1. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 1 Annual Income Tax Chapter 1

2. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 2 THE INCOME TAX SYSTEM Income tax is the main federal tax paid by most resident individuals and companies. Income Tax Legislation

3. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 3 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.

4. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 4 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. Self-assessment Annual tax returns

5. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 5 After a taxpayer’s tax return is received, the ATO issues a notice of assessment to the taxpayer. Notices of Assessment

6. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 6 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. Record Requirements

7. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 7 A tax audit may be carried out by the ATO after a tax return is lodged. Tax Audits Taxpayers who fail to comply with administrative requirements under income tax law can have penalties imposed on them by the ATO. Penalties

8. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 8 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.

9. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 9 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).

10. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 10 Calculation of Taxable Income Assessable income Allowable Deductions Taxable Income Equals Less or Tax Loss

11. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 11 ASSESSABLE INCOME Ordinary Income (regular and recurring receipts) Includes: Statutory Income (Specific income under the ITAA)

12. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 12 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

13. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 13 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.

14. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 14 FIXED BUSINESS ASSETS The DEPRECIATION of assets is an allowable deduction. Asset acquisitions Asset disposals Any Profit on Asset disposal is treated as assessable income. Any Loss on Asset disposal is treated as an allowable deduction.

15. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 15 CAPITAL GAINS Any gains made on the sale of taxable assets acquired after 19 September 1985 are included in assessable income.

16. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 16 CALCULATING TAX PAYABLE Gross Tax Medicare Levy Tax Offsets Net Tax Payable Plus Less Equals

17. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 17 TAX PLANNING Ways to legally MINIMISE income tax payable.

18. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 18 Discusses Tax Identification Numbers Chapter 2