Taxation: Letter of Advice, Work Papers, Depreciation Worksheet, and Tax Payable

This document provides a letter of advice, work papers, depreciation worksheet, and tax payable for taxation related matters based on the transactions reported by the client. It includes work-related income and deductions, work-related car expenses, capital gains, rental property, income and deduction from other sources, tax payable, offsets, and levies.

Running head: TAXATION
Taxation
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:.........................................................................................................................5
Rental Property:.....................................................................................................................5
Depreciation Worksheet:........................................................................................................6
Income and Deduction from Other Sources:..........................................................................6
Tax Payable, Offsets and Levies:...........................................................................................7
References:.................................................................................................................................8

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Letter of Advice:
To Santosh
From Tax Advisors
Date: 27th January 2019
Dear Santosh
The present letter is directed to address your taxation related matters based on the
transactions reported by you. We wish to inform you that the gross salary of $140,000
received by you amounts to ordinary income under the ordinary concepts of “section 6-5,
ITAA 1997”. Your employer also withheld tax from your gross salary however you can claim
in income tax offset for the amount withheld from your gross pay to reduce your tax liability.
Furthermore you also received a superannuation contribution of $12,000 from your
employer. The amounts will be treated as reportable fringe benefit and it is not included for
assessment. You reported the dividend income from the shares of CBA, COH, TLS and FLT.
These dividend income are included for assessment based on “section 44, ITAA 1936” as
statutory income. While the franking credits attached to the franked dividends are assessable
as statutory income under “section 207-20 (11), ITAA 1997” and the same can claimed as tax
offset by you.
You sold 8000 inherit shares at the rate of $25.63. The shares were inherited on 1st
December 2017 which is less than twelve months. Therefore, the discounted method is not
applicable to this CGT event under “section 115-40, ITAA 1997”. Whereas the sale proceeds
from MYR shares yielded you capital loss. The loss from this shares can be offset against the
gains made from BHP shares.

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The transactions reported by includes the rental property that was let out for rent to
your daughter. When a property is let out to any family members or relatives then it is
advised that you must charge rent based on the general commercial rate. During the year you
incurred rental property expenditure from the subletting of your constructed house. The
expenses incurred can be claimed as general deduction under “section 8-1 of the ITAA
1997”, as these expenses were occurred when the property was let out for producing income.
Your dry cleaning work suits will not be allowed as deduction under the “section 8-1
of the ITAA 1997” because it is not any kind of specific clothing. The expense meet the
negative limbs of negative limbs of “section 8-1 (2), ITAA 1997”. The letter also seeks to
provide you with the recommendation that you should choose your investment wisely and
invest in shares that yield you higher profit rather than loss. This will help you in balancing
your income and further strengthen your financial position.
We hope that the letter of advice has helped you in understanding your taxable
income, reportable fringe benefits and deductible expenses incurred by during the year. We
look forward to serve you again in future soon.
Thank You
Work Papers:
Work Related Income and Deductions:
The gross salary constitutes ordinary income under “section 6-5, ITAA 1997”. While
the dividends income will be taxable as statutory income under “section 44 (1), ITAA 1997”.
The franking credits attached is included for assessment based on “section 207 (20) (1),
ITAA 1997” (Miller and Oats 2016. The mobile phone bill and additional superannuation
contribution that is paid by employer is a non-assessable fringe benefit under section 23L,
ITAA 1936 and not included for assessment.

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Work Related Income and Deductions Amount ($) Amount ($)
Income from Employment
Gross Payments 1,40,000$
Less: Tax Withheld 42,232$
1,82,232$
Australian Sourced Dividend Income
Digital Feet Pty Ltd
Fully Franked Dividend 1,68,000$
Gross Up for Franking Credits (168000 x 30/70) 72,000$ 2,40,000$
CBA Shares
Fully franked Dividend From CBA Shares 990$
Gross Up for Franking Credits (990 x 30/70) 424$ 1,414$
COH Shares
Fully franked Dividend From COH Shares 1,300$
Gross Up for Franking Credits (1300 x 30/70) 557$ 1,857$
FLT Shares
Fully franked Dividend From FLT Shares 400$
Gross Up for Franking Credits (400 x 30/70) 171$ 571$
TLS Shares
Fully franked Dividend From TLS Shares 155$
Gross Up for Franking Credits (155 x 30/70) 66$ 221$
Total Employment Income 4,26,296$
Working Papers
Work related Car Expenses:
Work Related Deductions Car Expense
Total 5000 kilometers Under section (28-90) 5,000$
Rate per kilometer 0.66$
Total car expense 3,300$
Total Work Related Deductions
3,300$
As the client has not maintained log book so it can only claim 5000 kilometre at the
rate of $0.66. Therefore, the car expense deduction is 5000 km x 0.66 = $3300.
Capital Gains:
The taxpayer sold 8000 inherit shares at the rate of $25.63. The shares were inherited
on 1st December 2017 which is less than twelve months. Therefore, the discounted method is
not applicable to this CGT event under “section 115-40, ITAA 1997”. (Woellner et al. 2016).

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Whereas, the sale of MYR shares yielded capital loss. Under “section 102-10 (1), ITAA
1997” the capital loss is used to set-off the capital gains made from the BHP shares.
Capital Gains from Investment
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 Loss from Sale of MYR Shares (102-10(1)), ITAA 1997 -21,950$
Net Capital Gains 19,425$
Rental Property:
According to the ATO whenever the taxpayer rents the property to the family
members or their relatives then under such circumstances the taxpayer must charge rent based
on the general commercial rates (Woellner et al. 2016). The client has rent the property to
daughter and hence rent must be charged based on general commercial rates. The expenditure
incurred on sub-letting the property is allowed for deduction under “section 8-1, ITAA
1997”. The cost based of the rental property includes the construction costs, incidental costs,
stamp duty on purchase and capital cost under “section 110-25 (1-6), ITAA 1997”. The
property was rent out from 1st March to 30th June which is equal to 4 months. Rent is
computed based on four months.

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Gross Rental Income
Gross Rent (1st March to 30 June) 7,040$
Allowable Rental Deductions (1st March to 30 June)
Body Corporate Fees 450$
Council rates 317$
Water rates 113$
Insurance 228$
Loan Repayment 2,800$
Quantity surveyor report fees 233$
Capital Allowance (Depreciation) 1,036$
Total Rental Deductions 5,177$
Income from Rental Property
Depreciation Worksheet:
Asset Type Base Value Days Held Days in Year PercentageEffective life Total Depreciation Closing Balance
15200 Stove 750 121 365 200% 12 41 709
Hot Water System 850 121 365 200% 12 47 803
Carpet 3750 121 365 200% 10 249 3501
Dishwasher 700 121 365 200% 8 58 642
Air Conditioner 1200 121 365 200% 10 80 1120
Window Curtains 2700 121 365 200% 6 298 2402
Refrigerator 880 121 365 200% 6 97 783
Washing Machine 1500 121 365 200% 6 166 1334
Depreciation Schedule
The taxpayer has decided not to use the pool value method for depreciation purpose.
As a result of this diminishing method of depreciation has been considered for depreciation of
the rental property assets. The assets are deducted based on their respective lives and the link
for the same is provided below.
(https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT
%2FATO%2F00015)
Income and Deduction from Other Sources:
The income from other sources comprises of the accidental compensation receipts.
Whereas, the expenses incurred on the work related suit is not allowed for deduction under
“section 8-1, ITAA 1997” as it satisfies the negative limbs. It may be had been deductible if
the clothes was used for specific job or profession. The payments made for the financial
advisors membership fees is considered for specific deduction under “section 26-55 of the
ITAA 1997” (Miller and Oats 2016). While the donation made to Cancer council and sea

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shepherd as included for deduction under “section 26-55 of the ITAA 1997”. The expenses
incurred for Vegan Living Subscription is a non-deductible private expenditure under
negative limbs of “section 8-1 (2), ITAA 1997”.
Accidental Compensation Received 8,000$
Replacement Income 2,000$
Total Other Income 10,000$
Other Deductions
Personal Contributions on Superannuation 12,000$
Donations
Cancer Council of Australia 1,200$
Sea Shepherd 1,200$
Finance Advisors Membership Fees 940$
Subscription to The Economist 120$
Fees paid to bank for loan 800$
Insurancen policy 2,000$
BUPA Insurance (860/12x2) 143$
Total Other Deductions 18,403$
Other Income
The personal superannuation contribution to Sunsuper is deductible under
“subdivision 290-C of the ITAA 1997”. The replacement income of 50% is claimed for
deduction while the remaining $50% is included for assessment.
Tax Payable, Offsets and Levies:
Tax Payable, Offsets and Levies
Taxable Income 3,93,792$
Tax Payable on Taxable Income 1,50,438$
Less: Offsets
Private Health Insurance Offsets 83$
Sub-Total 1,50,521$
Add: Medicare Levy 7,876$
Sub Total 1,58,397$
Less: Credits
Tax Withheld 42,232$
Franking Tax Offsets (Refundable) 73,219$
Sub Total 1,15,451$
Estimated Tax Payable 42,946.24$

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References:
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.