TAXATION LAW TABLE OF CONTENTS INTRODUCTION 1 1.BUSINESS AND PROFESSION 1 2.INCOME FROM HOUSE PROPERTY 1 3.CAPITAL GAIN2 4.OTHER INCOME3 5.DEDUCTIONS 3 INCOME TAX RETURN4 CONCLUSION | 5 REFERENCES 6 INTRODUCTION Income Tax Assessment Act, 1997 is established to provide the tax impositions, calculations & for collecting commonwealth income taxes.
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TABLE OF CONTENTS INTRODUCTION...........................................................................................................................1 1.BUSINESS AND PROFESSION.............................................................................................1 2.INCOME FROM HOUSE PROPERTY...................................................................................1 3.CAPITAL GAIN.......................................................................................................................2 4.OTHER INCOME....................................................................................................................3 5.DEDUCTIONS.........................................................................................................................3 INCOME TAX RETURN............................................................................................................4 CONCLUSION................................................................................................................................5 REFERENCES................................................................................................................................6
INTRODUCTION Income Tax Assessment Act, 1997 isestablished to provide the tax impositions, calculations &for collecting commonwealth income taxes. In Australia tax is imposed by federal government over taxable earnings of corporations and individuals. Tax is levied by government at progressive rates on individuals and on corporations at one out of two rates given. The Act gives provisions and guidelines about all the transactions which are required to be reported in the income tax return. The given case study is related to the Taxable Income of Joe Harper who is electrician and works as individual contractor (Sharkey and Murray,2016). The tax return is to be prepared to find out the taxable liability of Joe after taking into account all the income he has earnedduring the year. The tax liability is to be reduced by claiming allowable deductions. The report will give understanding about the tax provisions applicable while preparing tax returns. 1.BUSINESS AND PROFESSION Service Income$150000 Mr Joe is electrician and contractor who earn income by providing services to theclients. The income earned from services is $ 150000 during the year. The whole amount earned by Joe is anassessable income and taxable as per ITAA,97 . Thetaxation department provides for the expenses that can be claimed as deduction by the individual for services. The owing of $3000 is transferredby Joe directly from client to red cross ascharity. The withholding tax is deducted on wages of the workerswhich is paid to government on behalf of the workers . There is no credit for the withholding tax on the return of Joe as it is deducted from wages. 2.INCOME FROM HOUSE PROPERTY HOUSE INCOME Rent Income60000 Deductible Expenses Council rates1680 Insurance850 Repairs2185 Trimming Shop Awning750 Repair of floor1200 Interest5078 Interest Accrued46212205 1
Income from House Property47795 Joe is having income of $47795 fromhouse property. The income from house property is assessable and taxable under ITAA, 97. The income earned from renting the house is taxable under the separate head income from house property (Martin and Xiang, 2015).. The expenses earned bythe owner on the house property can be claimed as deduction id theysatisfy the criteria laiddown by the taxation office of Australia. Immediate deduction are available for expenses relating to management & maintenance of property. Joe has claimed deduction for council rates of $1680, insurance of $850 and paintings on internal and external are deductible as they were for maintaining the building. Other repairs work include concrete flooring of the houseamounting to $1200. Interest on mortgage is deductible expense as they are covered under the list provided by the Australian taxation office. Interest of $462 is also allowed for deduction as it is accrued in the year but paid in next year (Deductions,2017).Joehas incurred expensesfor trimming the back ofshop awning on request ofcouncil department. All the expenses amounting to $ 12205 that are claimed as deduction are provided by the Australian Taxation Office. 3.CAPITAL GAIN ParticularsSharesSports Car Painting A Painting BSpeedboat Sale Proceeds700000600002500100016000 Cost of Acq.2000070002200120024000 Capital Gain/Loss68000053000-300-300-8000 Gain/LossGainexemptlosslossloss Taxable Cap. Gain(680000*50%)340000 Capital gain tax is applicable to all the assets that are acquired before September 20, 1985. The provisions of capital gain tax provides for the assets on which capital gain tax is applicable. Joe is using the discounting methodforclaiming the capital gain as Joe is filing an individual return(CGT assets and exemptions,2019).This method provides for the deduction of 50% on thecapital gain earned. Joe has soldsome of its assets. Joe hasearned capital gain on sale of 2
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shares which were acquire in October 1996. The capital gain is allowed for 50% deduction tax will be paid on half of $680000 that is $340000.As per the guidelines of Australian Taxation Office the car is an exempt asset. Therefore the capital gain earned on sale of car is exempted by the taxation department as it is a personal asset. Paintings come under personalcollectables which are exempted if acquired for less than $500.The paintings are acquired for more than $500 therefore they arenot eligible for exemption. Being personal assets capital loss on sale of paintings is not allowed for offset againstcapital gain from shares(Discounting Method of Capital Gain,2019). Speedboat is also covered under personal asset of individual according to guidelines given by the taxation office. Therefore the capital loss of $8000 on sale of speedboat is not allowed for offset against capital gain. Capital gains can raise the tax liability of individual to considerable extent. 4.OTHER INCOME OTHER INCOME Gifts I pad500 Not assessable Holiday Voucher2000 Not assessable Paid Trip1250Assessable Total other income1250 Other income includes the in come which is earned by assessee from sources other than regular business activity or by providing services. Joe has received gifts of $3750 which includes I pad, holiday voucher and paid trip. I pad has market value of $ 500 an d is received from client for good services. It is exempted for tax purposes and also not required to be disclosed in tax returns. The holiday voucher of $2000 is not an assessable income as provided by the client for prompt services(Davis, 2016). But all paid expense trip by client is an assessable income and not allowed for deductions. Thepaid trip is not gift in monetary term and does not give the fix amount that can be claimed by Joe. 5.DEDUCTIONS DEDUCTIONS Gifts Red Cross100 Salvation Army1000 3
Donations Red Cross3000 Tax Agent Fees Tax Return500 Lodgement fees1000 Telephone Bill Office Use(40%)300 Total Deductions5900 Australian Taxation Office provides the list for deductionsthat can beclaimed by assessee. Forclaiming the deductions it must satisfy theconditions related to the expense. Guidelines aregiven for limits of deductions. Joe has given charity to Redcross of $3000 by client directly. It has also given gift of $100 to red cross. These are allowed for deduction as red cross is recognisedcharitable organisation that receives donations for their workings. Joe has also made of $1000 for painting. The amount was to be used forfunding salvation army therefore the bid is treated as charity and deduction is allowed as given for salvation army. Joe has paidreturn filing fees andfor lodgement of objection to the tax consultant of $1000. These are deductible as they are used for maintaining the tax affairs of the individual as given by taxation office of Australia. As per guidelines deduction for telephone bill is allowed provided it is for the business use and not for personal use only. The telephone is partially used for the business purpose and partiallyfor the personal use (Chomik and Piggott,2016). Deduction can be claimed only up to the business use therefore telephone expense of $ 300 is only allows as deduction where the restwas used for calling wife and children that are not for business purpose. In total Joecan claim the deduction of $ 5900 in his tax return. All these deductions are claimed as per the provisions of ITAA, 97(Income and Deductions,2017). All these heads are calculated for getting the taxable income of Joe for the Year 2018-19. INCOME TAX RETURN Income Tax Return for 2018-19 Business Income60000 Income from House Property47795 Total other income1250 4
Capital Gain340000 Total Assessable Income449045 Total Allowable dedn.-5900 Taxable Income443145 Tax on taxable Income105561 Tax on income25661 Tax on Capital Gain(23.5%)79900 Medicare Levy(2 %)2111.22 Total Tax Payable107672.22 Income Tax Return is prepared as per the legislations and format given by thetaxation office of Australia. Joe ishaving income from business and profession amounting to $60000. Income from house propertyamounts to $47795 after claiming all the expenses as deductions. From other income assessable incomeis $1250 andunder last headthat is capital gain it is having the gain of $340000 on shares and no offset is available for capital loss on personal asset (Freebairn, , 2016). Total assessable income of Joe is $ 449045 after claiming deductions he has taxable income of $443145 which puts him in highest tax bracket.When an assessee is put under highest tax bracket his capital gain tax is reduced to 23.5% as per provisions of ITAA, 97. The tax liability of Joe is $105561 as per the tax slab rates. Medicare levy is 2% on the tax liabilitywhich amounts to $2111.22 and is payable by Joe. The total tax payable by Joe amounts to $107672 after claiming all the deductions(IncomeTax Return Instructions,2017). CONCLUSION Joe is having the total tax liability of $ 107672 for the year 2018-19. The tax return is prepared as per the provisions, rules and guidelines provided by Australian Taxation Office and Income Tax Assessment Act. 1997. The tax liability is arrived at after claiming all the allowable deductions. 5
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REFERENCES Books and Journals Chomik, R. and Piggott, J., 2016. The Australian retirement income system: comparisons with and lessons for the United States.Reimagining Pensions: The Next 40 Years.p.274. Davis, K. T., 2016. Dividend imputation and the Australian financial system.Kevin Davis' Dividend Imputation and the Australian Financial System'JASSA: The Finsia Journal of Applied Finance.1.pp.35-40. Freebairn, J., 2016. Design alternatives for an Australian allowance for corporate equity.Austl. Tax F..31.p.555. Martin, B. and Xiang, N., 2015. The Australian retirement income system: Structure, effects and future.Work, Aging and Retirement.1(2). pp.133-143. Sharkey, N. and Murray, I., 2016. Reinventing administrative leadership in Australian taxation: beware the fine balance of social psychological and rule of law principles.Austl. Tax F..31. p.63. Online IncomeTaxReturnInstructions.2017.[Online].Availablethrough: <https://www.ato.gov.au/Forms/Company-tax-return-instructions-2017/?page=35>. IncomeandDeductions.2017.[Online].Availablethrough: <https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other- work-related-deductions/Claiming-mobile-phone,-internet-and-home-phone-expenses/>. Deductions.2017.[Online].Availablethrough:<https://www.ato.gov.au/Individuals/Income- and-deductions/Deductions-you-can-claim/> DiscountingMethodofCapitalGain.2019.[Online].Available through:<https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or- loss/Working-out-your-capital-gain/The-discount-method-of-calculating-your-capital-gain/> CGTassetsandexemptions.2019.[Online].Availablethrough :<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/> 6