Question

In relation to tax offsets, which of the following statements is least correct? Select one: a. A tax deduction is subtracted from assessable income to calculate taxable income, while a tax offset is deducted from tax payable on taxine b. The description used for tax offsets in the ITAA36 was tax rebates or tax credits. c. A tax offset is more equitable than a tax deduction. d. A taxpayer's tax liability is calculated by multiplying the taxpayer's taxable income by the progressive tax rates and then subtracting tax offets. e. A tax offset is less valuable than a tax deduction

Answer 1

Step-by-step explanation:

The least correct statement among the options provided is:

e. A tax offset is less valuable than a tax deduction.

This statement is incorrect because a tax offset and a tax deduction have different implications and cannot be directly compared in terms of value. Both tax offsets and tax deductions serve to reduce an individual's tax liability, but they operate in different ways:

- Tax deduction: A tax deduction is subtracted from the individual's assessable income, reducing the amount of income subject to taxation. The individual pays tax based on the remaining taxable income. A tax deduction reduces the individual's taxable income, resulting in potential tax savings depending on their tax rate.

- Tax offset: A tax offset, also referred to as a tax rebate or tax credit, directly reduces the tax payable on the tax liability. It is applied after calculating the tax liability. Tax offsets provide a dollar-for-dollar reduction in the tax owed, rather than reducing the taxable income itself.

Therefore, it is incorrect to state that a tax offset is less valuable than a tax deduction. The value and impact of each mechanism depend on various factors, such as the individual's tax rate, the amount of taxable income, and the specific tax offset or deduction being applied.