Principles of Taxation Law 2024

Answers to Questions

CHAPTER 3 – THE TAXATION FORMULA

Question 3.1

What is the basic income tax payable for an Australian resident individual with taxable income
for the 2023–24 income year of:

(a) $15,000?
(b) $50,000?
(c) $150,000?
(d) $300,000?

Answer
(a) Taxable income is below the $18,200 tax-free threshold; therefore no tax is
payable.
(b) First $18,200 → no tax payable.
$18,201 to $45,000 = $26,800 x 19% = $5,092
$45,001 to $50,000 = $5,000 x 32.5% = $1,625
Therefore basic income tax payable = $6,717
(c) First $18,200 → no tax payable.
$18,201 - $45,000 = $26,800 x 19% = $5,092
$45,001 to $120,000 = $75,000 x 32.5% = $24,375
$120,001 to $150,000 = $30,000 x 37% = $11,100
Therefore basic income tax payable = $40,567
(d) First $18,200 → no tax payable
$18,201 - $45,000 = $26,800 x 19% = $5,092
$45,001 to $120,000 = $75,000 x 32.5% = $24,375
$120,001 - $180,000 = $60,000 x 37% = $22,200
$180,001 - $300,000 = $120,000 x 45% = $54,000
Therefore basic income tax payable = $105,667

Refer to [3.200].

Question 3.2

What is the basic income tax payable for a foreign resident individual with taxable Australian
income for the 2023–24 income year of:

(a) $15,000?
(b) $50,000?
(c) $150,000?
(d) $300,000?

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Answer
(a) Tax payable = $15,000 x 32.5% = $4,875 (no tax free threshold for foreign
residents).
(b) Tax payable = $50,000 x 32.5% = $16,250 (no tax free threshold for foreign
residents).
(c) Tax payable = ($120,000 x 32.5%) + ($30,000 x 37%) = $ 50,100
(d) Tax payable = ($120,000 x 32.5%) + ($60,000 x 37%) + ($120,000 x 45%) =
$39,000 + $22,200 + $54,000 = $115,200

Refer to [3.200].

Question 3.3
Calculate the Medicare levy payable (if any) for the year ending 30 June 2024 on the following
amounts for a single Australian resident taxpayer who is not entitled to the seniors and
pensioners tax offset (assume the same “threshold amount” and “phase-in limit” as for the
2022-23 income year):
(a) $20,000
(b) $27,000
(c) $35,000

Answer
(a) $20,000 → full exemption from Medicare levy as a low income earner (below
the “threshold amount”): see [3.60].
(b) $27,000 → reduced Medicare levy payable because taxable income below
“phase-in limit”: see [3.60].
Medicare levy payable = ($27,000 - $24,276) x $0.10 = $272.40
(c) $35,000 → Medicare levy payable = $35,000 x 2% = $700: see [3.50].

Question 3.4
Calculate the Medicare levy surcharge payable (if any) on the following taxable income
amounts for a single Australian resident taxpayer who does not have private health insurance
for the entire income year.

(a) $50,000
(b) $100,000

Answer
(a) $50,000 → No Medicare levy surcharge payable as below the threshold of
$93,000: see [3.80].
(b) $100,000 → Medicare levy surcharge payable at a rate of 1%. Medicare levy
surcharge = $100,000 x 1% = $1,000: see [3.80].

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Question 3.5
Following on from 3.4, calculate the Medicare levy surcharge payable if the individual had
private health insurance for 100 days in the income year.

Answer
(a) $50,000 → No Medicare levy surcharge payable as below the threshold of
$93,000: see [3.80].
(b) $100,000 → Medicare levy surcharge payable at a rate of 1% reduced for any
days when the taxpayer had private health insurance.
Medicare levy surcharge = $100,000 x 1% x (365-100/365) = $726.03: see [3.80].

Question 3.6
Jill is an Australian resident for tax purposes. She has assessable income of $500,000. She has
deductions of $100,000 and franking credit tax offsets of $30,000. What is Jill’s tax payable for
the 2023–24 income year?

Answer
 Income tax payable = (Taxable Income x Rate) – Tax Offsets: s 4-10 of ITAA 1997.
 Taxable income = assessable income less deductions: s 4-15 of ITAA 1997.
 Jill’s taxable income = $500,000 - $100,000 = $400,000.
 Income tax payable = $150,667 - $30,000 (franking credits) = $120,667
See [3.120].

Question 3.7
Acme Pty Ltd has determined that its assessable income for the year is $789,000 and it has
deductions of $300,000. What is Acme’s tax payable for the 2023–24 income year? Assume
that Acme’s turnover is $250 million.

Answer
 Income tax payable = (Taxable Income x Rate) – Tax Offsets: s 4-10 of ITAA 1997.
 Taxable income = assessable income less deductions: s 4-15 of ITAA 1997.
 Acme’s taxable income = $789,000 - $300,000 = $489,000.
 Income tax payable = $489,000 x 30% = $146,700.

See [3.120].

Question 3.8
Linley is an Australian resident for income tax purposes. She has taxable income of $300,000.
She has been provided with a receipt for an expense in the amount of $10,000. This expense
will constitute a deduction. How much tax will Linley save for the 2023–24 income year as a
result of the additional deduction?

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Answer
As illustrated in Example 3.8, the value of a deduction will be at the taxpayer’s highest
marginal tax rate. As Linley’s taxable income is $300,000, her highest marginal tax rate is 45%
and the deduction of $10,000 would reduce her tax payable by $4,500.

Question 3.9
Following on from 3.8, Linley has a HELP debt of $25,000. How much of the HELP debt would
she be required to repay for the 2023–24 income year?

Answer
From Question 3.8, Linley’s taxable income is $290,000, which takes into account the extra
$10,000 deduction. In the absence of any further facts, Linley’s repayment income would be
$290,000. The repayment rate is 10% (see Table 3.4). Linley would be required to repay all
$25,000 of her HELP debt in 2023–24 as her total possible repayment amount would be
$29,000 ($290,000 x 10%).
See [3.90].

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