Australian Taxation Law Case Study

Added on - Mar 2020

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TAXATIONThe various transactions have been discussed as follows with a view of determining theirimpact on the assessable income for the taxpayer (Charlotte).Assessable income & DeductionsThe aim is to highlight the assessable income that Charlotte derives under the ambit of s.6(5), ITAA 1997 that tends to deal with income based on ordinary concepts1.Annual assessable income from working as a lecturer = $ 90,000Further, based on the verdict of theThomas v FC of T2case, it is appropriate that house wouldnot be considered as a place of business but rather would be limited to only the private study3,The various expenses that can be considered as deductions under s. 8(1) are as follows4.Rent expenses to the extent of the area used for this purposeRunning expenses which relate with electricity along with heating and cooling costs.Any decline in value of the depreciating assets can also be claimed.Under s.25(10), home repairs to the part occupied for work or assessable incomeproduction would also be deductible5.In line with the above discussion, the following deduction may be claimed.Occupancy related expenses (according to floor area) = (10/100)*31200 = $ 3,120Running expenses (electricity as per floor area) = (10/100)*2000 = $ 200Depreciation for FY2016 = 3100*0.4 = $ 1,240Depreciation for FY2017 = (3100-1240)*0.4 = $ 744Decline in value available for deduction6= 0.7*744 = $ 520.81Barkoczy,Stephen,Foundation of Taxation Law 2015, (North Ryde, CCH, 2015)2Thomas v FC of T(1972) 3 ATR 1653Income Tax: Deduction for Home Office Expenses: Tax Ruling TR93/34Deutsch, Robert, et. al.,Australian tax handbook. (Pymont, Thomson Reuters, 2015)5Gilders, Frank, et. al.,Understanding taxation law 2015.(LexisNexis, Butterworths 2015)6Ibid.1
TAXATIONDeduction for repairs (internet wireless card)7= 0.7*180 = $ 126Deduction for public transport8(s. 8(1) ITAA 1997) = $ 850Deduction for seminar would not be available as it would not be used to generate assessableincome9. It is known that Charlotte attended the seminar so as to cater to her personal agenda.Deduction is not available for premium of income protection insurance which protects theincome is case of physical injury10. Hence, the premium paid for the same would not beconsidered deductible.Thus, net assessable income = 90000 – (3120 + 200 + 520.8 + 126 + 850) = $ 85,183.2Sale of share portfolioThe intent is to determine any assessable income that would potentially arise on the basis ofshare sale.As per s. 6(5), ITAA 1997, dividend income is one of the components of ordinary incomeand would contribute to assessable income. However, whenever there is a disposal of a CGTasset, the capital gains or loss do arise and the same need to be accounted for. For thecomputation of the same, the cost base of the asset in accordance with s. 110-25 needs to becomputed11. The cost base of an asset contains elements over and above the acquisition costparticularly related to financing of the asset, maintaining title and incidental costs related toselling and buying of asset. Also, as per s. 115-25, the discount method can be deployed forcomputation of capital gains only when these are long term in nature12.Purchasing price of the share (April 1, 2006) = $ 16,000Total interest cost incurred with borrowing for the shares = $ 3,0007Ibid. 48Ibid. 59ATO,Seminars, conferences and education workshops,ATO<,-conferences-and-education-workshops/>10ATO,income Protection Insurance,ATO<>11Ibid. 412Sadiq, Kerrie, et. al.,Principles of Taxation Law 2015, (Pymont,Thomson Reuters, 2015)
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