H & R Block Basic Course Chapter 2

 

HINTS

 

·         An ETP is a payment of ‘rollover money’, i.e. money that could be deposited in a super fund, or has been withdrawn from a super fund or other kind of rollover fund. It can be paid by an employer upon termination of employment, or by a fund. There are eight components all taxed at different rates.

·         The words ‘taxed’ and ‘untaxed’ refer to the payment or otherwise of the 15% contributions tax levied on super funds and other rollover funds. It does not refer to whether the money paid to the taxpayer has been taxed or not.

·         ETPs used to be called lump sum C. That’s why the PAYG payment summary says ‘see ETP payment summary’ at lump sum C.

·         Interest on a term deposit is declared in the year in which it is added to the account, even if the money can’t be accessed.

·         For share dividends the date of payment is the relevant figure. The record date is simply the date which decides if a new shareholder is on the books to receive a dividend or not.

·         Examine the PAYG payment summary CAREFULLY. Nobody misses the gross income and tax withheld, but the allowances and the lump sums are often missed, and the RFBs and union deductions etc. are even more often missed. When doing the homework, and in the exam, take that extra minute and look at every part of the payment summary.  
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Question 1

 

  1. He should declare 659.20+667.60+684.19 = 2101. The money has been added to the account in the 2007 financial year even though he can’t access it. Note that if money is added to a term deposit, the taxpayer will be notified.

 

  1. Nil. On June 30 2007 no money had been added to the account.

 

  1. It cannot be done. Interest earned on a joint account must be divided 50/50.

 

Question 2

 

  1. Income tax is paid by individuals on their taxable earnings. Contributions tax is a 15% tax paid by super funds (or approved deposit funds etc.) on contributions.

 

  1. From a super fund. The word ‘taxed’ refers to the payment of the contributions tax by a fund, and an employer does not pay contributions tax.

 

  1. Of the eight components of an ETP, not all are assessable income. To calculate the assessable amount to be put at item 4I:

 

(pre-July 83 + concessional) x 5% PLUS post-June 83.

 

Undeducted contributions are tax free.

Post-June 94 invalidity is tax free.

Excessive component is all taxed at 46.5% irrespective of the level of other income earned.

Non-qualifying component is put at item 22 and taxed at normal marginal rates.

 

Question 3

 

  1. Yes. The date of payment is before July 1 2007, and that is all that matters.

 

  1. The cheque will be for $230 – the franking credit represents company tax that has been sent to the ATO. He must declare $230 at label 11T, and $98 at label 11U. However he will receive the $98 as a tax credit on his assessment.

 

  1. He must still declare the dividends even if he didn’t receive the money. It is as if he had been paid the dividend and then used it to buy shares.