H & R Block Basic Course Chapter 11

HINTS

· Tax offsets can only reduce basic tax payable to nil. They cannot create a payment from the ATO to the taxpayer.

· Be aware of the low income tax offset. It is relevant to taxable incomes up to $40,000 but is easy to forget.

· Remember calculations involving the super co-contribution, the spouse super tax offset, and qualification for deduction of superannuation contributions, involve a special income: assessable income for superannuation purposes.

· If the taxpayer is under 55y, and has a taxable income of under $75,000, then the lump sum tax offset is only applicable if they have been paid a taxed element on a super fund ETP.

· You should be doing some revision for the final exam by now. Preparing a list of item codes that you can quickly refer to is helpful. Another possibility is photocopying the first 8 pages of the I form to A3 size, and then making brief notes at each item. Then you will have a course summary on the I form itself - and you can never become too familiar with the I form! (these are just suggestions and nothing more).

Question 1

a) 21/365 x 2483 x 5.63% = $8.04 (item C1 on the 2007 return). She will have to declare this interest at item 10 on her 2008 return, as it was paid in the 2008 financial year.

b) The daughter is over 16y and not in full-time education. The entitlement to a spouse tax offset is confined to days of non-qualification for FTB part B (FTB part A is not relevant). In this case the family does not qualify for FTB part B.

1655 – (2096 – 282)/4 = $1202 (you drop the cents from the subtracted part).

c) If the daughter was studying full-time and working part-time, and she earned less than $11,548, then the family would be entitled to FTB part B. Therefore, under these circumstances James would not be entitled to a spouse offset.

d) The spouse super tax offset is the lesser of:

i) 18% of contributions

ii) 540 – 18% (A.I. – 10,800)

In this case it is the lesser of $810 and $234, i.e. $234 at item T8.

Question 2

Aspirin bought from a supermarket	NO	Non-prescription drugs bought from anywhere except a pharmacy are not includable. Aspirin would be ok if bought from a chemist.
Payment to a dentist for braces	YES
Repair to a hearing aid	YES	Instruments related to poor sight and hearing are includable. For example a ‘big number’ dial for a telephone could be included.
Trained guide dog expenses	YES
Breast reconstr. following cancer surgery	YES	This is medically indicated cosmetic surgery.
Rhinoplasty for cosmetic reasons	NO	This is ‘vanity’ cosmetic surgery.

Question 3

a) A RFB can affect payment of the Medicare surcharge, payment of HELP, MAWTO, FTB entitlement, and superannuation matters (super co-contribution, 10% qualification for superannuation contributions deduction, spouse super tax offset). It can also affect entitlement to Centrelink payments.

b) NO. Once a base year has been selected it cannot be changed.

c) Marcia has a taxable income of $16,396 (above the FTB part B threshold)

Marcia will not have to repay any of the FTB part B if this is the first time she has returned to work since the birth of her last child.

If she had not had a child between leaving work and returning this year then she would have had to repay the amount. It would be considered an overpayment because her income exceeded the FTB part B threshold amount.

d) NO. The maximum tax rate on lump sum A is 30%. For him to have a marginal rate of greater than 30% (in which case a lump sum tax offset would be applicable) he would have to have a taxable income of more than $75,000.

e) NO. Lump sum B is already concessionally taxed, because only 5% of it is taxable at marginal rates. It does not form part of the lump sum tax offset calculation.