Tax assignment

Topics: Tax, Income tax, Progressive tax Pages: 14 (1919 words) Published: April 21, 2014


110.289 TAXATION

ASSIGNMENT NO. 1

Name :
Student ID :
Delivery Mode :External – Distance

QUESTION 1

The best answer is (C).

An individual’s marginal tax rate is the rate of tax he/she pays on the last dollar of income earned assuming there is nothing else affecting the individual. In this question, Sandra has no dependants or other sources of income so there is nothing else affecting her.

An effective marginal tax rate of 40% applies to Sandra. This includes the top tax rate of 30% applicable to taxable income of $56,000 and the student loan standard rate of 10%.

(A) - The 30% rate would be Sandra’s base marginal tax rate without the student loan repayment at a standard rate of 10%.
(B) - The 33% individual tax rate applies to taxable income of $70,000 and upwards. Clearly, Sandra’s income does not fall into this income bracket so this rate will not apply.

(D) - The 24% effective marginal tax rate is incorrect because for every additional dollar earned over $48,000 the taxpayer should be paying a minimum of 30% in tax assuming nothing else affects.

(Ref: NZT 1.4.3; 12.2.2)

QUESTION 2

The best answer is (B).

A progressive tax rate takes a higher proportion from higher incomes than it does from lower incomes. Progressive taxes are a tool used to re-distribute money to those on lower incomes, being an objective of good taxation.

Vertical equity means that taxpayers who are in different situations should be treated differently. Usually this means that those who have higher incomes or higher wealth should pay a greater proportion of tax. Progressive tax rate is usually regarded as achieving a degree of vertical equity.

(A) - Horizontal equity means treating people who are in the same position in the same manner with respect to taxation.

(C) - Coherence is really a means of satisfying other objectives rather than an end in itself. A coherent tax system needs to fit together and make sense in the context of entire tax system.

(D) - Neutrality means that a tax should not affect a taxpayer’s market choices.

(Ref: NZT 1.6.2; Briefing for Incoming Minister, p27-30)

QUESTION 3

The best answer is (A).

Tax base refers to the measure upon which the assessment or determination of tax liability is based. Common taxation bases in New Zealand are personal income, company income and consumption of goods and services.

Personal wealth is also a tax base but not one used in New Zealand. Wealth taxes are an example of capital taxes (i.e. a stock of wealth).

(B) - Company income (profits earned by a company) in NZ is taxed at the company tax rate of 28% for income years 2012 and later.

(C) - Consumption of goods and services is the base for Goods & Services Tax of 15% in NZ.

(D) Personal income is the tax base used to tax income of individual taxpayers at “individual income tax rates’.

(Ref: NZT 1.4.2)

QUESTION 4

The best answer is (C).

GST is described as a value added tax because it taxes the value added at each stage of production of goods and services, until it is finally used or consumed. It is a tax on consumption.

(A) - GST does tax the cost value of goods and services. However, at each stage along the supply chain, businesses making taxable supplies must account for GST on each supply and offset GST they pay on goods and services they receive.

(B) - GST does tax the value the customer gets from goods and services because the price paid by the customer includes GST. The value the customer gets by paying that GST may not be obvious.

(D) - GST taxes the value of the raw materials in goods. Usually the GST paid on materials is credited against GST accounted on supplies made.

(Ref: NZT 21.1)

QUESTION 5

The best answer is (A).

A taxable activity is defined as any activity that is carried on continuously or regularly and involves, or is...


References: Alley, C., Coleman, J., Elliffe, C., Gousmett, M., Gupta, R., Hodson, A., … Vial, P. (2012). New Zealand Taxation 2012. Wellington, New Zealand: Thomson Reuters.
Inland Revenue Department, (2011). Briefing for the Incoming Minister of Revenue 2011. Wellington, New Zealand.
Russell, D., Butcher, D. (2012). 110.289 Taxation Study Guide. Palmerston North, New Zealand: Massey University, School of Accountancy.
Inland Revenue. http://www.ird.govt.nz/ (Accessed 13-19 August 2012).
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