TUTORIAL 1: WEEK 3

TUTORIAL 1: WEEK 3 Question One (i) Read ppt slides 18-29 of Lecture One, ensure you follow them and answer the questions contained therein; (ii) Calculate the BTP, the marginal tax rate and the average tax rate for Jasper an Australian resident Tp whose TY is $ 88,888 for the year ended 30 June 2016; and a. TY: i. TY (taxable income) = AY (assessable income) – AD (allowable deductions) TY = $88 888 – 0 TY = $88 888 b. BTP: i. BTP = Jasper gets the first $18,200 of TY tax-free (0%), the next $18,800 taxed at 0.19, the next $43,000 at 0.325 and the balance at 0.37 BTP = $17 547 + (($88 888 - $80 001) x 0.37) BTP = $17 547 + $3288.19 BTP = $20 836 NOTE: Round up c. Marginal Tax Rate: i. 0.37% d. Average Tax Rate: i. Average tax rate = BTP/AY ii. Average tax rate = 20 836 / 88 888 iii. Average tax rate = 0.24%

(iii)

Regarding your answer to (ii) above, what does tax theory tell us about Jasper? Explain. a. People will try and minimise taxable income b. Incentives and disincentives (Jensen and Meckling) i. Can’t tax on all income – won’t bother working (Laffer curve) 1. Not a set ideal amount to tax because everyone has different perspectives – different amongst cultures, groups of people c. Path dependence: function of path before us – he’s taxed based on systems developed throughout history (Bebchuck and Roe) d. Jensen and Meckling: i. Commissioner suffers from path dependence and acts on incentives; tax institution is affected by incentives attached to their function e. EXAM: Can apply Jensen and Meckling and Bebchuck and Roe to different institutions/situations