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Taxation Ruling

TR 92/12A - Addendum

Income tax: notional averaging of net capital gains or of abnormal income to calculate the rate of tax payable on taxable income

FOI status:

may be released

Addendum

Taxation Ruling TR 92/12 is ammended as follows:

1. Paragraph 7

Omit 'more than $416 of '.

2. Paragraph 11

Omit from the definition of Eligible taxable income 'It is taxed at the top marginal rate of tax (currently 47%).'; substitute:

'If the amount of ETI does not exceed $416, it is treated as ordinary taxable income and would be liable to be taxed at ordinary rates.
If the amount of ETI exceeds $416 but does not exceed $1,445, it is taxed in accordance with subsection 13(1) of the ITRA as modified by subsection 13(2).
If the amount of the ETI exceeds $1,445 then the top marginal rate (currently 47%) will apply.'

3. Paragraph 19

(a) after Example 4 insert:

'Example 4A (variation of Example 4)

The same facts as in Example 4 except that Frank's net capital gain is $1,000 instead of $20,000 resulting in a taxable income of $9,000 consisting of:

Wages $8,000
Eligible taxable income $1,000

The rate of tax Frank will pay on his taxable income under subsection 13(1) as modified by 13(2) and Part I of Schedule 11 of the ITRA is calculated as follows:

Step 1
Frank's SIC is the amount of his net capital gain, i.e., $1,000
Step 2
Frank's RTI is his taxable income minus SIC , i.e., $9,000 - $1,000 = $8,000
Step 3
Component A is the amount of tax Frank would pay on his RTI ($8,000). Because this is employment income it is taxed at ordinary rates. Therefore, Component A is $520.
Step 4
Frank will work out Component B like this:

(a)
tax payable on ($8,000 + zero) at ordinary rates is $520
(b)
tax payable on RTI at ordinary rates is $520
(c)
Component B = 5 x ($520 - $520), i.e., zero.

Step 5
As the ETI of $1,000 exceeds $416 but does not exceed $1,445, subsection 13(2) of the ITRA must be applied to calculate Component C . The amount of tax payable on the ETI must not exceed the greater of two calculations required under paragraphs 13(2)(a) and 13(2)(b) of the ITRA.

(i)
paragraph 13(2)(a) calculation:
( ETI - $416) x 0.66 = ($1,000 - $416) x 0.66 = $584 x 0.66 = $385.44
(ii)
paragraph 13(2)(b) calculation:
tax on the taxable income of $9,000 at ordinary rates ($720) minus tax on the taxable income reduced by the ETI ($9,000 - $1,000 = $8,000), at ordinary rates ($520), = $200.

It follows that Component C as calculated under subsection 13(2) will be $385.44.
Step 6
The rate of tax Frank will pay on each dollar of his taxable in come is:

($520 + zero + $385.44)/$9,000 = 10.06044 cents'

(b) after Example 5 insert:

'Example 5A (variation of Example 5)

The same facts as in Example 5 except that Frances' net capital gain is $1,000 instead of $2,000.

Step 1
Frances' SIC is the amount of her net capital gain, i.e., $1,000.
Step 2
Frances' RTI is her taxable income minus SIC , i.e., zero.
Step 3
Component A is the amount of tax a minor would pay on Frances' RTI . Because Frances' RTI is zero, Component A is also zero.
Step 4
Frances will work out Component B like this:

(a)
tax payable on RTI (zero) + 20% of SIC which is not eligible taxable income (zero) is zero
(b)
tax payable on RTI at ordinary rates is zero
(c)
Component B = 5 x (zero - zero), i.e., zero.

Step 5
As the ETI of $1,000 exceeds $416 but does not exceed $1,445, subsection 13(2) of the ITRA must be applied to calculate Component C . The amount of tax payable on the ETI must not exceed the greater of two calculations required under paragraphs 13(2)(a) and 13(2)(b) of the ITRA.

(i)
paragraph 13(2)(a) calculation:
( ETI - $416) x 0.66 = ($1,000 - $416) x 0.66 = $584 x 0.66 = $385.44
(ii)
paragraph 13(2)(b) calculation:
tax on taxable income of $1,000 at ordinary rates (i.e., zero) minus tax on taxable income reduced by ETI ($1,000 minus $1,000) at ordinary rates (i.e., also zero). The difference is therefore zero.

In accordance with subsection 13(2) the tax on the ETI is therefore $385.44.
Step 6
The rate of tax Frances will pay on each dollar of her taxable income is:

(zero + zero + $385.44) / $1,000 = 38.544 cents'

4. Attachment B

(a) at Step 3 after 'Calculate Component A' insert '(subject to the note at the end of this Attachment)'.

(b) at Step 4 (a)(ii) omit '(explained in paragraph 18)'; substitute '(explained in paragraph 11)'.

(c) at Step 5

(i)
after 'Calculate Component C 'insert '(subject to the note at the end of this Attachment)';
(ii)
omit '(explained in paragraph 18)'; substitute '(explained in paragraph 11)'.

(d) at the end, insert:

' NOTE:
The rate of 47% as specified in Steps 3 and 5 above, does not apply where the ETI exceeds $416 but does not exceed $1,445. In these cases, the tax attributable to the ETI is calculated under subsection 13(2) of the ITRA.'

Commissioner of Taxation
18 September 1996

References

ATO references:
NO NAT 90/471-6 NAT 96/9294-1

ISSN 1039-0731

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