Study guide Questions and Answers ADVANCED TAXATION

Study guide Questions and Answers ADVANCED TAXATION Question 1.2 The following is a list of payments made under different circumstances: 1. A business has been invoiced $500 for services rendered by a contractor. However, the invoice does not quote the contractor’s Australian Business Number and the business does not have any other records from which it may reasonably obtain that information. 2. An Australian resident has borrowed funds from an overseas lender and wishes to pay $1500 of interest owing this month. 3. An employer wishes to pay wages of $350 this week to a resident employee. 4. A bank wishes to credit a resident individual’s fixed deposit account with $100 interest earned this month. The depositor has not provided their tax file number to the bank. Identify the PAYG withholding tax implications of these payments. Under the PAYG withholding system, the obligation lies with the payer to register and withhold from certain payments. Failure to withhold may make the payer liable for penalties and they may be denied a deduction for the payments made. 1. Business payers must withhold 49 per cent, or $245, from the gross amount if a business supplier fails to quote their ABN. This amount comprises the maximum tax rate of 45 per cent plus the 2 per cent Medicare levy and the 2 per cent Temporary Budget Repair Levy†. 2. Interest payments to non-resident lenders are subject to a 10 per cent withholding tax, which is $150 in this instance. 3. Employers must register for withholding. The amount to withhold from each payment depends on the payment frequency, residency status and whether the employee is