BFA714 Australian Tax Law Assignment 1 - Income Tax Assessment 2019

This document presents a comprehensive solution to BFA714 Australian Tax Law Assignment 1 for Semester 2, 2019, focusing on the income tax assessment of an individual, Kim Smith. The assignment analyzes various income sources, including salary and wages, allowances, interest, and royalty income, determining their assessability under the Income Tax Assessment Act 1997. It also examines work-related expenses such as travel, uniforms, and other costs, evaluating their deductibility based on relevant tax rulings. Furthermore, the solution addresses the Medicare levy and surcharge, calculating the total tax payable. The analysis incorporates relevant case law and tax rulings to justify each assessment and deduction, providing a detailed understanding of the Australian tax system.

BFA714 Australian Tax Law Assignment 1 (individual) Semester 2, 2019
Item 1 – Salary and Wages
Salary Assessabl
e or not?
Amount
assessabl
e
Reasons/Law
LWD $120,000 Yes $82,800 Receipts from employment or rendering personal services are treated taxable under
“section 6-5, ITAA 1997” as the ordinary income. Referring to “Scott v CT (1936)” the
salary received by Kim will be taxable in accordance with ordinary meaning since nexus is
satisfied from her employment.
PAYG tax
withheld – LWD
$6,000
Yes $6,000 The PAYG Withholding that is deducted from the gross salary of Kim will be allowed as
deduction. While the allowances received by Kim is a personal exertion income that will be
taxable within the ordinary concepts under “section 6-5, ITAA 1997” since it allowed out of
her employment.
Total assessable income $88,800
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Item 2 – Allowances, earnings, tips, director’s fees etc.
Allowances,
earnings, etc.
Assessabl
e or not?
Amount
assessable
Reasons/Law
Clothing
allowance
$1,500
Yes $1,500 The allowances are treated as taxable income and it would increase the taxpayer’s gross
income based on which an employee is levied tax. An employee is only permitted to claim
expenses against the expenses until they are actually occurred. The clothing allowance will
be treated as taxable income for Kim and it would form the part of her assessable income.
She also reports the receipts of phone allowance. The phone allowance would form the part
of her assessable income without any kind of deductions or reductions. She also received
professional development allowance of $3,500. The gross income of Kim would include the
professional development allowances since it is a taxable income under the meaning of
“section 6-5, ITAA 1997”.
Phone allowance
$1,000
Yes $1,000
Professional
development
allowance $3,500
Yes $3,500
Whisky from client
$200
No $0 A receipt cannot be treated as ordinary income unless it satisfies both the prerequisites. This
includes whether the receipt is cash or can be convertible to cash and whether it constitutes
a real gain to the taxpayer. The receipt of whisky by Kim from her client constitute a non-
taxable benefit since it is non-convertible to cash.
Frequent flyer
points value
$1,000
No $0 The frequent flyer point to the employee under the Airline Business Rewards Program is a
non-cash benefit under subsection 136 (1). In Payne v FCT (1982) a gain will be treated as
income if it cannot be converted into cash. The frequent flyer point by Kim is a non-taxable
benefit.
Total assessable income $6,000
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Item 10 – Gross Interest
Interest Assessabl
e or not?
Amount
assessable
Reasons and evidence
NAB $5 Yes $5 The interest a taxpayer earns from bank is generally considered taxable. The bank interest
that is earned by Kim is considered taxable as ordinary income under section 6-5, ITAA
1997.
Westpac $318 Yes $318
The interest received from Westpac should be declared in Kim’s taxable income under
section 6-5, ITAA 1997 as income from ordinary concepts.
Westpac $282 No 0 The sum of $282 will be withheld from from Kim’s gross interest and at a withholding rate of
47% since she has not disclosed her TFN number to bank.
Citibank $1,660 Yes $1,660 Assessable as ordinary income under “section 6-5, ITAA 1997”.
Total interest assessable $ 1,983 Label L
TFN withheld $ 282 Label M
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Item 24 – Other income
Item Assessable
or not
Amount
assessable Reasons/law
Winnings
from casino
$500
No $0 Windfall gains are not treated as income under the ordinary concepts. The winnings from casino is a
windfall gain for Kim and hence it is not taxable under “section 6-5, ITAA 1997”.
Royalty
income
$5,010
No $5,010
The court in “McCauley v FCT (1944)” held that royalties usually forms the part of assessable income
under the ordinary concepts or under statutory concepts of “section 6-5, ITAA 1997”. The royalties
received by Kim on the sale of her written books is taxable as ordinary income under “section 6-5, ITAA
1997”.
Total assessable $5,010
Item D2 – Work-related Travel Expenses
Expenses Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
Flights to Melbourne
for conference $540
Yes $540 Cost incurred for attending the conferences that are related to work are allowed as
deductions. As per “Taxation Ruling of TR 98/9” self-education expenses are allowed
for deduction in which the taxpayer is presently engaged. The cost incurred on flights,
accommodation, meals and sustenance is allowable deduction for Kim under “section 8-
1, ITAA 1997”.
Accommodation at
hotel $700
Yes $700
Meals and sustenance
$140
Yes $140
Taxi travel to and from
the airports (to attend
Yes $260 The taxi travel to attend conference is allowed for deduction under “section 8-1, ITAA
1997” because it is occurred in derivation of assessable income.
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conference) $260
Taxi fares to attend
seminars $90
Yes $90 Taxi fares to attend the seminars is an allowable deduction since it was incurred by Kim
in the course of earning her assessable employment income.
Taxi fares to get home
when there was no
public transport $310
No $0 Taxi fares to get home is non-permissible deduction under “section 8-1, ITAA 1997”
since it is a private expenditure.
Public transport fares
to commute to work
$1,440
No $0 Public transport fares incurred to commute to work is a private expenditure for Kim and it
is not allowed for deduction under “section 8-1, ITAA 1997”.
Work-related travel expenses
deductible
$1,730
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Item D3 – Work-related uniform, occupation specific or protective clothing, laundry and dry cleaning expenses
Expenses Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
Sunglasses $300 No $0 A deduction for sunglasses is only allowed when a person is exposed to sun for long
hours. No deduction is allowed for short walking hours. Similarly the sunglass expense of
$300 is not allowed for deduction since it is an ordinary articles of apparels and non-
deductible under “section 8-1, ITAA 1997”.
Work-related uniform etc.
expenses deductible
$ 0 Claim type: Private Expense (Non-Deductible)
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Item D5 – Other Work-related Expenses
Expenses Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
CPA Australia
membership fee $990
Yes $990 As per ATO deductions for subscriptions to business or professional association is
allowed to taxpayer when it is related to their income producing activities. Similarly,
membership fee incurred for CPA Australia is a deductible for Kim under “section 8-1,
ITAA 1997”.
Subscription to
Australian Financial
Review $550
Yes $550 Subscription to Australian Financial Review by Kim is related to her employment and
derivation of assessable income and hence it is an allowable deduction under “section
8-1, ITAA 1997”.
Telephone expenses
$1,200
Yes $900 The court in “Ronpibon Tin NL v FCT (1949)” up to the portion till the expenses are
occurred in deriving assessable income. Kim can only claim 75% of the telephone
expenses as it is occurred during her course of her employment.
Home office expense Yes $0 As per “Taxation Ruling of TR 93/30” deduction for home office expenses is allowed.
Kim will be allowed to claim deduction for home office expenses for the total number of
hours devoted for work from home.
Filing cabinet $250 Yes $250 The taxpayer here Kim can claim the deduction for the depreciating asset under an
instant-write off method since the cost of assets is below $250.
Laptop $2,400 Yes $1,800 Kim can claim upto 75% of the total cost of asset since she uses the laptop for her work
purpose while the rest 25% is non-permissible deduction since it is a private expense.
Internet $1,080 Yes $810 Similarly, a deduction under “section 8-1, ITAA 1997” will be allowed up to 75% of the
internet cost to Kim since it is related to her work purpose.
Accounting seminars
$3,000
Yes $3000 As per “Taxation Ruling of TR 98/9” self-education expenses are allowed for
deduction in which the taxpayer is presently engaged. The cost of attending accounting
seminar is allowable deduction for Kim under “section 8-1, ITAA 1997”.
Qantas Club $500 Yes $450 Kim can only claim 90% of the Qantas Club expenses as it relates to her work purpose.
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Expenses Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
Suitcase $300 No $0 Expenses for suitcase is private expenses and non-deductible under “section 8-1,
ITAA 1997”.
Conference
registration fee $1,750
Yes $1750 As per ATO a taxpayer is permitted to claim deduction for expenses occurred on
conference registration fees. Kim can claim conference registration fees under
“section 8-1, ITAA 1997” since the expenses meets the positive limbs and was
occurred in deriving her assessable income.
Total deduction $10,500
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Item D9 – Gifts or Donations
Gifts or
donations
Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
Aspire Support
Services $90
Yes $90 Under Division 30, Kim can claim deduction as the recipient is deductible gift recipient.
Red Cross $1 Yes $1 Permissible deduction under division 30.
RSL art union –
raffle tickets $360
Yes $360 Permissible deduction under division 30.
Cancer Council –
chocolates
$6
Yes $6 It is an allowable deduction under Division 30 because it was voluntarily made by Kim.
Volunteer work
$5,000
Yes $5,000 Allowed as deduction under division 30 because volunteer work was done by Kim without any
kind of material advantage by Kim.
Total deduction $5,457
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Item D10 – Cost of Managing Tax Affairs
Managing tax
affairs
Deductible
or not?
Amount
deductible
Reasons/law
Invoice for cost of
preparing tax
return $480
Yes $480 Specific deductions can be claimed under section 25-5 since it was occurred for managing
tax affairs. Kim can claim specific deduction for preparing the tax return since it is occurred in
managing tax affairs
Income tax
payable (2018)
$3,030
No $0 Non-deductible under section 8-1, ITAA 1997 as it is a previous year tax liability.
General Interest
Charge $289
Yes $289 As per the ATO the general interest charge imposed by ATO is deductible. The general
interest charge can be claimed as specific deduction by Kim.
Total deduction $480
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Item M1 – Medicare Levy Reduction or Exemption
Reasons/law
Kim will be liable for Medicare levy at a rate of 2% on her taxable income.
Item M2 – Medicare Levy Surcharge (MLS)
Reasons/law (including calculations to ascertain is Kim is liable and if so, the amount of liability)
Kim will be liable for Medicare levy surcharge at a rate of 1% on her taxable income since her assessable income threshold limit is
beyond $90,000 for singles. Hence, the calculations are as follows
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Calculation of tax payable for 2018/19
Assessable income
Item 1 – Salary and Wages $ 82,800
Item 2 – Allowances, etc. $ 6,000
Item 10—Interest $ 1,983
Item 24 – Other income $ 0
$ 95,793
Less Allowable deductions
Item D2 – Work Related Travel Expenses $ 1,730
Item D3 - Work-related uniform, etc $ 0
Item D5 – Other Work Related Expenses $ 10,500
Item D9 – Gifts or Donations $ 5,457
Item D10 – Cost of Managing Tax Affairs $ 480
$ 18,167
Taxable income $ 77,626
Basic Income Tax Liability (etc.) $16,775
Add: Medicare Levy $1,553
Add: Medicare Levy Surcharge $958
Total Tax Payable $19,285
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