Assessable Income and Expenditure Information Report 2022

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Introduction:...............................................................................................................................2
Assessable Income and Expenditure Information:.....................................................................2
Part A: Income from Employment:............................................................................................3
Part B: Income and Expenses from business:............................................................................4
Income from Business:...............................................................................................................5
Part C: Income from Rental Property:.......................................................................................8
Dependent Tax offset:................................................................................................................9
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
The report is associated with analysing the different types of transactions that are
reported by taxpayer to understand their inclusion in the tax return as income and determining
those expenses that will be allowed for deduction. The report is prepared by focusing on
different sources of taxation laws to ascertain whether Eric will be held assessable or not for
the invalid and invalid carer tax offset. The report will be computing the overall taxable
income of Eric will be considered assessable in agreement with the given provision of “ITAA
1997”.
Assessable Income and Expenditure Information:
Before computing the taxable earnings of Eric it is essential to have an understanding
of assessable income. The assessable earnings is a subject of assessment and it is added into
the taxable pay. The taxpayers should understand that ordinary income amounts to “income
in agreement with the ordinary conception” and it is treated chargeable within legislative
provision of “sec 6-5 ITAA 1997” (Smith, 2014). The case facts of Eric furnishes that he
held a joint term deposit with Linda his spouse in ANZ bank account and derived an interest
of 500 from that account. Interest constitute an “ordinary income” under “sec 6-5 ITAA
1997”. The commissioner in “Riches v Westminster Bank Ltd (1947)” explained that
interest is regarded as the return which streams from the advancing of money and the capital
sum that is not impacted by imbursement of interest (Smith, 2018). Likewise, the interest
which Eric has earned jointly with his wife in ANZ bank is included for assessment as
“ordinary income” under “sec 6-5 ITAA 1997”.
Expenditure that is paid by the taxpayer for management of tax affairs is given the
permission for deduction in “sec 25-5 (1) ITAA 1997”. A payment of $400 was paid to a

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registered tax agent by Eric to prepare for his tax return for tax year of 2018. Therefore, the
tax agent payment is a permissible tax deduction in “sec 25-5 (1) ITAA 1997”.
Part A: Income from Employment:
Under “sec 6 (1) ITAA 1936”, earnings that is made by the taxpayer from individual
effort generally involves receipts that is earned through working as employee in an
employment. As noted in “McNeil v FC (2007)” whether or not the amount is an income is
dependent on the quality for those that receives the amount and it is not regarded as the
character of expenditure by other person (Diewert & Lawrence, 2015). This is important until
the payments which is received carries adequate nexus with the income of the recipient
employment and professional service and not on personal level. Eric earned a gross wages of
$7,800 from his employment. The gross wages of Eric is an earnings from personal exertion
under “sec 6 (1) ITAA 1936”. Denoting to “McNeil v FC (2007)” the gross wages which is
received by Eric carries adequate nexus with his income from employment and professional
service. Under “sec 6-5 ITA Act 97” it will be taxable as “ordinary income”.
There are common issues whether the payment made to the employee constitutes
allowances or reimbursement. Under the “sec 15-2 (1) ITAA 1997” allowance involves usual
“salary or wages” and hence it is not a “fringe benefit”. It is taxable to the employee
ordinary income. While reimbursement is not a salary and wages. It was established in
“Roads and Traffic Authority of New South Wales v FCT (1993)” usually, a reimbursement
is characterised as imbursement made for the actual expenditure.
A shift allowance of $2,000 was received during the year by Eric. Referring to “sec
15-2 (1) ITAA 1997” allowance involves usual “salary or wages” and hence it is not a
“fringe benefit”. It is included in the taxable earnings of Eric for tax purpose. Eric was also
reimbursed for work related software fees by his employer (Wales, 2017). The

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reimbursement received by Eric is not a salary and wages. Denoting “Roads and Traffic
Authority of New South Wales v FCT (1993)” the reimbursement made to Eric is
characterised as imbursement made for the actual expenditure.
A car fringe benefit only takes place upon the receipt of car by employee from the
employer regarding their private usage under “sec 7 (1)”. When the employer gives the
employee with the benefit then it becomes “non-taxable earnings” for the employee under
“sec 23L ITAA 1936”. The employer in such condition is required to FBT regarding the
value of benefit. Eric has been a car by his employer (McCluskey & Franzsen, 2017). Under
the “sec 7 (1)” receipt of car by Eric is a car fringe benefit. The car is “non-taxable
earnings” for Eric under “sec 23L ITAA 1936”. The employer Merlin Blue is required to
FBT concerning the value of benefit.
Fringe Benefit
Particulars Amount ($)
Value of car $60,000
FBT Gross up rate 1.8868
Taxable value of car FBT $113,208
The positive limbs given in “sec 8-1 ITAA 1997” says that a deduction from the
taxpayers taxable income is permitted for any “loss or outgoing” till the amount it is
experienced in producing taxable earnings or it is has happened in conducting any business
activities for earning taxable earnings (Arnold et al., 2019). Eric has incurred work related
telephone and stationary expenditure of $300. A general deduction under “sec 8-1 ITAA
1997” is allowable for same to Eric.
Part B: Income and Expenses from business:
Income From Employment
Particulars Amount ($) Amount ($)
Assessable Income

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Gross Wages $7,800
Less: PayG withholding $200
Less: Telephone and stationary expenses $300 $7,300
Add: Shift allowances $2,000
Net income from employment $9,300
Income from Business:
When a revenue is earned from business then it is treated as ordinary business
proceeds. The judgement noted in “GP International Pipecoaters Pty Ltd v FCT (1990)”
stated gains from business are chargeable as “ordinary income” “sec 6-5 ITAA 1997”. Eric
made a receipts from accounts receivables as business revenue (Burns, 2017). Hence, in “GP
International Pipecoaters Pty Ltd v FCT (1990)” the accounts receivable receipt is a taxable
business gains under in “GP International Pipecoaters Pty Ltd v FCT (1990)”.
Under the “sec 70-35 ITAA 1997” the worth of trading stock at the start of the year
must be related with the stock at the end of the year. The resulting income or loss needs to
consider for taxation purpose.
Opening Stock = $7,100
Closing Stock = $8400
Taxable in Eric’s hand = $8400 - $7100 = $1300
As noted in “sec 75 (2) ITAA 1997” the excess worth of closing stock is taxable as
earnings (Campbell, 2018). The sum of $1,300 is a taxable income for Eric. It is presumed
that to compute the worth of closing stock the lowest value of $8,400 has been taken. While
the stock amounting of $5000 is yet to be received has been considered into the closing stock
because the business income is computed on the accrual method.
Stock taken for personal use

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If a person takes the business stock purchased for the purpose of sale in business for
their private usage and consumption, then the value of such stock taken will be considered as
sold (Davis et al., 2019). The case facts obtained suggest that a stock valuing $2,500 has been
taken by Eric for his personal consumption. The value of such stock drawn is included in the
sales amount.
Workings Computation of Sales
Income From Business
Particulars Amount ($) Amount ($)
Cash Receipt $85,000
Add: Closing Value of Accounts Receivables $19,800
Less: Opening balance of Accounts Receivables $17,600
Net Sales $87,200
Add: Drawings $2,500
Volume rebates from overseas suppliers $3,500
Other income
Compensation for loss of Income $7,900
Total Business Income 101100
Important assumptions:
Compensation for the loss of earnings is counted in in the business earnings. Since
“sec 25 and 26J of the ITAA 1936” explains that when a person gets any compensation
regarding the loss of income under the insurance policy then it is added in the taxable income
of taxpayer for assessment purpose (Braithwaite, 2017). The leading instance of “FCT v DP
Smith (1981)” says that compensation when received by a taxpayer under insurance policy is
a taxable business income. The amount of $7,900 is a taxable business income.
Calculation of Purchase Value:

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Under “sec 70-15 ITAA 1997” purchase of trading stock is permitted as tax deduction
(O’Connell, 2017). Eric has made a payment for accounts payable of $43,000. The same
amount is allowable as permissible tax deduction under “sec 70-15 ITAA 1997”.
Determination of Closing Stock Inventory
Particulars Amount ($)
Closing Stock of Accounts Payable $5,830
Add: Cash Payments $43,000
Less: Opening stock $5,280
At Market Selling Price $43,550
Deduction of Depreciation of assets
Accordingly in “sec 40-25 (1)” deduction for “decline in value” for the depreciating
asset is permitted for assets held in the income year (Spies-Butcher & Henderson, 2018).
While in “sec 40-25 (2) ITAA 1997” deduction is lowered when deduction for “decline in
value” of assets to its use apart from the taxable purpose. Eric holds a mobile phone which is
used for 60% for business purpose and the rest is attributed to private usage. Under “sec 40-
25 (2) ITAA 1997” deduction for “decline in value” is permitted to Eric only for business
proportions usage.
Assets Costs Purchase date Effective life Usage Div Method Days Held Decline in Value
Carpets 5000 01-07-2018 5 100% Prime Cost 365 1000.0
Hot Water Syste 1200 01-07-2018 12 100% Prime Cost 365 100.0
Ceiling Fans 1600 01-08-2018 5 100% Prime Cost 365 320.0
Barbecue (Fixed) 1400 01-08-2018 10 100% Prime Cost 365 140.0
Window blinds external 8000 01-08-2018 10 100% Prime Cost 365 800.0
Window Curtains 6000 01-08-2018 6 100% Prime Cost 365 1000.0
Rental property Assets

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Part C: Income from Rental Property:
Income from Rental property
Particulars Amount ($)
Rent Received 23750
Compensation from rental bond board 1300
Rent in advance 3000
Insurance recovery for storm damage 2100
Total Rental Income 30150
Allowable Rental Deductions
Decline in value (Note 1)Rental property
Carpets 1000
Hot water system 100
Ceiling fans 320
Barbecue (fixed) 140
Window blinds internal 800
Window curtains 1000
Mortgage repayments to Westpac Bank - Interest 23800
Loan application fee 82.5
Council and water rates 3400
Building insurance premium 850
Payments to solicitors
Lease preparation fees 150
Ejecting tenants 375
Garden hose and attachments 165
Travel cost 830
Pest control 280
Payment to registered tax agent 170
Total Rental Deductions 33462.5
Net Rental Loss -3312.5
Rental Income:
Rent represents the imbursement that is made by one party to another in exchange of
using the property of another person for the decided time period. As noted in “sec 6-5 ITAA
1997” receiving of rent is the “ordinary income” within the flow concept, this is because rent

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streams from the investment property (Butler, 2019). Eric has earned rent of $23,750 during
the year from rental property. The rent is an “ordinary income” for Eric and assessable under
“sec 6-5 ITAA 1997”.
Deduction for repairs:
As per “subsec 25-10 (1)” repairs is permitted for deduction occurred by taxpayer on
the property which the taxpayer holds for generating income. Under “sec 25-10 (3) ITAA
1997” initial repairs will be considered as capital in nature completely when it is conducted
on the newly purchased item since the cost of item is regarded as the part of purchase price to
function the item. In “Law Shipping Co Ltd v CIR (1924)” deduction for initial repairs were
denied to taxpayer for ship that was in a state of significant repair (Yuan, 2016). Eric carried
out repairs by painting the outside walls of house on 10th July soon after its acquisition.
Referring “Law Shipping Co Ltd v CIR (1924)” the painting done by Eric is an initial repair.
Within the “sec 25-10 (3) ITAA 1997” no deduction will be permitted to Eric in this case.
Deduction for borrowing expenses:
Under “section 25-25(3) of ITA Act 1997” a taxpayer is permitted to obtain
deduction for borrowing expenses over numerous years that relates rental property
(O’Connell, 2017). If the total borrowing expenditures is more than $100 then a deduction is
spread over five years. A loan application fee of $825 has been occurred by Eric for rental
property. Eric can obtain a deduction for loan application fee should be spread over the term
of loan.
Dependent Tax offset:
As stated by the ATO a dependent tax offset is allowed to those that maintain their
spouse who is invalid or those that cares for the invalid. A carer should have care for their
spouse’s invalid child, brother or sister that is below 16 years (Butler, 2019). The carer

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should receive a carer imbursement or carer allowance within “Social Security Act 1991”. A
deduction is only permitted for their spouse that has total income of $11,346 and the carer
adjustable income is not greater than $100,000.
Similarly, Eric will be permitted to claim an invalid tax offset for his spouse because,
Linda receives a social disability payment of $9,200 and Eric’s taxable is not greater than
$100,000. Therefore, a dependent tax offset is permitted to Eric.
Conclusion:
The circumstance can be settled by stating that Eric will be assessable for his
employment, business receipts and rental income. While an invalid tax offset will be
permitted to Eric for being the carer of his wife Linda.

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References:
Smith, J. P. (2014). Taxing popularity: The story of taxation in Australia. Australian Tax
Research Foundation Research Studies, viii.
Smith, J. (2018). Gambling taxation in Australia. Australian Tax Research Foundation
Research Studies, 109.
Diewert, W. E., & Lawrence, D. (2015). The deadweight costs of capital taxation in
Australia. In Efficiency in the public sector (pp. 103-167). Springer, Boston, MA.
Wales, N. S. (2017). TAXATION IN AUSTRALIA| MARCH 2017 452.
McCluskey, W. J., & Franzsen, R. C. (2017). Land value taxation: An applied analysis.
Routledge.
Arnold, B. J., Ault, H. J., & Cooper, G. (Eds.). (2019). Comparative income taxation: a
structural analysis. Kluwer Law International BV.
Burns, A. (2017). Mid market focus: Tax considerations when doing business
offshore. Taxation in Australia, 51(10), 535.
Campbell, S. (2018). Personal liability of a trustee to tax on trust income: Part 1. Taxation in
Australia, 53(5), 263.
Davis, G., Akroyd, P., Pearl, D., & Sainsbury, T. (2019). Recent personal income tax
progressivity trends in Australia (No. 2019-05). Treasury Working Paper.
Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
O’Connell, A. (2017). Australia. In Capital Gains Taxation. Edward Elgar Publishing.
Spies-Butcher, B., & Henderson, T. (2018). Towards Basic Income in Australia.

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Butler, D. (2019). Who can provide taxation advice?. Taxation in Australia, 53(7), 381.
Yuan, H. (2016). Mid market focus: The sharing economy and taxation. Taxation in
Australia, 51(6), 293.