Essential Concepts of Taxation Explained Clearly

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Question 1: Emmi's Total Assessable Income:

Facts Given:

• Emmi studies accounting at Holmes Institute and is also a part-time worker at Crown Melbourne restaurant (Hospitality Employees).
• Tips from customers: $335 cash
• Income through working in the Crown Melbourne restaurants: $25,000
• Expensive perfume received as a gift from a regular customer by Emmi at Christmas time:  worth $250 (She gave the perfume to her mother)
• Monthly entertainment event paid by the restaurant owner (on the meals that Emmi consumed): $380

Based on the above-listed facts, the following is the computation of Emmi's total assessable income, as follows:

Notes:

1. The receipt of tips by a hospitality employee is assessable income under paragraph 26(e) of the Act (Leave on a café table is assessable. 2019).

2. Income from working in Crown Melbourne is regarded as salary income even if Emmi works part-time in Crown Melbourne restaurant.

3. Rewards or any gifts obtained by an individual on any special event or occasion, like anniversary or birthday cash presents and gifts obtained from relatives out of love/affection (though gifts are also taxable in case the individual acquires them as part of commercial business activities or in regards to income-earning operations as employees, working staff or contractors)

4. Individuals cannot claim any deduction concerning costs of foods, drinks, or snacks consumed during normal working days, as these are regarded as private expenses.

Question 2: Capital Gains Tax (CGT) Consequences:

Facts Given:

Liu's Age is: 65 year

Australian resident but born in China: Thus residential status of Liu is “Resident”.

Liu is retiring from business and Shifting to China

Details of Assets she is selling:

Advise: As in the given case scenario of Liu, who is 65 years old, this means he comes in the category of senior citizen. Also given that he is a resident of Australia but was born in China and now wants to shift totally to China after retiring from business, so considering all such stated facts, here is some advice for Liu for tax assessment purposes, as follows:

1. Liu wants to sell her house, which was purchased by her in 1981 for $55,000, and the present worth of the house is $630,000. A notable aspect is that the house is Liu's main residence. As per provisions of the act, the main residence of any individual assessee is in general exempt from capital gains tax (CGT); assets acquired before September 20, 1985, are also exempt from CGT (CGT: Your home and other real estate, 2019). So in this case, the whole amount of capital gain will be exempt from Liu.
2. Liu also wants to sell her car, which is her vehicle. The purchase cost of a car in 2011 was $37,000, which is now worth only $8000. As per the act's provisions, the sale of a personal car is also exempt from CGT, so there is no tax liability in this event.
3. Liu is going to sell a small business enterprise named Monte Liu Photography Studio. Here first Liu should determine whether this business satisfies any criteria of small business. If a business is only run by an individual, not under a partnership contract, and the total net value of CGT assets does not exceed $6 million, then it is considered a small business. Here, the business of Liu satisfies this criterion, so this business is small. Further, there are certain exemptions available in the case of CGT on the sale of small businesses. As per the provision of the act, if a business has owned an asset for at least 15 continuous years, or if an individual is aged 55 years or over, or if an individual is retiring or permanently incapacitated, then such an individual assessee will not be liable for capital gain tax. Thus, Liu, who is 65 years old and retiring, is not liable for any capital gain tax (Capital Gains Tax for Business, 2019).
4. The furniture that Liu wants to sell is presumed to be for personal use, and the value of the furniture is $4800. As per the provisions of the act, there is an exemption available for capital gain or loss in the case of the sale of personal-use items for less than $100.00. Here in the given case, furniture is an asset of personal use as well as sold for $4800, which is less than $10000; thus, the sale of furniture is exempt from capital gain tax.
5. Paintings belong to the Collectable Items category. Here provisions of the act state that capital gain or loss in the case of an individual assessee may be disregarded if the individual purchased it for $500 or less, or if the individual acquired interest in any collectible for an amount of $500 or lower before 16/12/1995, or if the individual purchased any collectible when it's market value was $500 or lower. Here in the given case, Liu has offered to sell paintings for $28,000, which are purchased in second-hand shops or markets, and no single painting costs above $500 except paintings purchased from artists. So, capital gain concerning paintings that cost less than $500 would be exempt. However, paintings purchased from artists costing $1000 would be subject to capital gain. 

CONCLUSIONS

From the above assessment, it has been articulated that the effective application and use of different rules and regulations is significant for individual taxpayers as it helps in saving taxable amounts. Also, consideration of these rules and regulations enables individuals to handle any legal complexities and issues. The entire system of taxation in Australia is quite liberal, and individuals are taxed at progressive rates. Also in every budget as per economic growth and GDP, the government changes these rates and also declares various exemptions.

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