Transcript No Slide Title

Chapter 1
Annual Income Tax
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
1
THE INCOME TAX SYSTEM
Income Tax Legislation
Income tax is the main federal tax paid by
most resident individuals and companies.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
2
Who is taxed?
• Income tax is levied on the annual
taxable income of individuals,
companies and superannuation funds
every income year.
• An income year is usually 1 July to
30 June.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
3
Self-assessment
Annual tax returns
• Taxpayers are required to calculate
their taxable income on an annual
income tax return.
• Prepaid tax credits or other tax offsets
are also shown on the return.
• Individual taxpayers must lodge their
return by 31 October.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
4
Notices of Assessment
After a taxpayer’s tax return is
received, the ATO issues a notice of
assessment to the taxpayer.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
5
Record Requirements
• Taxpayers must retain records to prove the
income and deductible expenses reported
on their annual tax returns.
• Required records include receipts and
other documentary evidence of
transactions.
• Taxpayers must keep their records for a
period of 5 years after the end of the
relevant tax year.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
6
Tax Audits
• A tax audit may be carried out by the ATO
after a tax return is lodged.
Penalties
•Taxpayers who fail to comply with administrative
requirements under income tax law can have
penalties imposed on
them by the ATO.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
7
PAYG Obligations
• Under the Pay As You Go system,
business owners may have
obligations to pay income tax to the
ATO during the income year.
• The PAYG system is examined in
detail in Chapters 3 and 4.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
8
THE CONCEPT OF
TAXABLE INCOME
• Income tax is levied on the annual
taxable income of taxpayer’s each
income year (see diagram on the
next slide).
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
9
Calculation of Taxable Income
Assessable
income
Less
Allowable
Deductions
Equals
Taxable
Income
or
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
Tax Loss
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ASSESSABLE INCOME
Includes:
Ordinary Income
(regular and recurring receipts)
Statutory Income
(Specific income under the ITAA)
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
11
Deriving Assessable Income
1. The Cash Method
Recognition in the income year it is
actually received
2. The Accruals Method
Recognition in the income year
which the right to receive occurs
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
12
ALLOWABLE DEDUCTIONS
• These are expenses allowed to be
deducted from assessable income to
calculate taxable income.
• Timing of recognition of allowable
deductions depends on whether the
cash or accruals method is applied.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
13
FIXED BUSINESS ASSETS
Asset acquisitions
• The DEPRECIATION of assets is an
allowable deduction.
Asset disposals
• Any Profit on Asset disposal is treated
as assessable income.
• Any Loss on Asset disposal is treated
as an allowable deduction.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
14
CAPITAL GAINS
• Any gains made on the sale of taxable
assets acquired after 19 September
1985 are included in assessable
income.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
15
CALCULATING TAX PAYABLE
Gross
Tax
Plus
Medicare
Levy
Less
Tax
Offsets
Equals
Net Tax
Payable
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
16
TAX PLANNING
Ways to legally MINIMISE income tax
payable.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
17
Chapter 2
Discusses
Tax Identification Numbers
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
18