One of Your Taxation Clients, Ms Carly Benicio, Has Brought

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The Answer is A taxation deduction reduces tax payable at the taxpayer's marginal tax rate plus a reduction in the medicare levy whereas a tax offset generally reduces tax payable by an amount equal to the tax offset. In the situation of Carly, the differential effects on her taxation return in the current year of treating the $2,000 amount as a tax offset rather than as an allowable deduction relate to changes in amounts of; taxable income, medicare levy and tax offsets. If the amount of $2,000 was a tax offset for the current year, Carly would have a taxable income of $80,000, medicare levy calculated on $80,000 and $2,000 of tax offsets. If the amount of $2,000 was an allowable deduction for the current year Carly would have a taxable income of $78,000, medicare levy calculated on $78,000 and no tax offsets. Hence if the amount was available to Carly as a tax offset rather than as an allowable deduction, she would have an incremental benefit in her current year taxation return of $1,320 ($2,000 - $650, - $30) reconciled as; additional tax offset of $2,000, additional income tax payable of $650 ($2,000 x 32.5%) and additional medicare levy payable of $30 ($2,000 x 1.5%). As a result, a tax offset is clearly preferable to a tax deduction for a given amount in this situation.

One of Your Taxation Clients, Ms Carly Benicio, Has Brought

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