Tax assignment
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
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
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).