Income and Expense Information

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Introduction:...............................................................................................................................2
Income and Expense Information:.............................................................................................2
Part A: Income from Employment:............................................................................................2
Part B: Income from Business:..................................................................................................4
Part C: Rental Property:.............................................................................................................8
Dependent tax offset (valid and invalid carer tax offset):..........................................................9
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
As noted “sec 6-5 (1)” assesses ordinary income for the taxation purpose. A person’s
assessable income comprises of income based on ordinary conceptions that is known as
ordinary income (Burman et al., 2016). The characteristics of ordinary income includes
income should be money or converted into money. When a receipts that is received from
income generating activities will be treated as “ordinary earnings”.
Income and Expense Information:
The general rule of “sec 6-5 (1) ITAA 1997” says that interest is viewed as ordinary
earnings. Eric in the year has received a bank interest from a jointly held account with his
wife that amounted to $300. The interest received is a taxable ordinary earnings within “sec
6-5 (1) ITAA 1997” (Hanley et al., 2016). A specific deduction is permitted to taxpayer under
“section 25-5 of the ITAA 1997” for outgoings that have been incurred for administering the
matters of tax affairs. Eric paid $400 for preparing a tax return to a registered tax agent in
2018. Hence, Eric can obtain specific deduction under “sec 25-5 ITAA 1997” for the
expenses on tax affairs.
Part A: Income from Employment:
As per “sec 6 (1) ITAA 1936”, income that is earned from personal exertion implies
that income earned from salary, wages, commissions, fees, bonus etc. received by working as
employee. “Sec 6 (1) ITAA 1936” there should be an adequate nexus amid the amount or
benefit received and personal exertion (Jones & Rhoades-Catanach, 2015). As noted in case
of “Dean v FCT (1997)” retention payment which is received by taxpayer for agreeing to be
employed for another 12 months was considered as income. The personal exertion includes
the amount of benefit received constitute a reward or product of personal exertion.

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Accordingly, the case facts obtained from Eric suggest that he has received a
remuneration from his work with Blue Merlin Pty Ltd. The remuneration amounted to
$7,800. The sum of $7,800 is an income from personal exertion under “sec 6 (1) ITAA
1997” (Miller & Oats, 2016). Citing “Dean v FCT (1997)” the remuneration received is a
product of employment for Eric and will be considered taxable as ordinary income under
“sec 6-5 (1) ITAA 1997”.
Eric also received a shift allowance of $2,000 from his employment. Under “sec 15-2
of the ITAA 1997” where an employee receives any allowances it is not viewed as fringe
benefit rather the receipt of allowance is regarded as statutory income of an employee
(Lukashova, 2016). Similarly for Eric the receipt of shift allowance is a taxable statutory
income under “sec 15-2 of the ITAA 1997”.
As per the “sec 7, FBTAA 1986” a car fringe benefit occurs when a car is given by
employer to an employee for their private usage. Eric reports that he has been given a car by
his employer (Rossikhina et al., 2018). With respect to the car will be considered as fringe
benefit for Eric under “sec 7, FBTAA 1986”. Mentioning to the judgement made in “FCT v
J&G Knowles”, the car has adequate relation with the employment of Eric and the car
provided to Eric is a direct benefit given to the taxpayer. Alternatively the employer of Eric
will be considered taxable for fringe benefit given to him and under “sec 23L ITAA 1936”
the benefit constitute a non-assessable income for Eric.

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According to the “sec 8-1 ITAA 1997” an individual is permitted to get deduction for
the outgoings or loss till the extent that it has happened in producing their chargeable
earnings or it has occurred necessarily at the time of executing the business activities with the
objective of getting taxable earnings (Woellner et al., 2016). The case facts of Eric suggest
that he has occurred work-related expenditure on telephone and stationary. Denoting the
explanation given in “sec 8-1 ITAA 1997” a general deduction is permitted to Eric since the
outgoings have happened while generating his employment income.
Part B: Income from Business:
Gains earned from the trading transactions or that constitute an ‘ordinary incidents’ of
a business activity are considered as income. Accordingly in “GP International Pipecoaters
Pty Ltd v FCT (1990)” a taxpayer that conducts the business is held taxable on the ‘ordinary
proceeds of that business’ (Sadiq et al., 2020). As explained in “sec 6-5 (4) ITAA 1997” the
point of derivation is held noteworthy since it helps in understanding when the income is
considered taxable. There are two methods which is alternatively available to taxpayers.
The taxpayers are required to those methods that is considered correct in their specific
situation. Under cash method taxpayer should only consider things that has been actually
received. This method is applied on small business with small number of employees. In
accruals method, the taxpayer should consider all the income that is earned even thought is

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not yet received (Christie, 2015). In “FCT v Dunn (1989)” the law court stated that the cash
method of tax return was the right method because it provides a true reflex of the taxpayer’s
actual income.
Eric has received a cash from the accounts reviewable which amounted to $85,000.
Referring to “GP International Pipecoaters Pty Ltd v FCT (1990)” the receipt will be
considered as the ordinary proceeds and will be taxable under “sec 6-5 ITAA 1997”
(Getman, 2015). Furthermore, Eric must account his business under this cash method.
Mentioning “FCT v Dunn (1989)” Eric should follow the cash method as this would help in
giving a true reflex of his income.
Accordingly in “sec 70-15 ITAA 1997” expenses associated to purchase of trading
stock is considered as an allowable deduction for business. Furthermore, when the value of
opening stock surpasses the value of closing stock the excess sum is allowed for deduction
under “sec 70-35 (3) ITAA 1997” (Valeriia, 2017). The sum of $43,000 paid to accounts for
purchasing the trading stock is permitted for deduction under “sec 70-15 ITAA 1997”. It is
also noticed that the value of opening stock value is greater than the closing stock amount.
Hence, Eric is permitted to get deduction under “sec 70-35 (3) ITAA 1997”.
Income From Business
Particulars Amount ($)
Cash Receipt 85000
Volume rebates from overseas suppliers 3500
Other income
Compensation for loss of Income 7900
Interest from Joint Account 250
Eric also took closing stock that valued $2,500 for his family consumption. No
deduction will be allowed to Eric since it is private in nature. During the year Eric did not

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received a closing stock having a value of $5,000 until 15th July 2019. Since cash basis is
followed the closing stock in transit has been excluded from computing the closing stock for
taxation purpose.
On receiving any compensation for loss of income within insurance policies is
considered as income in type. In “FCT v DP Smith (1981)” receipt of compensation relating
to the loss of income under the insurance policy is held chargeable inside “sec 25 and 26J of
the ITAA 1936” (Lee, 2015). The amount of $7,900 that is received for loss of income within
insurance policy is having the characteristics of income. Denoting “FCT v DP Smith (1981)”
compensation received by Eric relating to loss of income will be taxable under “sec 25 and
26J of the ITAA 1936”.
No deduction is permitted under “sec 8-1 (2) ITAA 1997” to taxpayer for expenditure
or loss of private or capital in nature. Eric withdrew a sum of $3,000 for private purpose. The
drawings made by Eric is non-deductible under the negative limbs of “sec 8-1 (2) ITAA
1997”. Meanwhile “sec 26-5 ITAA 1997” disallows a taxpayer deduction for penalties
imposed relating to office of Australian law (Qureshi & Kumar, 2019). Eric paid penalties for
breaching Australian consumer regulations amounting to $900. The sum is non-deductible
under “sec 26-5 ITAA 1997”.

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Decline in Value:
Assets Costs Purchase date Effective life Adjustible value Business use Div Method Days Held Decline in Value
Mobile Phone [phone] 2188 60% Diminishing value 365 656.4
Office Furniture 15000 01-06-2017 10 13375 100% Prime Cost 365 1337.5
Laptop Computer 4000 01-08-2018 3 100% Prime Cost 333 1216.4
Printer 150 01-03-2019 2 100% Prime Cost 121 24.9
A taxpayer is permitted to obtain deduction under “sec 40-25 (1)” for the fall in value
of a depreciating asset used for generating income. Whereas a deduction is reduced under
“sec 40-25 (2)” for the decline in value of asset till the extent the asset is used in producing
revenue. Eric uses 60% of his mobile phone for business purpose (Rolim, 2015). Under “sec
40-25 (2)” Eric can only claim depreciation up to 60% of the decline in value of mobile
phone which is attributable for work purpose.

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Part C: Rental Property:
Rent is considered as the price that is paid for using another person’s property. As a
general rule of “sec 6-5 ITAA 1997” rent that is received by taxpayer is treated as taxable
income (Kozłowski, 2016). Rent is viewed as the payment which is made by one person in
exchange of using someone else’s property for the specified time period. Rent is normally
considered as income under the flow concept and it is taxable as ordinary income under “sec
6-5 ITAA 1997”.. Eric has received a rent of $23,780 and it will be considered as statutory
income under “sec 6-5 ITAA 1997”.
Eric further reports the receipt of compensation from the rental board concerning
those tenants that have left the property without paying rent. The compensation received is
for the lost income and will be considered taxable to Eric as ordinary income within “sec 6-5,
ITAA 1997”. He also reports the receipt of advance rent that amounted to $3,000. The
advance rent received will be included into the assessable income within the ordinary
meaning of “sec 6-5, ITAA 1997”.
There are borrowing expenses that are incurred directly when taking out loan for
purchasing the rental property. This includes the cost involved in preparing and filing the
mortgage documents or the mortgage broker fees for valuation of loan approval (Barkoczy,
2016). The ATO states that there are expenses which is allowed for deduction over the
number of years relating to rental property. Hence, the borrowing cost of $825 will be
considered deductible till the period of loan term.
Repairs that are capital in nature are not allowed for deduction under “sec 25-10 (3)
ITAA 1997”. Initial repairs which a taxpayers occurs for remedy the defect to the premises or
asset used for producing rental income are not allowed for deduction. In “Law Shipping Co
Ltd v Inland Revenue Commissioners (1923)” expenses occurred in repairing the ship

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following its purchased is not allowed for deduction under “sec 25-10 (3) ITAA 1997”.
Similarly the initial repairs undertaken by Eric to paint the wall of the newly acquired rental
property will not be allowed for deduction since it is a capital expenditure under “sec 25-10
(3) ITAA 1997”.
Particulars Amount ($)
Rent Received 23750
Compensation from rental bond board 1300
Rent in advance 3000
Insurance recovery for storm damage 2100
Total Rental Income 30150
Allowable Rental Deductions
Decline in value (Note 1)Rental property
Carpets 1000.0
Hot water system 100.0
Ceiling fans 320.0
Barbecue (fixed) 140.0
Window blinds internal 800.0
Window curtains 1000.0
Mortgage repayments to Westpac Bank - Interest 23800
Loan application fee 82.5
Council and water rates 3400
Building insurance premium 850
Payments to solicitors
Lease preparation fees 150
Ejecting tenants 375
Garden hose and attachments 165
Travel cost 830
Pest control 280
Payment to registered tax agent 170
Total Rental Deductions 33462.5
Net Rental Loss -3312.5
Income from Rental property
Dependent tax offset (valid and invalid carer tax offset):
An individual taxpayer might be entitled to tax offset if they maintain their spouse
that is an invalid or those that cares for the invalid. A carer should have care for their spouse

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or their spouse’s invalid child, brother or sister that is aging 16 years or older and their
dependent spouse or their spouse dependent parent that lives in Australia (Ato.gov.au 2020).
The carer should receive a carer payment or the carer allowance within the “Social Security
Act 1991” relating to the care they given to that person the carer is completely engaged in
giving care to the person receiving a disability support pension within the “Social Security
Act 1991”.
Accordingly, Eric has reported that he is taking care of his spouse Linda who has lost
her vision nine months before following 1st October 2018 because of car accident. Linda here
receives a disability support pension from the Centrelink that amounts to $9,200. Eric is
eligible for claiming a dependent tax offset for Linda (invalid and invalid carer tax offset)
because he takes of his spouse that is invalid and also receives a carer allowance within the
Social Security Act 1991 relating to the care rendered by Eric to Linda.
Conclusion:
The case study can be concluded by stating that all the relevant facts associated to
income and deduction received by Eric has been considered. The income earned by Eric from
every sources is also summarized with appropriate working in the assessment and wherever
required the legislation of “ITAA 1936 and ITAA 1997” has been mentioned.

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References:
Ato.gov.au. (2020). Withholding Declaration - Calculating Your Tax Offset. [online]
Available at: <https://www.ato.gov.au/Forms/Withholding-declaration---calculating-
your-tax-offset/?page=2> [Accessed 10 April 2020].
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Burman, L. E., Gale, W. G., Gault, S., Kim, B., Nunns, J., & Rosenthal, S. (2016). Financial
transaction taxes in theory and practice. National Tax Journal, 69(1), 171-216.
Christie, M. (2015). Principles of Taxation Law 2015.
Getman, K. O. (2015). Principles of taxation as a means of implementing fiscal function of
the tax. Probs. Legality, 129, 188.
Hanley, N., Shogren, J. F., & White, B. (2016). Environmental economics: in theory and
practice. Macmillan International Higher Education.
Jones, S., & Rhoades-Catanach, S. (2015). Principles of taxation for business and investment
planning. McGraw-Hill Higher Education.
Kozłowski, P. COMMON PRINCIPLES OF GLOBAL TAXATION.
Lee, N. (2015). Revenue law: principles and practice. Bloomsbury Publishing.
Lukashova, I. V. (2016). Principles of Taxation of Residential Property. Taxes and Taxation,
(4), 359-363.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Qureshi, A. H., & Kumar, A. (2019). The public international law of taxation: text, cases and
materials. Kluwer Law International BV.

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Rolim, J. D. (2015). Proportionality and Fair Taxation. Intertax, 43, 405.
Rossikhina, H., Hultai, M., & Shrub, I. (2018). Constitutional Principles Of Taxation:
Doctrinal Approaches To Typology. Baltic Journal of Economic Studies, 4(3), 259-
263.
Sadiq, K., Black, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Ting, A. K. (2020).
Principles of Taxation Law 2020.
Valeriia, D. (2017). Shifting tax burden from a dishonest partner on a taxpayer and
constitutional principles of taxation.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.