taxation law case study and some calculation

need before lunch please write in your own word don't need any plagiarism follow the question and criteria and there are two question cases thanks

TAXATION LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a)..................................................................................................................................................1
b)..................................................................................................................................................2
c)..................................................................................................................................................3
d)..................................................................................................................................................3
QUESTION 2...................................................................................................................................4
a) .................................................................................................................................................4
b) .................................................................................................................................................4
c)..................................................................................................................................................4
d)..................................................................................................................................................5
e)..................................................................................................................................................5
f) ..................................................................................................................................................5
g)..................................................................................................................................................6
h)..................................................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Taxation refers to the systems through which the government imposes or levies charges
over the citizens or corporate entities for financing the expenses like welfare, defence etc. Tax is
compulsory payment to the government as per rules and regulations. It could be charged over
any items, activity or any income. Legislatures are vested with powers and responsibility of
making laws. Judiciary interprets law & administration implement laws. Two types of taxes are
there which are direct tax and the other one is indirect tax. In direct tax bearers person himself I
require to pay tax to government. Income tax charged of individuals and corporate is a form of
direct tax. Value added tax is example of the indirect costs. Tax collected by the government at
various stages so that burden is distributed evenly among the people. Income tax is the amount
paid to government from the earnings. Income tax is charged on a progressive rate over the
income of individuals. Legislations governing the income tax are ITAA 1936 & ITAA 1997.
QUESTION 1
Sophia has incurred following transactions during the year. She wants to know the
deductions that are allowed for capital gains and the capital gain consequences over the
transaction incurred during the year on sale and disposal of various assets.
Capital gain
Capital gain occurs when a asset is disposes at price higher than the actual cost of
purchase. It is not separate tax and is charged with the assessable income of individual. Tax laws
provides detailed provisions about the capital gain tax consequences . It is covered by the ITAA
1997.
a)
According to Section 104 of ITAA 1997, Sale of land by Sophia will be attracting
capital gain consequences as the land is sold at rate higher than the cost of acquisition that is
$130000. Taxation office has provided that the cost base includes the stamp duty and legal fees.
Expenses related to the council rates, insurance and interest will not be forming part of tax as
they are incurred before August 1991. She incurred the expenses for removing the pine trees
from land, this can be claimed as deductions as they are incurred for selling the land. Also she
incurred expense of $25000 for advertisement, agent and legal fees (Capital Gains Tax, 2019).
This will be allowed for deductions as they are related to disposal of property.
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Sales Proceed 800000
Cost Base
Cost of Purchase 130000
Stamp Duty 800
Legal Fees 1200
Removal of Pine trees 1500
Agent's fees & solicitor's Fees 25000
Cost Base Un-indexed 158500
Capital Gain on Sale
Proceeds on Sale 800000
Less : Un-indexed Cost base 158500
Capital Gain 641500
Tax on capital using discounting
method
Capital Gain 641500
Discount 50%
Net taxable capital gain 320750
b)
She sold the shares purchased in 1983 of ABC at $ 1.5 for $ 32.30. She purchased 2000
shares of the company. The brokerage expense can be claimed as cost for sale for reducing the
capital gain incurred on sale of shares as per Subdivision 104 – G- Shares of ITAA, 1997. Tax
department states, shares bought before 20th September 1985 are exempt from capital gain tax.
As shares were purchased in 1983 Sophia is not require to pay any tax on sale of shares.
Brokerage is allowed to be used for reducing the profits. Taxation law has stated that full
deduction can be claimed by Sophia on shares.
Sale of 2000 shares
Sale Proceed 64400
Cost of purchase 3000
Brokerage fees 644
Capital Gain 60756
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c)
Section 10.225 of ITAA, 1997 in Taxation law provides that the collectables are exempts
on satisfying certain specific conditions. The purchase of stamps by Sophia from private
collector would account as collectables. Taxation law states collectables purchased for less than
$500 are exempt from the capital gain tax. Sophia is not a private dealer of stamps and has
purchased the stamps due to personal interests. However she sold the stamps at an auction for
$23000 and $300 were related to sale at auction. Stamps were held by Sophia for less than 12
months. The transaction will be resulting in short term capital loss as the sale proceeds are less
than the amount incurred for purchase of it (Exemptions and deductions, 2019). Also the capital
loss from collectables can be claimed only against capital-gains from collectables and not on
other capita gains.
Sale of Stamps
Sales proceed 23000
Cost Base
Purchase price 33000
Auction fees 3000 36000
d)
Personal use assets are exempt from the capital gain tax. Personal use assets are
specifically provided in the exemptions lists given by the taxation office. It has been given that
Sophia purchased the guitar of Bob Marley. It is incurred for her personal use or entertainment
and nor for generating any assessable income. Exemptions are available on satisfying certain
specific conditions given. It has been provided under tax laws that only those personal use assets
are exempt from capital gain tax that are purchased for less than $10000. In the present case
Guitar has been purchased for $70000 above the threshold limits and is sold for $45000. She has
incurred loss of $25000 but is not allowed to be claimed against any other capital gains
according to section 108.20 of ITAA, 1997. Therefore the sale of guitar is taxable CGT event.
Sale of Guitar
Sales price 45000
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Less; Cost of acquisition 70000
Capital loss -25000
QUESTION 2
Ava has completed her medical degree and has joined Sunshine hospital for work. She
wants to know the assessable income for the year. She had the following outgoings for the year
and has approached David for knowing the deductions she could claim. Deductions are allowable
or not depends on the nature of transactions. There are two types of expenses one is related to the
work and the other is related with the private or domestic purpose.
Tax consequences on the following outgoings incurred during the year.
a)
Travel expenses for the job interview are incurred to have the employment. The expense
cannot be said to have incurred for work as by the time of going for interview she was not
employed in the hospital. Expenses that are incurred for searching the jobs and all other related
expenses are not related to the work. All theses expenses are considered as the expenses
incurred for personal purpose. Section 900.30 of ITAA, 1997 provides that deductions could be
claimed for only those expenses that are related to the works and travel expense for reaching the
office are not related to the work there fore they are not deductible.
b)
As Ava is home in Darwin she has to shift in Victoria where the sunshine hospital is
situated. She has shifted all the house holdings and belongings to his place in Sunshine. She has
incurred shifting charges of $ 1800 for doing job in Sunshine. Shifting was made because of her
employment in Victoria(Braithwaite, 2017). Arguments can be raised that shifting expenses are
related to the work as they are made for doing employment. But these arguments cannot be
entertained as the expenses were not incurred for generating any assessable income as per
Section 118.140 ITAA, 1997. These are not related to the work but for her personal living.
Therefore the expenses of $ 1800 are not deductible in the tax return.
c)
Ava paid $200 for uniform that is required to be worn by doctors working in the hospital.
Taxation office provides that deductions can be claimed for cost of buying & cleaning of
occupation specific clothings, protective and unique clothing and distinctive uniforms. For
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claiming the deductions Ava is required to have written evidence for purchase of the uniform or
clothing as per Section 900.40 of ITAA, 1997. Deductions can be claimed if amount claimed is
greater than $150 and total work related expenses are more than $300. In the present case she has
incurred expense of $200 that is more than the threshold and aggregate work related if exceeds
$300 than she will be able to claim deduction for uniform. Most important she is required to
present the receipt of purchase for the occupation specific uniform(Tian, 2018).
d)
Tax law provides that the deductions could be claimed for work related expenses. The
deductions are not available for the expenditures incurred for upbringing of children. In this
taxation office has specifically provided that childcare expenses incurred are not tax deductible.
These are considered as private expenses and not related to the work(Barrett, 2018). However tax
department also provides that tax relief is provided for employer paid childcare expenses. So,
the childcare expenses of $18200 are not allowed as deduction from the income tax return of
individual.
e)
Ava has incurred cost of $ 200 for her telephone bill. The bill is relate to the phone calls
made for attending the patients. Phone calls are made from her home phone and the bill is paid
by her. She is not reimbursed for the phone calls made for attending patients. Tax law provides
that the expenses that are related to their work are allowed for deduction. She is employed as
doctor in the hospital and she is required to attend patients on call. This is part of her
employment duty and it is not incurred for her personal purpose. The telephone bill of $200 is
allowed for deduction to Ava. However if expense is partly related to attending patients and
partly for the personal purpose than expenses that are related with the work are only allowed for
deduction.
f)
Ava during her employment incurred expense of $570 for purchasing the food from cafe
bar. Food was purchased for working in the night shifts. Taxation office provides that food
purchased during the employments is considered as private expense. This is not related to the
work though incurred during the work(Basu, 2016). She purchased the food for her personal
living and not for producing any assessable income. Cost of meals during the normal working
day are considered as private expenses and no deduction is available for the same. However
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deduction can be claimed by employer for the meals provided to employees as per Section
900.60 of ITAA 1997. Therefore the food expenses of $ 570 are not tax deductible for the
income tax purposes. (Deduction for food. 2019.)
g)
Ava paid fine of $207 for speeding up when she was was running late in an emergency
visit at sunshine hospital. The speeding was made for attending the patients. Though she speeded
for work related emergency it has been specifically provided by the tax department that
deductions cannot be claimed for fines and penalties. Taxation office states that fines and
penalties are the punishments imposed by government for maintaining law and order and
deductions will affect the governance. Therefore the fine for speeding cannot be claimed as
deduction in the tax return.
h)
Travel expense of $330 for from and to work are incurred by Ava. Tax department
provides for the expenses incurred for travelling from work to home. Deductions are available in
certain situation when travelling between home and the regular workplace as per section 15.70 of
ITAA 1997. General tax rule states that deductions are not allowed for travel from workplace to
home or vice versa. These are considered as private expense under the tax laws(van Brederode,
2019). Deductions are allowed for the travelling expenses between two alternate workplaces. In
the present case expense are incurred only for travelling between home and regular workplace
(Travelling deductions, 2019).
As per the provisions of ITAA 1936 and 1997 and guidelines provided by the taxation
department above deductions can be claimed by Aava in her tax returns.
CONCLUSION
From the above research it has been conclude that every individual resident of Australia
whose earnings from all the sources are above the threshold limits are required to file income tax
returns with taxation department. Tax returns for spouse are to be filed separately as joint filing
is not allowed in Australia. Income tax act provides complete provisions in relation to all the
income earned by individuals. For simplifying the process taxation office provides guidelines on
most of the transactions that are to be reported in the tax returns. Individual should check the
capital gain tax on the sale or disposal of assets. They have to be reporting in the tax returns.
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There is no set-off for capital loss against the capital gains. Sophia in the tax returns will be
required to pay the capital gain tax on the transactions incurred during the year. On the other
hand tax laws also provide for the deductions that are applicable to the individuals. Deductions
helps the individuals in reducing their tax liability. Deductions on earnings are only available for
work related expenses it is not available for the domestic or private purposes. Ava will be
provided with only those deductions that are incurred related to her work or employment.
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REFERENCES
Books and Journals
Braithwaite, V., 2017. Tax and Democracy: Bygone ideas or time for reinvention (Vol. 598, No.
1, pp. 12-32).
Tian, G.Y., 2018. Cloud Computing and Cross-Border Transfer Pricing: Implications of Recent
OECD and Australian Transfer Pricing Laws on Cloud Related Multinational Enterprises
and Possible Solutions. Rutgers Computer & Tech. LJ. 44. p.33.
Barrett, J., 2018. Vacant property taxes and the human right to adequate housing. J. Austl.
Tax'n, 20.p.123.
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
van Brederode, R.F., 2019. Ethics and Taxation. Springer.
Online
Travelling deductions. 2019. [Online]. Available through :
<https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-
claim/vehicle-and-travel-expenses/travel-between-home-and-work-and-between-
workplaces/>.
Deduction for food. 2019.[Online]. Available through : <https://community.ato.gov.au/t5/Sole-
Traders/deduction-for-food-and-coffee/td-p/9684>.
Capital Gains Tax. 2019. [Online]. Available through :
<https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/
Calculating-the-cost-base-for-real-estate/>.
Exemptions and deductions. 2019. [Online]. Available through :
<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/>.
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