Income tax is levied by the Commonwealth government and is imposed at progressive rates on all resident taxpayers. It is important to obtain a good basic knowledge of income tax, as it will affect you regardless of the area of business in which you will work. In addition to income which is categorised as such because it meets the criteria of income according to ordinary concepts, there are items of income which are made assessable by legislation. These items are known as statutory income, that is, a specific section of the legislation operates to deem these items to constitute assessable income.
There are many definitions of income. However, the most widespread include the following:
- something which actually comes in;
- receipts may be differentiated from the receipts of a capital nature as they are received regularly or periodically;
- general categories of receipts such as salary, wages, rent, interest, dividends, business profits are, in the main, considered to be income;
- the return received on capital invested is considered to be income – e.g. dividends paid on shares, interest on funds invested and rent from properties. The shares, money lent and property are capital assets;
- some receipts which are not generally considered to be income are proceeds from the sale of capital assets, compensation for the loss of a capital right to income, gifts, windfall gains from lottery or betting wins.
It is often difficult to distinguish income from capital. A useful analogy is that of the tree and its fruit. When you sell the tree that is a receipt of a capital nature but the fruit of the tree is income. The fruit is regular – it comes each year but you can only sell the tree once. This analogy emerged from the American case, Eisner v Macomber.
The legislation keeps on implementing changes in the taxation system and that is why it is difficult to distinguish the exact boundary between income and capital. This issue has caused numerous disputes and debates, including such an aspect as the application of the distinction between capital and income. This distinction is surely crucial as it affects the taxation system much and this is the aspect that economy greatly depends upon.
The Australian taxation system is particularly dependent on the tax and not on the capital and thus there is a necessity to determine whether receipts and outgoings are characterized as components of capital or income. Although this issue seems to be quite obvious, still sometimes it can turn out to be nearly invisible, indistinguishable and it is easy to ignore it. However, neglecting this difference is highly likely to result in a negative economic outcome.
As it is known the majority of expenses related to investment are considered to be tax deductible, including interest on a particular sum of money someone has to borrow in order to obtain shares or some property. The Australian Taxation System is characterized by a set of complications that require thorough analysis and deep understanding. For instance, it is necessary to remember that there is a difference between such notions as an expense and an allowable deduction for tax purposes. The thing is that it is not always possible to receive a tax deduction for a particular expense of the business as the tax department can consider this act absolutely illegible and inappropriate.
An example of this slight difference can be noticed by observing the procedure of buying drinks at various performances and gigs. Moreover, the allowable deduction is equal to the amount of the contribution. Excess consumption tax may be payable if the contributions exceed the contributions cap.
Besides, when we talk about allowable deductions, it is possible to mark out two types of them: general and specific. According to the Income Tax Assessment Act a sportsperson can claim provided that he has a certain relation to the gaining or producing income .
A Goods and Services Tax (GST) was implemented in July 1999 and this event proclaimed a significant change in the Australian Taxation System affecting diverse spheres, particularly a huge number of sporting bodies, and the sporting industry in general. The introduction of GST has seen a reduction in personal income tax rates to offset the price rises in the cost of services and some goods. Not all goods increased in price because some goods were subject to sales tax and were taxed at a rate greater than 10%. Consequently some prices have actually decreased.
GST is based on the value added tax model in use in almost all the Organization for Economic Cooperation and Development (OECD) countries and is imposed at a flat rate of 10% on most goods and services in Australia.
The GST applies at each stage of the production/distribution process and is referred to as a multi-stage tax. Despite being ‘sold’ as a simple tax, GST can be extremely complex and invasive.
In the sporting industry GST is mainly perceived as a serious complexity and obstacle that sportsmen never dealt before with. Such a large-scale change in the Australian Tax System will not result in problems and negative consequences only in case the sporting bodies learn how to operate within this new system. Though understanding of the Goods and Services Tax (GST) is essential as otherwise it will affect such crucial aspects as sponsorships, grants and prize monies. Sponsorships are particularly under danger if, for instance, a club received sponsorship, provided that the sponsor’s name must be mentioned on team uniforms, then this can be perceived as a taxable supply that was guaranteed by the exchange of sponsorship for advertising.
First of all it is critical to determine what will be received by sportsmen during their career. According to the provided information Marc received a $2500 signing-on fee. Lump sum payments made to sportsmen under ‘sign-on’ agreements are considered, in the absence of evidence to the contrary, to constitute assessable income in the hands of sportsmen and should be treated as such. The rationale is that the amounts are akin to pre-payments of income for future services.
In addition, in paragraph 21 of TR 1999/17, sign-on fees are said to be included in assessable income.
To some extent the amount is for the loss of an asset then it may be in respect of CGT event. If this is the case, then the gain may be included as an assessable income as a net capital gain but caution must be taken to determine whether it is included in assessable income by any other part and, therefore, any capital gain being reduced.
According to the Australian Master Tax Guide 2011, Marc’s employers are required to pay tax on the value of fringe benefits that they provide to employee.
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