BFA714: Australian Tax Law Assignment - Tom Lee Taxable Income

This document presents a detailed solution to an Australian tax law assignment for the BFA714 course, focusing on the computation of taxable income for a sole trader, Tom Lee, who runs a clothing shop. The assignment involves analyzing various income sources, including sales, rental income, interest, and dividends, and determining their taxability under the Income Tax Assessment Act 1997. It also addresses deductible expenses such as body corporate fees, employee salaries, superannuation contributions, interest on borrowed money, insurance, and fees paid to a tax agent. The solution meticulously calculates the taxable income, incorporating relevant tax offsets and depreciation, while referencing specific sections of the Income Tax Assessment Act 1997 to justify each calculation. The assignment covers ordinary income, franked dividends, non-assessable income, and various deductions, providing a comprehensive understanding of Australian taxation principles.

Tax Assignment
Australian Tax Law
Computation of Taxable Income
In the books of TOM Lee
Sl
No Particular Amount Amount Rationale
1 Sales of Clothes 298000
Taxable u/s Section 6-5 of Income Tax Assessment Act, 1997 - Ordinary
Income ( Commonwealth Consolidated Acts, 2019)
2 Rental income 17000
Taxable u/s Section 6-5 of Income Tax Assessment Act, 1997 - Ordinary
Income
3 Interest on Bank Deposit 1000
Taxable u/s Section 6-5 of Income Tax Assessment Act, 1997 - Ordinary
Income
4 Dividend from a large Australian Company 11428.57
Fully Franked- Tax on Australian Companies 30%, Hence credit of $
3429 shall be available
Section 207-20 Of Income Tax Assessment Act, 1997- General Rule and
tax Offset
5 Receipt from Para Military Service
Exempt- Under Section 11-15 of Income Tax Assessment Act, 1997 and
accordingly not taxable under section 6-5 of Income Tax Assessment
Act,1997
6 Private Health fund Refunds
Non Assessable Income- Hence Not included under Section 6-5 of
Income Tax Assessment Act 1997
7 Dividend from a large Australian Company 7286
50% Franked- Tax on Australian Companies 30%, Hence credit of $
1286 shall be available
Section 207-20 Of Income Tax Assessment Act, 1997- General Rule and
tax Offset
Less
8
Body Corporate fees on income producing
property 15000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income

9 Part time employee salary 25000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income
10 Superannuation 2000
Deductible under Section 290-6 of Income Tax Assessment Act, 1997
which allows deduction for contribution made to super annuation fund
or RSA
11 Interest on money borrowed 5000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income
12
Insurance and land tax for investment
property 3000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income
13 Fees paid to a tax registered Agent 1100
Deductible under section 25-5 of Income Tax Assessment Act, 1997 as
the said service has been availed from a recognised tax advisor
14 Plant and Machinery 30000
Not Deductible in terms of Section 8-1(2)(a) of Income Tax Assessment
Act, 1997 as it is of capital nature (Commonwealth Consolidated Acts,
2019)
15 Depreciation on Existing pool 12000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income. Also under
division 43
(40000*3)
16 Depreciation on New Plant 3000
Deductible Under Section 8-1 of Income Tax Assessment Act, 1997 as
the same has been earned to generate assessable income. Also under
division 43
(30000/10)
17 Investment Apartment 11480 Deductible U/s 43-210 of Income Tax Assessment Act, 1997
(287000*.04)
18 Travel to and fro work
Not Deductible in terms of Section 8-1(2)(a) of Income Tax Assessment
Act, 1997 as it is of private expense
19 Rates on his principal residence
Not Deductible in terms of Section 8-1(2)(a) of Income Tax Assessment
Act, 1997 as it is not incurred for earning assessable income
20 Doctors fee for Tom's wife Mary
Not Deductible in terms of Section 8-1(2)(a) of Income Tax Assessment
Act, 1997 as it is of private expense
21 Superannuation contribution of Tom lee 6000 Deductible- limit of $25000 subject to other conditions

22 Inventory Cost (35000-16000) 19000
23 Net Income 202134.6
25 Tax Loss 10000
26 Taxable Income 192134.6
27 Tax 52837.01
28 Frank Credit 4715
29 Net Tax 48122.01
References
Commonwealth Consolidated Acts. (2019, May 7). INCOME TAX ASSESSMENT ACT 1997 - SECT 6.5. Retrieved from classic.austlii.edu.au:
http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s6.5.html
Commonwealth Consolidated Acts. (2019, May 7). INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1 General deductions. Retrieved from www7.austlii.edu.au:
http://www7.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s8.1.html