BFA714 Australian Tax Law Assignment 1: Income, Deductions, & Tax

This document presents a comprehensive solution to BFA714 Australian Tax Law Assignment 1, focusing on the tax implications of an individual's income and expenses for the 2018/19 financial year. The assignment analyzes various income sources, including salary, allowances, interest, and royalty income, determining their assessability based on relevant tax legislation. It also examines a range of work-related expenses, such as travel, uniforms, and other work-related costs, assessing their deductibility and citing relevant tax rulings. Furthermore, the solution calculates the individual's taxable income, Medicare levy, and tax payable, providing a detailed breakdown of the calculations. The document provides a step-by-step approach, including the relevant sections of the ITAA 97, to arrive at the final tax liability. It covers various aspects of Australian tax law, offering a practical application of the concepts taught in the course and demonstrates the application of the relevant tax laws and rulings.

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 Assessable $120000 As per s 6.5 of the ITAA 97, salary income is income derived through ordinary concepts.
PAYG tax
withheld – LWD
$37,200
Not
Assessable
0 Amount already deducted by employer. Needs to be adjusted to the net payable tax.
Total assessable income $ 120000
1

Item 2 – Allowances, earnings, tips, director’s fees etc.
Allowances,
earnings, etc.
Assessabl
e or not?
Amount
assessable
Reasons/Law
Clothing
allowance
$1,500
Assessable $1500 As per s 15 ss 2 of the ITAA 97, any allowance that has been paid by the employer to the
employee for the services rendered in connection to employment would be assessable.
Such an allowance can be cash or cash equivalent. In case of phone, professional
development allowance and clothing, the same has been received by the taxpayer as a
benefit.
Phone allowance
$1,000 Assessable
$1000
Professional
development
allowance $3,500
Assessable $3500
Whisky from client
$200
Assessable $200 Assessable as per s 15 of the ITAA 97 as an allowance connected to employment.
Frequent flyer
points value
$1,000
Not
Assessable
Nil As per the principles established in the case of Payne v FCT (1996), this receipt will not be
assessable as cannot be converted to a monetary value.
Total assessable income $ 6200
2

Item 10 – Gross Interest
Interest Assessabl
e or not?
Amount
assessable
Reasons and evidence
NAB $5 Assessable $5 As per the principles established in the case of FC of T v. The Myer Emporium Ltd (1987)
163 CLR 199, interest from bank is assessable as ordinary income.
Westpac $318 Assessable $318 Interest from bank is assessable as ordinary income, as per the principles established in the
case of FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199.
Westpac $282 Not
Assessable
Nil
Not assessable as never got credited.
Citibank $1,660 Assessable $900 The amount of $900 has been received and rolled over with a view to gain additional
interest. Hence, as per the principles established in the case of Federal Coke Co Pty Ltd v.
FC of T 77 ATC 4255, this would be assessable income.
Total interest assessable $ 1223 Label L
TFN withheld $ 282 Label M
3

Item 24 – Other income
Item Assessable
or not
Amount
assessable Reasons/law
Winnings
from casino
$500
Not
Assessable Nil
Winnings does not imply taxable income if the same has not been done in business- like manner. As per
the principles established in the case of Kelly v. FC of T (1985) 80 FLR 155, sudden winnings in casinos
would not be treated as an assessable income.
Royalty
income
$5,010
Assessable Nil In general sense, royalty income is required to be treated as ordinary income.
Total assessable $x
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
Deductible $520 Flight-tickets are to be treated as expense and allowed as deductions u/s 8.1 of the ITAA
97 as per the principles established in the case of John Holland Group Pty Ltd v FC of T
2015 ATC.
Expenses relating to accommodation that has been held for the purpose of work and sin
not of private nature would be treated as a deduction u/s 8.1 of the ITAA 97.
Owing to the taxpayer being away for work all his expenses arising out of sustenance as
well as meals is required to be treated as deduction u/s 8.1 of the ITAA 97.
Accommodation at
hotel $700
Deductible $700
Meals and sustenance
$140
Deductible $140
Taxi travel to and from
the airports (to attend
conference) $260
Deductible $260 Any expenses that has been incurred for the purpose of any travelling in relation to work
would be allowed as deduction u/s 8.1 of the ITAA 97.
4

Taxi fares to attend
seminars $90
Deductible $90 As per the principles established in the case of Taylor v Provan [1975] AC 194, any
expense that has been incurred for the purpose of travelling to work form a particular
place would be regarded as a deduction.
Taxi fares to get home
when there was no
public transport $310
Deductible $310 As per the provisions established in the case of Lunney and Hayley v FC of T (1958)
100 CLR 478, travelling expense from work towards home would be treated as not
deductible. Again, as has been established in the case of FC of T v Collings 76 ATC 4254,
in case of standby or on calls duties, the expenses for travelling to home would also eb
regarded as deductible.
Public transport fares
to commute to work
$1,440
Not
Deductible
Nil Expense for travel from home to work place will not be a deductible income as has been
decided in the case of Lunney and Hayley v FC of T (1958) 100 CLR 47.
Work-related travel expenses
deductible
$ 2020
5

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 Not
Deductible
0 As per the principles established in the case of Morris v FC of T 2002 ATC 4004, the
expense for the purchase of sunglasses would only be allowed as deduction if the same
was connected to the work of the employee. In this case, the use of sunglasses is not
necessary or connected with the work of the taxpayer. Hence, the same is not deductible.
Work-related uniform etc.
expenses deductible
$0 Claim type:
6

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
Deductible $990 U/s 25.55 of the ITAA 97, CPA membership fee is permitted till $42. In case of a
connection of fee of membership and income yielding process, the same would be
entirely deductible.
Subscription to
Australian Financial
Review $550
Deductible $550 The Subscription to Australian Financial Review $550 would be deductible u/s 8.1 of the
ITAA 97 as the same has not been incurred as a domestic, capital as well as capital.
Telephone expenses
$1,200
Deductible $900 Deduction u/s 8.1 of the ITAA 97 with respect to expense would only be allowed in
proportion to the part of the expense has been used for the purpose of earning profit. In
this case, 75% of the total expense needs to be treated as a deduction.
Home office expense Deductible $0 The expenses that has been incurred with respect to the house would only be allowed
as a deduction u/s 8.1 of the ITAA 97 to the extent to which house has been used for
work.
Filing cabinet $250 Deductible $250 This expense would be allowed as a deduction u/s 8.1 of the ITAA 97 as the same has
been connected with the revenue generation.
Laptop $2,400 Deductible $1800 Deduction u/s 8.1 of the ITAA 97 with respect to expense would only be allowed in
proportion to the part of the expense has been used for the purpose of earning profit. In
this case, 75% of the total expense needs to be treated as a deduction.
Internet $1,080 Deductible $810 Deduction u/s 8.1 of the ITAA 97 with respect to expense would only be allowed in
proportion to the part of the expense has been used for the purpose of earning profit. In
this case, 75% of the total expense needs to be treated as a deduction.
Accounting seminars
$3,000
Deductible $3000 Being a part of the positive limb the expense would be deductible as the same has been
accrued for the purpose of earning profit.
Qantas Club $500 Not Deductible $0 u/s 26.45 of the ITAA, membership recreational club will not be deductible.
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Expenses Deductible
or not?
Amount
deductible
Reasons/law (including references to relevant tax ruling/s)
Suitcase $300 Not Deductible $0 u/s 51AH of the ITAA 36, any expense that has been reimbursed will not be deducted.
Conference
registration fee $1,750
Deductible $1750 u/s 8.1 of the ITAA 97, deduction would only be allowed if the same has been incurred
by the taxpayer. The discounted amount needs to be considered.
Total deduction $10050
8

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
Deductible $90 Deductions would be allowed u/s 30.20.
Red Cross $1 Not
Deductible
$0 Is below the minimum value for the purpose of being allowed as a deduction.
RSL art union –
raffle tickets $360
Not
Deductible
$0 As per the Australian Taxation Office, RSL art union – raffle tickets would not be allowed as
deduction.
Cancer Council –
chocolates
$6
Not
Deductible
$0 As per the Australian Taxation Office, items like pens or chocolates are to be claimed as
deductible.
Volunteer work
$5,000
Deductible $5000 Value is within the range of $5000 and made to an organisation for charity.
Total deduction $ 5090
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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
Deductible $480 u/s 25.5(1)(a) ITAA 97, the expense incurred in management of the affairs of taxation is
require to be treated as deduction.
Income tax
payable (2018)
$3,030
Not
Deductible
$0 Not permitted as deduction u/s 25.5(2)(b) ITAA 97.
General Interest
Charge $289
Deductible $289 General interests are to be allowed as deductions u/s 25.5(1)(c) ITAA 97.
Total deduction $ 769
10

Item M1 – Medicare Levy Reduction or Exemption
Reasons/law
A medicare levy of 2% is required to be imposed u/s 251S ITAA 36, in case of income, which has been in excess of the optimum
threshold.
The optimum threshold for the singles - $21655.
Item M2 – Medicare Levy Surcharge (MLS)
Reasons/law (including calculations to ascertain is Kim is liable and if so, the amount of liability)
The individuals not having private health insurance would be imposed with Medicare Levy Surcharge. The income exceeding $105000
would be imposed with Medicare Levy Surcharge at a rate for 1.25%.
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Calculation of tax payable for 2018/19
Assessable income
Item 1 – Salary and Wages $120000
Item 2 – Allowances, etc. $6200
Item 10—Interest $ 1223
Item 24 – Other income $ 0
$ 127423
Less Allowable deductions
Item D2 – Work Related Travel Expenses $ 2020
Item D3 - Work-related uniform, etc $0
Item D5 – Other Work Related Expenses $ 10050
Item D9 – Gifts or Donations $ 5090
Item D10 – Cost of Managing Tax Affairs $ 769
$ 17929
Taxable income $ 109494
Medicare Levy (2%) $ 2189.88
Medicare Levy surcharge $ 1368.68
Gross Tax Payable - $28009.78 (($20797)+(($109494-$90000)*0.37)
Total Tax - $31568.34 ($2189.88+$1368.68+$28009.78)
Less
Net PayG deducted $37200
TFN $282
Basic Income Tax Liability (etc.) $5913.66
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