Tax Deductions for Home Office Use
Added on 2020-03-01
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TAXATION LAWSTUDENT ID:[Pick the date]
Taxation LawPart A1)The primary source of Commonwealth Parliament’s taxation is found in Constitutionwhich provides the power to the Parliament to legislate tax laws. In the absence of thissource, the taxation powers of the Commonwealth Parliament would not exist (Barkoczy,2016).2)The primary source for tax laws lies in the legislation enacted by the same along with thecourt decisions in various case laws which tend to uphold certain principles. Theseprinciples tend to form the basis of the statutes implemented by the Parliament and tend toprovide guidance with regards to interpreting the existing regulation on a particular matter(Gilders et. al., 2016).3)TR98/17 discusses the tax residency of individual taxpayers and highlights the varioustests that may be applied in order to determine the tax residency of a given individual onan annual basis based upon the underlying conditions. The various tests are domicile test,reside test, 183 day test and superannuation test (Sadiq et. al., 2016).4)Medicare levy is applied at the rate of 2% of the taxable income. However, Medicare levyis not applicable for foreign residents and also for those who are not entitled to benefitsarising from Medicare. Also, for low income earners, there are exemptions with regards toapplication of Medicare levy (Deutsch et. al., 2016).5)The deduction of fines or penalties for violation of any Australian law is not permissible asper s. 26-5 of ITAA 1997 (CCH, 2013).6)In accordance with s. 25-45 ITAA 1997, deduction can be claimed for any losses that arisedue to theft, larceny, misappropriation, embezzlement or defalcation which has beenincurred due to the agent or employee and otherwise would have been recognised atassessable income in the current year or has been recognised as assessable income in theprevious years (Woellner, 2014).7)The given case highlights the situation when the deduction for repairs can be claimed.According to the discussion in the case, the expenses incurred would be termed as repairwhen the efficiency of a thing is restored. Further producing the exact replica of thematerial or form is not significant for claiming deduction (Barkoczy, 2016).8)The three applicable methods are highlighted below (Gilders et. al., 2016).The trading stock can be valued at the cost price.The trading stock can be valued at the market selling value.
Taxation LawThe trading stock can be valued at the replacement cost based on the closing dayprices.9)Total tax payable for a person with taxable income of $ 45000 = 3572 + 0.325*(45000-37000) = $ 6,172Thus, the marginal tax rate applicable is 32.5%.However, the tax rate applicable (excluding Medicare levy) = (6172/45000)*100 =13.71%10)PAYG or Pay as You Go collection system ensures that the various tax obligationsconcerning income tax, Medicare payments, HELP repayments are collected ininstalments from the salary of the individuals so as to avoid a one-time tax burden on thetaxpayer (Nethercott, Richardson & Devos, 2016).Part BIn accordance with s. 25(5) ITAA 1997, an entity can deduct expenditure which is related tomanaging the tax affairs. Additionally, as per s.960-100, one of the key entities is anindividual taxpayer. Also, as highlighted in the discussion of the Falcetta v FC of T 2003ATC 4962; [2003] FCA 1125 case, it is also established that the deduction in this regardcould be claimed only in the year in which the expenditure on tax affair management isincurred (Sadiq et. al., 2016), Therefore based on the given facts and the above applicablelaw, it is apparent that the fees that Ram has paid to the tax agent for the previous year filingwould be deductible for tax purposes in the current year.The deduction highlighted above in relation of s. 25(5) also applies to the expenses incurredin filing the tax objection in relation to the previous years. Further, this deduction would beapplicable in the same year in which the expense is incurred. As a result, the expense incurredby Ram for drafting the objection through the use of a solicitor would be deductible for taxpurposes but in the current year when the expense is actually incurred. Similarly, s.25(5)deductions do not apply in relation to any penalty or income tax which is paid on account ofprevious tax returns (Deutsch et. al., 2016). Hence, the income tax of $ 50,000 paid by Ramwould not be tax deductible in the current year or the previous year. Part C
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