Question

Joseph is a UQ graduate and tax adviser with his own private practice, Joseph Smith Tax Advisory Services. He is single and has no private patient hospital in surance For the 2018-2019 income year, his practice's tax records show the following: Turnover for services provided to clients and bank interest received on business bank account, assessable income for tax purposes Tax deductible expenses: Rent, council rates and taxes, electricity and telephone Tax deductible expenses: Salaries paid to staff Tax deductible depreciation: Division 40 capital allowances on computers, furniture and other assets used in the business $1,230,000 $235,000 $650,000 $45,000 During the income year, Joseph transferred PAYG payments of $110,000 to the ATO as prepayment of his 2018-2019 income tax liability arising from his practice. During the 2018-2019, Joseph was also employed part-time at a listed company. His payment summary for the 2018-2019 include the following: Gross salary Reportable fringe benefits (but not assessable income) PAYG withheld from salary $35,000 $10,000 $5,000

Answer 1

Firstly, calculation of gross total income has to be done as per US Taxation 2018

Assessable income from business $1,230,000

Less : Expenses allowed electricity, etc:    ($235,000)

Less : Salary Paid ($650,000)

Less : Depreciation allowed ($45,000)

Income from Business $300,000

Income from House Property

Rent $20,000  

Less : Deductible expense ( $25,000)

Loss from house property ( $5,000 )

Income from Salary

Gross Salary $35,000

Fringe benefits ( not assessable ) -

Income from Salary $35,000

Income from Dividend ( fully taxable ) $7,000

Total Taxable Income $337,000

Tax shall be computed as follows

Standard deduction $12,000

Remaining income $337,000 - $12,000 = $325,000

$0 - $9,525 @ 10% = $952.5 i.e. on $9,525

$9,526 - $38,700 @ 12% = $3,501 i.e. on $29,175

$38,701 - $82,500 @ 22% = $9,636 i.e. on $43,800

$82,501 - $157,500 @ 24% = $18,000 i.e. on $75,000

$157,501 - $200,000 @ 32% = $13,600 i.e. on $42,500

$200,001 - $500,000 @ 35% = $43,750 i.e. on $125,000

Total $89,439.5

Further FCIA on Salary income

Social Security Tax rate employees = 6.2% on $35,000 = $2,170

Medicare Tax Rate = 1.5% on $35,000 = $525

Total FICA = $2,695

Total TAX = $89,439.5 + $2,695 = $92,134.5

TAX Already paid as advance to ATO = $110,000

Tax credit or rebate available = $110,000 - $ 92,134.5 = $17,865.5

Also franking credit of $3,000 can be carried forward and be claimed next year, or can be added for rebate in the current year as making total rebate = $17,865.5 + $3,000 = $20,865.5

Working Notes:

• Assumed all of the expenses provided in business income are fully deductible.
• PAYG under salary is not for FICA purposes.
• Since Mr. Joseph is single all the tax rates considered are for single tax payer.
• Loan balance outstanding $8,000 is not important as no standard deduction or credit available.
• Franking credit can be availed in current year or can be carried forward for next year.
• Loss of house property can be set off from advisory services business, in case Mr. Joseph does not want so, he can carry forward it to next assessment year.
• All the calculations are based on tax rate of 2018 of US Taxation.