Income Tax Return of Jane Herman

Taxation law

TABLE OF CONTENTS
Question 1: Income Tax Return of Jane Herman.......................................................................3
Provisions...............................................................................................................................3
Income tax calculations..........................................................................................................3
Working notes........................................................................................................................3
Question 2: FCT v Cooke & Sherdon (1980)............................................................................3
Issue........................................................................................................................................3
Provisions...............................................................................................................................3
Applicability...........................................................................................................................4
Conclusion..............................................................................................................................4
References..................................................................................................................................5

QUESTION 1: INCOME TAX RETURN OF JANE HERMAN
Provisions
In the given study, Jane Herman is a chartered accountant and engages in the part time
working as a financial controller of hotels in Sydney. He along with the receiving salary from
the hotel also generate the income by carrying out the sole taxation practice.
Employment income refers as the earning derived from the employment. The person should
include all the income generated from the employment whether it is received in cash or in any
manner subject to some norms (Martins, 2018).
In the term salary and wages, commission, bonus, parental leave, payment received under the
work compensation scheme, money received under casual work etc. is included (Shields and
et.al, 2015). Along with this, if the employer provides any other payment in the course of the
employment and allowances such as travel, clothing, car, laundry, and payment for the
services then also it is included in the assessable income of the employee.
Further the person can also claim for the deduction of the expenses, if it is directly related
with the generation of the income. For claiming the deduction there must be some condition
which is to be fulfilled by the assesse, such as –
 The money which is spent is not reimbursed by any other person.
 It must be directly related with the income.
 The person who claiming the deduction must have the record for the evidence.
Capital allowance related with motor car
If an individual makes use of own car in carrying out their work-associated duties inclusive
of a car leased or owned, then they might be capable to claim for a deduction for related
expenditures. Further, if an individual gains an allowance from their employer for car
expenditures then it is considered as an assessable income and the same must be comprised in
their tax return (Knechel & Salterio, 2016). Further the allowance amount is generally is
reflected in their payment details. One can select one of the two key methods for the
calculation of car expenditure deductions which are namely: cents per kilometer method and
logbook method.

An individual can make claim for deductions for a work-related car expenditures if they make
use of their own car in conducting their job performance as an employee, such as carrying
bulky tools and equipment that their employee needs to use for operation, attending meetings,
delivering supplies, conducting itinerant work, traveling among two different employment
places and traveling from usual workplace to an optional workplace (Australian Taxation
Office, 2019).
Provisions related with the rental income
If an individual made investment in a rental property or rented their existing property, then
they will be required to retain records from the starting basis, while working out for expenses
then they need to claim for deduction, and must announce all their rental associated income in
their tax return (Paris, 2017). The taxpayer can make claim for deduction for their associated
expenditures for the period when the property is rented out or is accessible for rent, then
include the management as well as maintenance costs inclusive of all interest on loans can
often be claimed on an immediate basis i.e. deducted in opposition to their present income
year. Borrowed expenditures, spending of capital works and depreciation can be deducted
for several years.
Capital work allowance
Capital works are employed to generate income, inclusive of structural developments and
buildings are written off above a longer period as compared to other depreciating assets.
Further, the taxpayer can make claim for deduction for the overall costs of the assumption in
the year it took place. The deduction is calculated by 2.5% or 4% of the construction based
expense based on the time construction started and how the usage of capital works is done.
According to the ITAA 1997 Div 43, a person paying tax can claim for a deduction for
capital expense occurred in construction of capital works which are employed for income
generating purposes (Australian Taxation Office, 2019). Further, the construction must be
done prior when there is accessibility of deduction. The capital work deduction is accessible
for buildings, alterations, developments or extensions, structural improvement for example
sealed driveways and holding ways and earthworks for protection for environment like
embankments.
Provisions related with the dividend

Taxation on dividends are done on different based on if or if not the shareholder is an
Australian resident or non-resident.
Franked
The base of the system is that if the payment made by the company or credited by the
company with dividends which have been franked then the taxpayer might be subjected to a
franking tax balanced to the tax the corporate has been payable on its income (Swan, 2018).
Unfranked
A resident corporate might pay or credit the taxpayer with an unfranked dividend, there is no
presence of attached franking credit to these dividends. If a taxpayer derives an unfranked
dividend announced to be conduit foreign income on either their dividend or distribution
statement, comprise that amount being as unfranked dividend on the taxpayer’s tax return
(Australian Taxation Office, 2019).
Income tax calculations
Computation of the income tax payable by the Jane for the year ending
30June 2018
Particulars Amount in
$
Income
Salary received 50000
Allowance related with clothing 4500
Financial controller award
received in cash
5000
Financial controller award HP
computer

Taxation services fee billed &
received
4500
Motor car (capital allowance) 57581*22.5%*75%*90% 8745.11
Service charges 550
Rent received 12500*50% 6250
Fully franked dividend received
from CBA
7000
Imputation credit 3000
Fully franked dividend from
BHP
1750
Unfranked dividend from BHP 1750
Imputation credit 750
Net capital gain W.N 10 2500
Gross total income (A) 96295.11
Deduction
Registration fee 500
Air ticket(one) 400
Hotel accommodation 850
Taxi expenses 400
Salary paid to secretary 26000
Telephone & Internet 1200
Travel expenses 450

Motor Vehicle running expenses 2600
Motor car (capital allowance) 57581*22.5%*75%*90% 8745.11
Council rates 600
Clearing Expenses 325
Insurance 225
Property agent commission 312.5
Repair and maintenance 625
Water rates 620
Capital Work Allowance 75000 1875
Donation to Cancer Council
Australia
1500
Payment to university of Sydney
as an Alumni
2000
Total Deduction (B) 49227.61
Net Taxable Income (A-B) 38322.39
Computation of the tax
Particulars Amount in $
Tax on taxable income 4001.78
Add- Medicare levy 766.45
Total tax 4768.23
Credit of UTO (425.16)
Franking credit (3750)

Tax Payable 593.07
PAYO already suffered (3250)
Net tax liability 2656.93
Working notes
1. Although the bonus is included in the term salary and wages, however in the given study
the performance bonus received by the Jane after the year end therefore it is not considered in
the assessable income.
2. HP computer received from the Institute of Chartered accountant Australia is not
considered for the inclusion of the income.
3. Annual membership fee paid by the employer is not included in the income of the
employee.
4. Deduction is allowed only for the expenses related directly with the work. Therefore the
expenses incurred for $ 2500 in visiting the historical place cannot be claimed.
5. Deduction of taxi expenses to the employee is allowed only for the travelling to the work
and home,
6. all the expenses related with the generation of the income is allowed as deduction therefore
the salary of secretary, telephone and internet, entertainment expenses, travel expenses, motor
vehicle running expenses is allowed as deduction.
7. Market value of the service charges in included in the assessable income.
8. Since the rental property is belongs to the John and Jane both therefore only 50% rent
income is included in the assessable income. All the expenses related with the rental property
is allowed as deduction to the extent of 50%, however the deduction of the travel expenses
for the rental property is not allowed as deduction.
9. Donation made to the Cancer Council and University of Sydney is allowed as deduction.
10. Computation of capital gain

Particulars
Selling Price of shares of
CBA
60000
Cost of Shares of CBA (50000)
Capital Gain (A) 10000 10000
Selling Price of shares of
BHP
10000
Cost of Shares of BHP (15000)
Capital Gain (B) (5000) (5000)
Net Capital Gain (A-B) 5000
Calculation of capital allowance for car
Since the car is only 90% is used in the business therefore deduction to the extent of 90%
allowed on the car –
57581*22.5%*75%*90%
Calculation of capital work allowances
Deduction is allowed 2.5% of the construction based expenses. The amount of deduction can
be claimed = 75000*2.5% = 1875
Calculation of franking credit
On the fully franked dividend imputation credit is allowed.
Fully franked dividend
received from CBA
7000
Imputation credit 7000*42.86% 3000
Fully franked dividend from
BHP
1750

Imputation credit 1750*42.86% 750
QUESTION 2: FCT V COOKE & SHERDON (1980)
Issue
The present case is related with the determination of the ordinary income. In this case the
producer of the soft drinks is awarding the holiday scheme to its retailers. The reason behind
the allocation of the holiday scheme is to identify the efforts of the retailers who complete
their allotted criteria of the sales recognition. In this scheme the cost of the travelling and
fairs paid by the manufacturer (Wolters Kluwer, 2018). However the scheme is provided as
per the wish of the manufacture and it cannot be transferred to any other person, further no
cash in awarded in respect of the scheme. If the payment of specified number of bottles is
paid by the retailer to the manufacture then the manufacture give the award of holiday
scheme to the retailer. The issue is whether the award of the holiday scheme made to the
retailer, the value of the fares and accommodation which is paid by the manufacture is
included in the assessable income of the each retailer under section 21, 25(1) and 26(e).
Provisions
According to the section 6(1) of the Income Tax Assessment Act 1997, the tax is charged on
the income derived from the ordinary course of the business and on some income which is
specifically defined under the act (Lee, 2018).
Section 26(e) states that value to the taxpayer includes all benefits, bonuses, allowances,
gratuities, premiums which are provided by the employer, directly or indirectly in the course
of the employment or services provided by him (Buchanan & Consett, 2016).
Section 25(1) states that income includes any benefit even if it is not convertible into money;
it is depended on some facts. If the inconvertible benefits in the hands to recipients is related
with the goods and services which is normally required by the person in the ordinary course
of his/her life for the maintenance or ease for themselves or their dependent, so that it is
possible to benefit received by the person is recurring by which he would satisfy his
requirement, then it could be included in the income of the assesse (Burton, 2018).
Section 21 is applicable after determining the assessable income of the assesse.

Applicability
On the basis of the above provision it has been seen that, according to the section26 (e), it is
compulsory that benefit must be provided for the services rendered. However in the given
case, the manufacture only made the promise to retailers to sell the goods to them in
exchange of promises made by the retailer to sell those goods in a specified area. In this case,
there is no award given by the manufacture for the work of the retailer of selling the goods to
consumer. There is no promise to sell the goods to the retailer and for the performance of the
promise there is not any sale by the manufacture.
Further the requirement of the section 25(1) is also not satisfied because the holiday scheme
cannot be regarded as the expenditure which is required by the person for satisfying their
essential needs. As per the section 25(1), for considering the non-convertible benefits in the
meaning of income it is compulsory that the expenses reimburse by any other person must be
in the nature by which the requirement of the ordinary person or his dependent would be
satisfies. Therefore the section25 (1) is not applicable in the given case (Wolters Kluwer,
2018).
Moreover section 21 is applicable only after the assessable income determined; therefore it is
also not applicable in the given case.
Conclusion
It has been concluded that in the case of FCT v Cooke and Sherden, the value of holiday
scheme provided to the retailer is not considered as the ordinary income therefore not
included in the assessable income.

REFERENCES
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Wolters Kluwer, (2018). Federal Commissioner of Taxation v. Cooke and Sherden, Supreme
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