Taxation Law: Letter of Advice, Work Papers, Income, Deductions, and Tax Liability

In this document we will discuss about Taxation Law and below are the summary points of this document:- The letter of advice provides guidance on taxation matters, including income, deductions, and tax liability. It mentions non-taxable items such as additional superannuation contributions and mobile phone bills paid by the employer. The advice addresses the sale of inherited shares, rental property expenses, and the total tax payable.

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
Letter of Advice:........................................................................................................................2
Work Papers:..............................................................................................................................3
Work Related Income and Deductions:.................................................................................3
Work related Car Expenses:...................................................................................................4
Capital Gains:.........................................................................................................................4
Income and Deduction from Other Sources:..........................................................................6
Tax Payable, Offsets and Levies:...........................................................................................7
References:.................................................................................................................................8

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Letter of Advice:
To Arslan
From Tax Advisors
Date: 31st January 2019
Dear Arslan
We would like to draw your kind attention towards our letter of advice that seeks to
advice you matters related to your taxation and permissible deduction which you can claim
while filing tax return. The gross salary that you have reported amounting to $140,000 will
attract tax liability as your income from personal exertion within the ordinary concepts of
“section 6-5, ITAA 1997”. Though, the withheld tax from your salary income can used for
claiming an income tax deduction as this will help in reducing your tax liability.
The additional superannuation contribution and the mobile phone bill that is paid by
your employee will be considered as non-taxable under “section 23L, ITAA 1936”. Your
assessable income also includes the dividends that is received from CBA, COH, TLS, FLT
and Digital Feet Pty Ltd. Therefore, with reference to “section 44, ITAA 1936” these
amounts are included for assessment purpose because they amounted to statutory income.
Your dividend also included franking credit and these amounts are taxable under “section
207-20 (11), ITAA 1997” however, an income tax deduction can be claimed for reducing
your tax liability.
After the death of your father the shares were inherited by you on 1st December 2017.
Out of the share portfolio you sold the BHP shares and MYR which you inherited. The shares
were held by you for less than 12 months and as result you are not be eligible for the
discounted method. The sale of MYR shares led to loss. A recommendation in this matter can

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be made by stating that you can offset the capital loss from MYR shares against the BHP
shares.
The rental property which you have rented out to your daughter is eligible for
charging rent based on the general commercial rate. While the rental expenses incurred by
you will be only eligible for deduction from the period the property is let out. You will not be
allowed to claim deduction for the laundry expenses of your work suits as this not related to
specific clothing. Based on the information furnished by you, the total amount of tax that is
payable by you stands $42,946.24.
We hope the above stated advice has helped you in serving your purpose and we look
forward to serve you again in future.
Thank You
Work Papers:
Work Related Income and Deductions:
The gross salary earned is considered for taxation under section “section 6-5.
Dividends and the franking credits that is attached is considered as statutory income and the
same has been included for assessment purpose under the “section 44 (1), ITAA 1997”
(Krever 2013). The additional superannuation contribution and the mobile phone bill that is
paid by the employee will be considered as non-taxable under “section 23L, ITAA 1936”.

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Item 1 (Income and Deductions for Work) Amount (AUD$) Amount (AUD$)
Employment Income
Gross Payments 1,40,000.00$
Less: Tax Withheld 42,232.00$ 1,82,232.00$
Income from Dividend
Digital Feet Pty Ltd
Fully Franked Dividend 1,68,000.00$
Gross Up for Franking Credits (168000 x 30/70) 72,000.00$ 2,40,000.00$
CBA Shares
Fully franked Dividend From CBA Shares 990.00$
Gross Up for Franking Credits (990 x 30/70) 424.28$ 1,414.28$
FLT Shares
Fully franked Dividend From FLT Shares 400.00$
Gross Up for Franking Credits (400 x 30/70) 171.41$ 571.41$
TLS Shares
Fully franked Dividend From TLS Shares 155.00$
Gross Up for Franking Credits (155 x 30/70) 66.42$ 221.42$
COH Shares
Fully franked Dividend From COH Shares 1,300.00$
Gross Up for Franking Credits (1300 x 30/70) 557.14$ 1,857.14$
Total Employment Income 4,26,296.25$
Notes of Working Papers
Work related Car Expenses:
Work Related Deductions Car Expense
Total 5000 kilometers Under section (28-90) 5,000.00$
Rate per kilometer 0.66$
Total car expense 3,300.00$
Total Work Related Deductions
3,300.00$
The taxpayer has not maintained a log book for keeping record of the car expenses
that is occurred during the year. Therefore the taxpayer here can only claim deduction for the
expense that is occurred for car up to 5000 kilometre at the rate of 0.66 per kilometre.
Capital Gains:
The taxpayer here inherited the shares from the father following his death. The shares
were transferred on 1st December while it was sold on 5th January 2018. This implies that the
shares were only held for a month (Sadiq et al. 2014). The taxpayer is not eligible for
discounted method “section 115-40, ITAA 1997” for the CGT event since the shares were
not held for 12 months.

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Item 3 (Capital Gains)
Gross Sales Proceeds from Sale of BHP Shares (CGT A1 S-104-10 (1)) 51,260$
Add: Brokerage Fees (Section 110-25)(2)), ITAA 1997 115$
Total Sales Proceeds 51,375$
Purchase Price for BHP Shares (110-25)(3)), ITAA 1997 10,000$ 41,375$
Gross Sales Proceeds from Sale of MYR Shares (CGT A1 S-104-10 (1)) 10,800$
Add: Brokerage Fees (Section 110-25)(2)), ITAA 1997 50$
Total Sales Proceeds 10,850$
Purchase Price for MYR Shares (110-25)(3)), ITAA 1997 32,800$
Net Capital Gain/(Loss) from Sale of MYR Shares (102-10(1)), ITAA
1997 -21,950$
Net Capital Gains 19,425$
Capital Gains from Investment
Rental property:
The rental property following the settlement on 1st March was let out to the daughter.
The taxpayer here should charge based on the general commercial rate and. The rental
property expenses are only deductible from the period 1st March to 30th June. The stamp
duty, construction costs and other incidental costs are not allowed for deduction because they
are capital expenses under “section 110-25 (1-6), ITAA 1997” (Barkoczy 2014).
Item 2 (Rental Property)
Gross Rental Income
Gross Rent (1st March to 30 June) 7,040.00$
Allowable Rental Deductions (1st March to 30 June)
Fees for Body Corporate 450.00$
Council rates 316.67$
Rates for Water 113.33$
Insurance Expenses 228.33$
Repayment of Loan 2,800.00$
Quantity surveyor report fees 233.00$
Depreciation of rental assets 1,035.96$
Total Rental Deductions 5,177.29$
Net Rental Property Income 1,862.71$
Income from Rental Property

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Deprecation Working Schedule:
Names of Assets Total Base Value Total No. of (Days) Held Total (Days) in Year Percentage in (%) Effective ssets Life Depreciation Charged ($) Closing Balance ($)
Carpet 3,750.00$ 121 365 200% 10 248.63$ 3,501.37$
Dishwasher 700.00$ 121 365 200% 8 58.01$ 641.99$
Air Conditioner 1,200.00$ 121 365 200% 10 79.56$ 1,120.44$
15200 Stove 750.00$ 121 365 200% 12 41.44$ 708.56$
Hot Water System 850.00$ 121 365 200% 12 46.96$ 803.04$
Refrigerator 880.00$ 121 365 200% 6 97.24$ 782.76$
Window Curtains 2,700.00$ 121 365 200% 6 298.36$ 2,401.64$
Washing Machine 1,500.00$ 121 365 200% 6 165.75$ 1,334.25$
Depreciation Working Schedule
As the taxpayer did not elect to follow the pool method therefore, the diminishing
method of depreciation has been followed based on the effective life of assets.
Income and Deduction from Other Sources:
The taxpayer will not be allowed to claim deduction for the laundry expenses for the
work suits as this not related to specific clothing. The expenses incurred for paying the
financial advisors are deductible under “section 26-55 of the ITAA 1997” as specific
deduction (Woellner et al. 2018). The donation made to Cancer council and sea Shepherd is a
permissible deduction under “section 26-55 of the ITAA 1997”.
Item 4 (Income and Deductions from other Sources)
Other Income
Accidental Compensation Received 8,000.00$
Replacement Income 2,000.00$
Total Other Income 10,000.00$
Other Deductions
Personal Contributions on Superannuation 12,000.00$
Donations Expendiure
Cancer Council of Australia 1,200.00$
Sea Shepherd 1,200.00$
Finance Advisors Membership Fees 940.00$
Subscription to The Economist 120.00$
Fees paid to bank for loan 800.00$
Insurancen policy of Replacement Income 2,000.00$
BUPA Insurance (860/12x2) 143.33$
Total Other Deductions 18,403.33$
Income and Deduction from Other Sources

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The contribution made by taxpayer on Sunsuper is permissible deduction under
subdivision 290-C of the ITAA 1997”. The 50% of the replacement income has included for
assessment while the remaining 50% is included for deduction purpose.
Tax Payable, Offsets and Levies:
Item 5 (Tax Payable, offsets and Levies)
Taxable Income 3,93,792.00$
Tax Payable on Taxable Income 1,50,438.40$
Less: Offsets
Private Health Insurance Offsets 83.00$
Sub-Total 1,50,521.40$
Add: Medicare Levy 7,875.84$
Sub Total 1,58,397.24$
Less: Credits
Tax Withheld 42,232.00$
Franking Tax Offsets (Refundable) 73,219.00$
Sub Total 1,15,451.00$
Estimated Tax Payable 42,946.24$
Tax Payable, Offsets and Levies

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References:
Barkoczy, S. 2014. Foundations of taxation law 2014.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A.
2004. Principles of taxation law 2014.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2018. Australian taxation
law 2018.