Australian Income Taxation: Salary and Wages Research Paper

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Introduction

The Australian taxation system mainly depends on the income tax for most of its revenue. The income tax in Australia is applicable to three types of sources. The personal earnings of an individual, which include the wages and salaries, are taxed. Revenue from businesses is also liable to some tax known as an income tax. The last source of income is a capital gains tax which is got when “selling assets such as real estate, shares or managed fund investments” (Australian Government n.d.).

All together, these sources of tax accumulate sixty-six percent of the government revenue. It also makes up fifty-seven percent of all the revenue of the tiers of the Australian government. The assessable income in the Australian taxation system is the income that is liable to taxation (taxable income). Although the income is assessable, it might not be payable on some condition. This condition is that, if the income for the year that ends on 30 June is not more than the required threshold that is tax-free, the tax is not payable (Ingles, 1981). The types of assessable income include business profits, salaries and wages, interest from the bank accounts, dividends and other incomes from investments, overtime and bonuses received by employees, rent, pensions and commissions offered to salespersons.

Tax on Wool and Twine Pty Ltd

Wool and Twine is a company that seeks to expand into the Australian market. The company has been carrying out its business exclusively in New Zealand until 30 June 2010 (Dockery, 2006). Since the owner is looking at setting up this business in Australia, he should be aware of the Australian taxation system. This is a business and, therefore, a source of income for the individual taxpayers who own the company (Andrew, 2007). This source of income can be included in one of the categories of taxable incomes in the Australian taxation system which is in the business income category.

Income received from companies in Australia is liable to tax. This is usually set at a flat rate of 30%. Wool and Twine Company would be liable to income tax and this would be applicable to its taxable income. Although the income is assessable, it might not be payable on some condition. A person’s income within the financial year must exceed the threshold in order not to be liable to tax (tax exemption). During the calculation of the taxable income, the allowances are deducted against the income that is to be taxed.

A company can be categorized in three criteria in order for it to be considered as an Australian resident for taxation purposes. A company only needs to fall in any of the three criteria. The first criterion states that the company should be incorporated in Australia. The second criterion mentions that the central control department and management of the company are supposed to be in Australia (Gittins, 2009). According to the last criterion, the company is to be under the control of resident shareholders from the country (Australia). The Wool and Twine Company falls under the first criterion since it is incorporated into Australia for business purposes.

Tax on salary and wages

The Australian taxation system imposes three types of taxes on the salaries and wages. These are the personal income tax, payroll tax and social security tax. The employees of the Wool and Twine Company would be liable to all these taxes on their salaries and wages. They would also be required to contribute nine percent of their wages and salaries into the Australian superannuation fund (Eslake, 2011). However, this depends on whether the employee is there to work permanently or has been sent there to work temporarily. Those sent to the country to work temporarily are exempted from making this contribution to the superannuation fund. Another form of tax that is levied on the wages is the payroll tax. This tax is levied to all individuals who have not managed to attain the threshold. Tax could also be levied on leave and other employment entitlements but at different rates. A male employee in Australia earning an average wage is liable to a twenty-two percent tax. There is also the marginal tax, which is the tax levied on additional income. This is levied at thirty-five percent.

Tax on Rental Income

Since John resides for income tax purposes in Australia for the next twelve months, he will be liable to income tax on any revenue acquired from all sources including those outside the country. However, non-residents are not liable to income tax from sources outside the country but only those derived from businesses or assets within Australia. In New Zealand, the property yields rental income, which is included in Australian assessable income (Groenewegen, 1987).

The Australian Taxation Office is an online database that provides individuals with information on the Australian tax system. This is where people can search for information on tax imposed on businesses and individuals. Such individuals as John, who are new to the country (Australia), can access it and understand the Australian tax laws since they need to be acquainted.

Residents of Australia usually pay taxes for their income and capital gains. Even those derived from different countries are taxed. However, there are various exceptions (Tran-Nam, 2000). Since John is planning to relocate and live in Australia for at least 12 months, he qualifies as a resident, and this means that he will be liable to tax on income received throughout the world, including the income gained from renting out his main residence in New Zealand.

Tax on motor vehicle

The vehicle offered by the Wool and Twine Company is a company asset which is liable to capital gains tax. This tax is not separate but a part of the income tax system (Shakow, 1986). A taxpayer’s net capital gains are taxable. This tax will apply to the company since it gets the asset through the legal channel. Indexation on subsequent gains on assets is changed over time. Those that had been used for more than 12 months are usually decreased by a discount of fifty percent for taxpayers (Skaburskis, 1995).

Conclusion

The Australian taxation system uses the income tax to get most of its revenue. The taxation system levies three types of taxes on the income tax. They include tax on personal earning, a capital gains tax and those imposed on business income. A person from a different country planning to start business in Australia must familiarize himself or herself with the Australian tax system in order to understand the implications. John, for example, should know all types of taxes that would be imposed on him and his business in order to run his business smoothly.

References

Andrew, B 2007, The contribution of effective marginal tax rates to work disincentives, Sage, New York.

Australian Government n.d., Capital gains tax. Australian Taxation Office. Web.

Dockery, E 2006, Welfare reform, housing assistance and effective marginal tax rates, National Gallery of Australia, Canberra.

Eslake, S 2011, ‘Time to axe negative gearing’, The Sydney Morning Herald, 25 April, p. 3.

Gittins, R 2009, ‘A light on the hill for our future tax reforms’, The Age, vol. 21, no. 1, p.12.

Groenewegen, P 1987, Australian taxation policy, Longman Cheshire, Melbourne.

Ingles, D 1981, statistics on the distribution of income and wealth in Australia, National Gallery of Australia, Canberra.

Shakow, D 1986, ‘Taxation without realization: A Proposal for accrual taxation’, University of Pennsylvania Law Review, vol. 5, no. 2, p. 432.

Skaburskis, A 1995, ‘The consequence of taxing land value’, Journal of Planning Literature, vol. 2, no. 7, pp. 321-325.

Tran-Nam, B 2000, ‘Tax reform and tax simplicity: A new and simpler tax system’, University of New South Wales Law Journal, vol. 3, no. 1, pp. 123-143.

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