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Introduction
Companies incorporated in Australian are taxed on any income they get from any business operation. Foreign companies situated in Australia are only taxed on the income they derive from Australia. The rate on the income for the tax period 2009/2010 is 30%. The Australia tax period is from 1st July to 30th July the following year. According to the Australian tax law, the companies are supposed to assess their tax liability (CCH Editors 2009, p.1065).
Each company is supposed to fill a tax return individually. The taxable income is from the sources like the rental income, business income, capital gains on some assets like motor vehicle and dividend interests. Companies are supposed to pay their corporate tax on a quarterly manner for each year. But if a company has an income of less than AUD $ 8000 or the company is not to be filling a report of its tax on a monthly basis, the company is allowed by the Australian taxation commission to pay the tax annually on every 21st October. Quarterly tax payments are made before the end of the twenty first day after the end of every year quarter.
Two methods are use to pay the quarterly tax. One is the instalment income option and the second is the GDP adjustment notional tax option. Both the foreign and resident Australian companies have the same tax rate (CCH Editors 2009, p.1067)..
Capital gain is taxed according to the marginal rate of the item in question. Before capital gains are taxed, the business is allowed some of the items that are deducted from the taxable amount. The items deducted are referred as the allowable expenses. The allowable deductions include those business expenses that are incurred in the course of obtaining business income. Capital and personal expenses are not allowed since they are not regularly occurring expenses or they are not incurred in the income generation for the company (Woellner, Barkoczy & Murphy 2009, p 83).
Taxable profit
Eastside printing Pty ltd. Trading profit and loss account. As at the year ended 30th June 2011.
Notes
- Note 1. Total sales are found by subtracting the stock returned from the total closing debtors and then adding the balance of the debtors to the total cash sales
- Note 2. Total purchases are found by adding the total trading stock acquired within the period with the total closing creditors
- Note 3. The value of closing stock to be taken is the cost which is $24000. According to the principle of historical cost, the closing stock should be valued using the cost price if it is lees than the market selling price. The closing stock takes the value that is lower between the cost and the market value. Replacement value is the price to be paid in future for the stock. It is not usually used since it has some variation from different suppliers (CCH Editors 2009, p.1065).
- Note 4. To find the total value of the print papers used, we subtract the balance at the end. Also the obsolescence value or the stock that is still available but cannot be used because it is outdated is subtracted from the total print supplies.
- Note 5. Some amount of the wage expense has realized but the company have not paid it as by the end of the accounting period. To get the total expense incurred, the outstanding value is added to the total amount of wages.
- Note 6. The Mazda van is used partly for business and partly for personal use. Since 50% is business use then the expense incurred will be divided according to the uses.
- Note 7. The lease paid by for business incentive every year is 10000.
Plant and machinery tax allowances
Introduction
Capital allowance is a tax deduction that is usually given on plant and machinery. The plant and machineries that are allowed are motor vehicles tools, furniture, computers, machinery and equipment. Also some building fixtures are allowed some portion of their value (Cassidy 2007, p.164).
For any plant or machinery to qualify for tax allowances, it must have the following feature. Firstly the asset must have been used in the business for some time and capital expenditure for the asset should have occurred. Secondly, the purpose of acquiring the asset is not to resale it but to use it for income generation activity of the business. Lastly the asset should have been acquired to be used for a period that exceeds two years (Woellner, Barkoczy & Murphy 2009, p 83).
To determine the asset deprecation, the prime cost method has been used. This method is seen as the flat rate way of measuring the loss of value for the assets used in the business. The formula of the method is asset value × (number of days used÷ 365) × (100% ÷ asset effective life). The asset effective life is number of years the asset is expected to be useful. If not calculated by the company itself the commissioner of tax provides the effective years for both the intangible and tangible assets (Cassidy 2007, p.164).
Determining taxable value for eastside printing ltd
Calculating the taxable value for printing equipment.
New printers as at 15.07.2010 $400000
Add licence cost $20000
New printer as at 15.09.2010 is 9.5/12 × 18500 giving $14645
Total value of printers as at 30th June 2011 is 434645
Depreciation is tax allowable therefore it is subtracted from the asset value. Using prime cost method to calculate depreciation, then old printer’s depreciation is Asset’s cost x (days held/365) x (100%/asset’s effective life). That is 400000 x (365/365) x (1/5). Depreciation is 80000. New printer is 18500 x (9.5/12) x (1/5) giving 4642. Total depreciation is 84642. Taxable value is 434645-84642= 350003
AIA annual allowance gives on printer is 20% of 350003 giving 70000. Taxable value is 280003.
The effective life for a printer is five years. The period for which the new printer was used is nine and a half month, from 15th September 2010 to 30th June 2011. Investment allowance is only applied to new depreciating assets and expenditure. A new asset is the one that has never be in operation anywhere within Australia and abroad before 13.12.2008. Although Eastside printing Pty ltd acquired second hand printing equipment from the previous owner, they will receive the tax allowance because the asset had been in business use before (Cassidy 2007, p.167)
Computer tax allowance
Value to be taxed is 10 /12 × 10500 which is 8750. According to the tax commission, the effective year for the computer is five years. Therefore computer depreciation using prime cost method is 10500 x (10/12) x (1/5) which give 1750. Allowance is 20% of (8750-1750) giving 1400. Total taxable income is 7350.
The value to be taxed is for the period used, which in this case is nine months from 1st September 2010 to 30th June 2011.
Taxable value of furniture
Opening balance as at 15th July 2010 is 100000
Added shelves value is 9/12 × 4500 giving 3375
The effective life for the furniture is ten years. Depreciation for opening furniture is 100000 × (12/12) × (1/10) = 10000. The new furniture is 4500× (9/12) × (1/10) = 338. Total depreciation is 10338. Taxable value is 103375 -10338 which is 93307. Tax allowance is 20% of 93307 which gives 18607. Taxable income is 74700.
Taxable value for motor vehicle
Mazda is 11/12 × 50/100 × 24000 giving 11000
Audio station wagon is 4/12 × 72000 giving 24000.Depreciation for Mazda is 24000 x (11/12) x (1/8) = 2760. Since is used half time for business and half for personal use, the business depreciation expense is 50/100 × 2760, giving 1380..the effective life for general motor vehicle is eight years. Audio wagon depreciation is 72000 x (4/12) x (1/8) which give 3000. Total depreciation is 1380 +3000= 4380.
Taxable amount is 35000-4380 = 30620. Allowance is 12% of 30620 which is 3674. Taxable income is 26946.
Mazda car had been used for eleven months from 1st August 2010 to 30th June 2011. Since 50 percent of its use was for the business use, then the amount to be taxed is half of its cost. Audio station wagon had been in use for only four months since 1st march to 30th June 2011.
Tax allowance for air conditioner
The allowance is 10% for special rate pool. Air condition has an effective life of fifteen years. It has been use since Feb 2011 for five months till 30 June 2011.
Depreciation is 60000 x (5/12) x (1/15) = 1667. Taxable value is 58333.
Therefore allowable tax is 10% x 5/12 x 58333 giving 2431. Total taxable income is 58333-2431 which is 55902.
The business investment is at the start 650000 and AIA exempts 100% tax on investments for the first year.
Total taxable income for eastside printing company is
Income tax is 280003 +7350 + 74700 + 26946 + 55902 + 993050 = 1363251
Australian corporate tax is 30% for the year 2011. Therefore corporate tax to be paid is 30% of 1363251 which is 408975.
Eastside printing. Balance sheet. As at the year ended 30th June 2011.
Notes
- The capital is found by the equation assets is equal to capital added to liabilities.
- The stock used is the closing stock
- Depreciation is subtracted from the assets value to keep the amount to date.
- The value of the Mazda car put in the balance sheet is the one that is used for the business purposes which is half of the price.
References
Cassidy, J. (2007). Concise Income Tax. Sydney: Federation Press.
CCH Editors. (2009). Australian master tax guide. Australia: CCH Australia Limited.
Woellner, R., Barkoczy, S and Murphy, M. (2009). Australian taxation law 2009. Australia: CCH Australia Limited.
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