Taxation Law
QUESTION 1
Is the money received from Lottery an annual payment income? Give reasons for your decision.
Money won in the lottery is regarded as annual income and is subject to taxation. As per Heavy’s statement (1978), if a person wins a considerable amount of prize money, he can or she can collect it in any of the two ways- lump sum or annual installments. Suppose the winner goes for the second option. Both methods of payment have their own advantages when it comes to paying taxes. According to a statement by Morgan (2002), the option of lump-sum payment can help winners circumvent long-term tax involvement. If the prize money is substantial, they can invest in lucrative options like stocks and real estate to expand their income.
Choosing the second method of payment has other major tax benefits (Brown et al., 1999). According to Matheson (2001), taxation is a major influence on the winner’s decision to settle for either of the methods. Both methods come with their own benefits. Lumpsum ensures total payment of the sum in one go.
An annual payment, on the other hand, does not have the certainty of complete payment. However, they always have the option of switching over to the other method of payment.
Payment policies of lottery companies vary. For instance, Powerball offers winners options of lump-sum payout or 30 installments over 29 years. Companies like Mega Million also offer the same options and in the case of an annuity, each installment exceeds the previous one by 5 percent. However, it’s not free from disadvantages.
As per federal law, lottery winnings are subject to taxes just as personal income is subject to income tax. Haisley et al. (2008) stated that declaring lottery losses as itemized subtractions can improve tax refunds or reduce the tax amount owed.
Taxation Law
As per the taxation Laws to Australia, a visitor visiting Australia is liable to pay tax. However, there are certain aspects of that are being checked to ensure the fact that the tax liability being imposed is at par the guidelines of Australian taxation laws.
