Taxation
Taxation
The Taxation domain of CPA Australia tests your ability to apply Australian tax law to compute taxable income and tax payable for individuals, companies, trusts and partnerships, and to identify GST, FBT, superannuation and administration issues. Questions often combine several regimes, so start by classifying the taxpayer and the income year.
Core rules
- Residency: Individuals are residents if they reside in Australia, have domicile and no permanent place abroad, or meet the 183-day rule unless their home is overseas. Companies are residents if incorporated here, or if they carry on business here with central management and control here, or are controlled by Australian shareholders. Residents are taxed on worldwide income; non-residents on Australian-source income and taxable Australian property gains.
- Taxable income = assessable income (ordinary and statutory) minus deductions. For 2024-25, resident individual rates are nil to $18,200; 16% to $45,000; 30% to $135,000; 37% to $190,000; 45% thereafter, plus 2% Medicare levy. Base-rate companies pay 25% where aggregated turnover is under $50m and no more than 80% of assessable income is passive; other companies pay 30%.
- Deductions: s 8-1 ITAA 1997 requires a nexus with assessable income or business necessity, or a specific provision. Capital, private and domestic outgoings are excluded. The CGT discount is 50% for individuals and trusts, 33⅓% for complying super funds and nil for companies.
- Indirect taxes: GST is 10% on taxable supplies, with input tax credits for registered entities. FBT is 47% on the grossed-up value of benefits. Superannuation guarantee is 11.5% for 2024-25.
Worked example
A resident individual has salary $100,000, a fully franked dividend of $14,000 with a $6,000 franking credit, a net capital gain of $10,000 after the 50% discount, and $5,000 deductible work expenses. Assessable income = $100,000 + $14,000 + $6,000 + $10,000 = $130,000. Taxable income = $125,000. Tax = ($26,800 × 16% = $4,288) + ($80,000 × 30% = $24,000) = $28,288. Medicare levy = $2,500, so tax before offsets is $30,788. The $6,000 franking credit is a refundable offset, leaving $24,788 payable.
Traps
Forgetting to gross up dividends and then claim the offset; applying the CGT discount to companies; treating non-residents as taxable on worldwide income; omitting Medicare; claiming GST credits for private use; and overlooking Part IVA where a scheme's dominant purpose is a tax benefit.