# Calculating Income Tax Payable Assessment – Australia.

Subject Code & Title: Calculating Income Tax Payable
Question 2 – Calculating income tax payable
Calculate Elizabeth and Kane’s total tax liability (including Medicare).
Their financial situation is as follows:
1.Elizabeth’s salary is \$170,000 p.a. In addition to this, her employer pays the superannuation guarantee contribution on her behalf.
2.Kane earns \$90,000 salary as well as a taxable allowance of \$30,000. His employer pays superannuation guarantee on his salary (but not the taxable allowance). Kane salary sacrifices an additional \$12,000 to superannuation.
3.Kane and Elizabeth both earn rent from a jointly owned investment property of \$20,000 p.a. (combined) and have an interest only loan of \$150,000 (combined) on this property at an interest rate of 5% p.a.
Calculating Income Tax Payable Assessment – Australia.

4.Elizabeth owns an Australian share portfolio valued at \$50,000, paying 4% dividends,which is 70% franked.
5.Kane owns a cash management account valued at \$50,000 paying 5% interest.
6.Kane has income protection insurance owned personally (non super annuation) with an annual premium of \$3,000 owned and paid by him personally.
7.Kane has a gross, nominal capital gain of \$7,000 from the sale of shares owned for 2 years (this is before any CGT discount).
8.Elizabeth donated \$2,000 to a charity, which is a tax-deductible gift.
9.Elizabeth and Kane have private hospital insurance cover in place.

Calculate the tax payable for each of Elizabeth and Kane. Your response should include calculations to show:

1. Assessable income
2. Deductions
3. Taxable income
4. Income tax payable
5. Medicare levy
6.Tax offsets
7.Final income tax payable

Round all figures to the nearest whole dollar.

Use the following table as a guide. You may need to add rows to complete your answer.
Show your workings. Full marks will not be awarded if workings are not provided.

Question 3 – Concessional and non-concessional superannuation contributions

a. Keith is age 35 and earns \$110,000 p.a. His employer contributes 12% of this salary to his nominated superannuation fund each year (this includes the employer’s mandatory superannuation guarantee contributions). Keith would like to salary sacrifice additional contributions into superannuation.
i. Describe, in your own words how salary sacrifice to superannuation works, including from a cash flow and taxation perspective?
ii. What is the maximum amount that Keith can salary sacrifice to superannuation to stay within the concessional contribution limit? Show your workings

b. Sonia contributed \$110,000 to superannuation as a non-concessional contribution in 2021/22.
iii. Outline the non-concessional contribution bring forward rules in your own words
iv. Determine whether Sonia can contribute a further \$150,000 in 2021/22.

Show your workings. Full marks will not be awarded if workings are not provided.

Question 4 – Superannuation contributions
Margaret, who is 67 years old, is employed by Exotic Cars Limited to show clients around the manufacturing plant. An accident at work has meant she has had to reduce her working hours to 10 hours per week. Her income for the year will be about \$30,000.

a. The level of superannuation contributions her employer is legally required to contribute on her behalf?
b. Specific types and amounts of additional superannuation contributions Margaret can make to superannuation?
c. What specific taxation and Government incentives/ concessions are available on the above superannuation contributions?

Show your workings. Full marks will not be awarded if workings are not provided.

Calculating Income Tax Payable Assessment – Australia.

Question 5 – Estate planning- dying intestate
Shaun and Dimity are in their mid-fifties and have three children from their marriage:
Matthew, aged 23; David, aged 17; and Isobel, aged 15. Shaun has been married before and has one child from that marriage — Annabel, aged 26. Annabel has no contact with her father and blames him for the financial hardships that her mother has experienced since their divorce.

Shaun is employed as an architect while Dimity is a fashion consultant. The couple’s assets, at current market value, consist of the following:

The couple raises the following issues.

1.All of the couple’s assets are jointly owned between Shaun and Dimity.
2.The couple gave Annabel \$180 000 to establish a business 3 years ago on the basis that she has no further claim on Shaun’s estate. However, the couple is convinced that Annabel will nevertheless contest Shaun’s will upon his death.
3.Shaun’s life insurance policy is owned by Dimity.
4.Dimity’s individual superannuation fund contains a \$150 000 life and TPD policy and Dimity has decided to retain this account in order to preserve the insurance policy.Dimity completed a binding death benefit nomination 4 years ago nominating 100% to be paid to Shaun in the event of her death. Both Shaun and Dimity have completed binding death benefit nominations within their SMSF.
5.The couple each has a will in place leaving everything to each other. They have each nominated their son David as executor of their respective estates. Shaun and Dimity have appointed each other as their respective general power of attorney.
6.Dimity’s mother, aged 90, owns an apartment in Queensland. However, the mother is in an aged care facility and in bad health and is no longer living in the apartment. The mother is looking to leave the property to Dimity. The property cost \$130 000 in 1989 and has a current market value of \$510,000.
7.The couple’s son, David, has been married for the past 3 years but he and his spouse have experienced marriage problems for some time. Shaun and Dimity would like to gift David \$80 000 to use as a deposit on a house but, given the marriage problems, do not want the money to be lost in a divorce.
8.The couple would like the family assets distributed in a tax-effective manner upon their death.

Shaun and Dimity are looking to review their wills and seek some advice from you on how best to structure their estate-planning needs. You are required to analyse the couple’s situation and detail relevant issues and recommend advice that the couple should consider.

Question 6 – Estate planning- dying intestate
Paul, a single dad with three children aged 21, 11 and 9 died recently. His late wife, Winifred died giving birth to their third child.

Paul did not have a will. His estate comprises the following assets:

a. Family home: \$330,000
b.Superannuation: \$115,000
c. Cash: \$15,000
d.Family car: \$20,000
e. Art work: \$8,000

a. Describe some of the issues associated with Paul’s intestacy.
b. Outline some of the estate planning strategies that Paul could have considered if he had prepared a will.
c. What are the advantages of having a valid will in place?

Question 7 – Term life insurance premiums

ABC Insurance offer term life insurance under the following terms:
1.Guaranteed renewal
2. Cover to age 75
3. Sum insured remains constant

The indicative monthly premiums for \$1 million coverage are as follows:

a. Why do the premiums increase as the age of the insured increases?
b. In percentage terms, approximately how much more expensive is term life insurance for a smoker than a non-smoker?
c. If the renewal of the policy was at the discretion of the insurer, would you expect the premiums to be higher or lower? Why?
d. If the sum insured was indexed to CPI, would you expect the premiums to be higher or lower? Why?
e. If the term of the insurance was to age 65 rather than age 75, would you expect the premiums to be higher or lower? Why?
f. Andrea and her husband are both 45, non-smokers and considering term life insurance. Ashleigh believes she is being discriminated against by being asked to pay the same premium as her husband. Why does she hold this view? Do you agree?

Exam Resources:
Resident individuals – income tax rates 2021-22

Other non-resident individuals – income tax rates 2021-22

Calculating Income Tax Payable Assessment – Australia.

Taxation of resident minors – income tax rates 2021-22

Medicare levy thresholds – 2020-21
The full Medicare levy is 2.0% of taxable income. A reduced Medicare levy applies where taxable income is below the thresholds in the table below.

The following table does not apply if the taxpayer is eligible for Senior and Pension Tax offset (SAPTO)

*For each dependent child or student, add \$3,597
**For each dependent child or student, add \$4,496

Medicare levy surcharge (MLS) – 2020-21
Individuals and families on incomes above the MLS thresholds are liable to pay the MLS for any period during that they, or their dependents, did not have private patient hospital cover. If you have to pay the MLS, it is in addition to the Medicare Levy.

*Includes taxable income, reportable fringe benefits, total net investment losses, reportable employer super contributions, exempt foreign employment income (and certain trust income).

Calculating Income Tax Payable Assessment – Australia.

**If there is more than one dependent child, these thresholds are increased by \$1,500 for each child after the first.