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Anushka (an Australian Tax resident) works as an employee for a child care centre, Brilliant Kids Pty Ltd, on a permanent part-time basis while she runs her business as a day carer for her own customers
Anushka (an Australian Tax resident) works as an employee for a child care centre, Brilliant Kids Pty Ltd, on a permanent part-time basis while she runs her business as a day carer for her own customers. Meanwhile, she invested some of her extra cash in some shares on the ASX and in an Australian private company. Listed below is the summary of her earnings for the year ended 30 June 2020. Particulars $ Net Salary Received from Brilliant Kids for the year (Tax paid by company to ATO during the year is $29,000) 81,000 Net Business Profit as a sole trader (Day Carer) 30,000 Allowable Deductions on Employment (Uniforms, Laundry, Shoes) 5,000 Fully Franked Dividend 7,000 Unfranked Dividend from a private company 1,200 HA3042 Taxation Law Individual Assignment T2.2020 Required: Calculate Anushka’s taxable income and net tax payable (Ignore Medicare Levy and Medicare Levy Surcharge if any)
Expert Solution
Franked dividend is the dividend which has tax credit attached while an unfranked dividend has no tax credit.
A franked dividend allows 30% credit to it’s recipient which means only the rest 70% of such dividend gets taxed since that 30% has already been paid by the employer company.
While computing taxable income, such franked dividend is grossed up to full 100% and subsequently 30% of the gross amount is allowable as deduction to the assessee.
COMPUTATION OF TAXABLE INCOME AND NET TAX PAYABLE OF MS ANUSHKA
|
PARTICULARS |
AMOUNT ($) |
|
Income from Salary |
81,000 |
|
Business Income |
30,000 |
|
Dividend Income: Franked Dividend received (Grossed up) (7000 ÷ 70%) |
10,000 |
|
Unfranked Dividend received |
1,200 |
|
GROSS TOTAL INCOME |
122,200 |
|
LESS: ALLOWABLE DEDUCTIONS: |
|
|
Franked credit allowed (30 % of 10,000) |
(3,000) |
|
Employment (Uniforms, Laundry and shoes) deduction |
(5,000) |
|
TAXABLE INCOME |
114,200 |
|
Total Tax liability (Working Note) |
29,751 |
|
Less: Taxes paid by the employer company |
(29,000) |
|
NET TAX PAYABLE BY MS. ANUSHKA |
$ 751 |
Working Note:
Taxable Income = $ 114,200
As per Australian Income Tax slab rates;
Upto $ 18,200 = NIL
$18,201 - $ 37,000 = 19% i.e 19 % of 18,800 = $ 3572
$ 37,001 - $ 90,000 = 32.5% of 53,000 = $ 17,225
$90,001 - $ 114,200 = 37% of 24,200 = $ 8,954
Hence Ms Anushka’s total tax liability = $ 29,751
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