
What is a payment summary?
Advice given to you at the end of the financial year by your employer showing your earnings during the year
What does to substantiate a claim mean?
To produce records such as receipts to support your claim
If a person has a hobby outside of their regular job, how is any income they earn from that classified?
Any income is not regarded as assessable income
What would be some examples of assessable income for an electrician?
Salary, travel allowances, dividends and interest
What would be some examples of allowable deductions for an electrician?
Overalls, TAFE course, tools, travel expenses and union fees
What is the criteria for something to be an allowable deduction?
You must have incurred the expense in the course of earning your assessable income and it cannot be a private or domestic expense
What are some examples of private deductions?
Normal travel to and from work every day and buying lunch
What do allowable deductions do to your tax and what is the tax saving based on?
They reduce the amount of tax you need to pay, and the tax saving is based on your marginal tax rate
What happens when you claim $500 in deductions?
You will not get a $500 tax saving, your taxable income will be reduced by $500
