Detailed Report on Income Tax Return and Financial Analysis FY 2018/19

This report analyzes an individual's income tax return for the 2018/19 financial year, calculating a total tax payable liability of $33,503 based on an assessable income of $203,928 and allowed deductions of $33,135, resulting in a taxable income of $170,793. The analysis includes detailed breakdowns of income sources such as director's salary, fringe benefits, and dividend income, along with capital gains from the disposal of BHP and MYR shares. Deductions for rental property, car expenses, and other items are also examined. The report addresses various tax implications, including Medicare levy, budget repair levy, and the treatment of franked dividends. It further explores capital gains tax, rental property deductions (including depreciation), and other deductible expenses, such as car expenses and membership fees. The report also covers the preservation of supporting documents and provides recommendations for maintaining accurate records. The analysis concludes with a summary of the individual's financial position and tax obligations.

MAJOR ASSESSMENT

TABLE OF CONTENTS
LETTER...........................................................................................................................................1
INCOME......................................................................................................................................2
OTHER INCOME.......................................................................................................................3
CAPITAL GAINS.......................................................................................................................4
RENTAL PROPERTY ...............................................................................................................6
DEDUCTIONS............................................................................................................................7
OTHER ISSUES..........................................................................................................................7
TAX PAYABLE, OFFSETS AND LEVIES...............................................................................8
REFERENCES..............................................................................................................................10

LETTER
22nd January 2018
This letter is written regarding income tax return for financial year 2018/19.
Tax payable liability net this year amounts to $ 33503 . It is assumed all information provided by
you are correct. It is calculated on total assessable income $203928 less allowed deductions of $
33135. This is giving taxable income amounting to $170793 and placing you in tax bracket of
37cents /$. Income tax payable is $50690. 2% flat rate is applicable on taxable income as
Medicare levy. Private health care was not taken for full financial year therefore liability of
paying medical surcharge for days for which you did not had health care and it amounts to 1.5%
for 274 days. 2% Budget repair levy is charged over taxable income due to large debt owing of
Australia on income over $180000.
Dividends received during year from from Electric Blue amounts to $84000 which are
fully franked. Inheritance of dividend from father of $2465 are fully franked. Amounts are
grossed by tax paid and included to assessable income and after tax calculations are allowed as
offset.
BHP is pre CGT asset and was acquired at market value at death date on July 15, 2016.
Shares were valued at $20.30 per share on this date and were sold for $ 64075on 5th Jan at
$25.63. Profit of $13210 on disposal of BHP.
MYR is post CGT asset that was acquired at cost price and shares were purchased by
father at $4.10. Shares are sold at $1.35 for 13500 on 5th January which resulted in loss $23430. I
was not able to determine the reason behind selling these shares at such loss on disposal of BHP
shares. Loss resulted from disposing MYR will offset gain of BHP & the net loss of $10220 will
be carried forward to offset future gains of next year.
Capital work deduction of $4500 is allowable for rental property. There are some
deductible expenses for producing assessable income. Interest on loan is deductible as loan is for
rental property and producing income. Since the rent rates are within normal rates prevailing and
at arm's length transaction it is not differently treated for in come tax.
For the car Audi Q5 deduction is claimed under cents/km method. The deduction of
$3400 is available. Depreciation is not claimable by for car expenses that are calculated on
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cent/km. If log book is kept it is valid for 5 years provided no substantial changes are made to
work travel.
Mobile phone $1188 is directly paid by company and is not reportable as it is less than
$2000. Additional superannuation of $6000 under salary sacrifice is reportable by employer and
also taxed by company. Personal contribution is also reportable of $6000 as under
superannuation guarantee law 10 % of income has resulted from activities treated as employee
and is taxed by them.
For dry cleaning of work suits deduction is not available as covered under negative limb
s8-1 as that could be domestic or private nature or for private usage. As rebate of $83 is received
you cannot claim deduction for private health care. Entitlement for tax deductible gifts are not
available therefore donations are denied to Sea Shepherd. Membership fees is deductible as it
is in continuation of business.
As regarding support documents it is obligatory to preserve them for 5years under
Division 900 s900-165 and it is recommended to maintain proper system of filing. At the time of
queries from Australian Tax Office , information and proofs are available to support claims.
Hoping that made available makes sense and you are satisfied with tax return. Feel free in
contacting regarding any queries or suggestions.
INCOME
1.
Director's Salary of Electric Blue Pty. Ltd $160000
PAY Withheld $49897
Net Salary $110103
Superannuation $6000
9.5% is the mandatory superannuation rate and above is additional contribution. In ordinary
concepts there is no nexus for genuine salary sacrifices and income is not assessable TR2001/10.
Reportable super contributions by employer is not included in assessable income of employee
and it doesn't affects the method of calculating employees' super contribution (ATO 2018,
Reportable employer super contributions - for employers).
Salary will be assessable u/s 6-5 ITAA 1997.
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2.Fringe Benefit
Mobile Phone Allowance of $1188
Fringe benefits are defined under s136 FBTAA86 which are given by associate or employer to
its associate or its employees in regards to employment. Things that are covered by fringe
benefits can not be referred as ordinary income as they are cash convertibles as per ruling given
in Tennant v Smith(1892). Phone bill of client is paid by company directly.
Tax year for fringe benefits runs from April 1st to March 31st . Fringe benefit's gross value is not
assessable and reportable as it is lower than $2000 (Fringe benefit Tax Assessment Act 1986).
OTHER INCOME
11.Dividend Income :Section 44(1) ITAA36 & S207-20(1) ITAA97
Franked Dividend Franking Credit Assessable Income
Company $58800 25200 $84000
CBA $616 264 $880
COH $770 330 $1100
FLT $210 90 $300
TLS $129.5 55.5 $185
Total $60525.5 $25939.5 $86485
Dividend income is assessable in statutory income S44 IT AA36.
S) Unfranked dividend = $0
T) Full Frank Dividend
Maximum franking credit = distribution amount X tax rate of company/ (1- Company tax rate)
Grossed up dividend amount is assessable income. Franking credit + dividend received by
shareholder. Deduction is available to client for franking credit.
21.Rent Income
Rent received from daughter of client in 4/285 Pacific Parade, Bilinga is an ordinary income as
given in Adelaide Fruit & Produce exchange Co V FCT (1932). Rent received by daughter is a
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per market rates prevailing in that area and also within transaction at arm's length therefore there
is no issue on renting it to daughter.
From 1st March 2019 , $460 per week for 16 weeks =$7360
Kelly v FCT(1985);FCT V Stone (2005)
Lease income is assessable and ordinary income.
Compensation for medical expenses = $10000
Replacement Principles s6-5 – A damage award or compensation receipt takes the character of
item it is replacing. FCT v Dixon (1952) & Heavy Minerals Pty Ltd (1966)
Income is always assessable in recipient's hand by considering character.
 Income is receipt that has been realised and derived by taxpayer beneficially.
 Amount should be money or which can be converted into money.
 Income is generally regular, recurring and periodical.
 Income generally flows from capital earning sources.
Details of Spouse
Taxable Income of Spouse Amount
Income from Salary for 2018/19 $91000
Dividend income from Electric Blue $56000
Deductions $2300
Taxable Income $144700 (label O)
CAPITAL GAINS
After effects on death of taxpayer’s are laid under division 128 of ITAA 1997 and capital
gain assets are developed to legal representatives or beneficiary of estate. Where pre -CGT asset
is acquired by beneficiary, it is deemed that asset have been acquired at market rates on date of
death by him or her: s128-15(4). Where post- CGT asset is acquired by beneficiary asset is
deemed to be acquired at cost base of deceased person on death date :s 128-154(4). BHP will be
acquired as pre- CGT asset by client at market value on death date on 15 July, 2018. The
remaining shares will be acquired by client at initial cost at which they were acquired by owner.
As per CGT acquisition & timing s109-5 ITAA97 – GST asset is acquired when they become
the owner. According to s128-10 death is not termed as CGT event means CGT is not payable
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till the sale of shares. Clients are not required to worry about share values or or their effects on
taxable or assessable income till they are sold.
Inheritance of shares from the deceased father
Share Date of
purchase by
father
Number of
shares
Price paid per
share
Market value
on death date,
15 July 2018
Total value
inherited
BHP 04/01/85 2500 $ 5 $ 20.30 $ 50750
CBA 12/09/91 2000 $ 5.4 $ 75.94 $ 10800
COH 04/12/95 1000 $ 2.9 $ 124.77 $ 2900
FLT 01/12/95 1000 $ 0.95 $ 32.29 $ 950
MYR 07/11/09 9000 $ 4.10 $ 1.21 $ 36900
TLS 03/11/09 2000 $ 3.3 $ 5.75 $ 6600
TOTAL 17500 $ 108900
Capital proceeds 116-20 ITAA97 Usually amount of money or/and market value of property
received or receivable in respect of CGT by taxpayer.
Share Disposal s104-5 A1 ITAA 97
Number Selling
price
Brokerage
fees
Net
Disposal
CGT
Profit / loss
on disposal
5th Jan,2017
Disposal of
BHP
2500 $25.63 $64075 $ 115 $63960 $ 13210
5th Jan,2017
Disposal of
MYR
10000 $1.35 $13500 $ 50 $13450 $ -23450
Brokerage fees are added as incidental cost s110-25(3) ITAA97.
BHP shares were not held by client for more than 12 months therefore discount method will not
apply and full profits will be taxed on disposing BHP shares of $ 13210.
Profit of BHP shares will be off setted by client with loss from MYR shares. Offset is not
available for other taxable items but only against capital gains as per s102-15(1) ITAA97. Gain
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on disposal of BHP shares is reduced s104-10(5) ITAA97. The client is having net Capital gain
loss of $ 10220.
RENTAL PROPERTY
As per General rules on cost base s110-25(1)-(6) it includes Cost of acquisition, incidental cost,
non capital cost, capital enhancement and title cost.
Purchase Price $ 600000
Stamp duty $ 20025
Legal fees $ 1340
COST BASE $ 621365
Allowable deductions $ 19495
Body Corporate fees $ 1400
Council Rates $ 950
Water Rates $ 360
Insurance $ 685
Loan Repayments (Interest) $ 7200
Quantity Surveyor’s Report $ 8900
1st limb of positive limbs is satisfied of s8-1 ITAA97 because they have incurred for producing
or gaining assessable rent income.
Depreciation for rental property.(Taxation Ruling 2004/16 s43-000)
Depreciable
assets from
rent property
Opening
Balance
Depreciable
years from
table 3
Depreciation
rates using
WDV method
Depreciation Closing
Balance
Refrigerator $1080 12 16.67% $60.17 $1019.83
Washing
Machine
$1500 10 20.00% $100.27 $1399.73
Total $2580 $160.44 $2419.56
Asset Held = 122 days
Percentage = 200%
Depreciation = Op Bal.*(Days held/365)*(200/Remaining useful life)
Deduction is allowed for decline under division 40 ITAA97 s40-1 in value of depreciable assets
which is based on effective life of asset. There are two methods for working out decline in
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depreciable asset's value. Diminishing and prime cost method. Diminishing method is adopted
by owner ;s40-70 ITAA. Assets are entered in books as they are acquired newly by client.
Capital works on rental residential property are available for deduction under Division 43
ITAA97 s43-140 for properties built after July17, 1985. Original construction year of property
was 2005 having cost base $180000. Allowable deduction is 2.5% of cost base from date
property is made available for rent. Property is available for rent from March 1, 2019(122 days)
Total allowable deduction is $ 4500.
DEDUCTIONS
Car D1
Purchase price of Audi Q5 $ 65000 on June 1.2016. Total km travelled for year 36500.
Car is used for about 80% work related purposes, however because of unavailability of log book
maximum 5000 km can be claimed at 68cents under 28-25. 5000km at 68 cents / km equates to
$3400 (D1).
Deduction on car for depreciation cannot be claimed by taxpayers if expenses of car are
calculated on cents per km method; s40-55 . Car expenses provided by employees are not
available for deductions; s51 AF ITAA36. Value of car is above the depreciation limit for 2018-
19 as per s43-110 therefore higher value is not depreciable. Use of log book for period of 12
weeks would have entitled him to claim deductions related to car expenses for business use and
also depreciation for higher deductions.
Car value has exceeded the car limit as per s40-230 ITAA97. Upper limit of cost is to be used for
calculating decline in value. Input tax credits and non capitalised purchase cost reduces the cost
of car TD 2006/40. Car insurance is $1800 where registration fees is $ 760. Because of this Cost
of car decreases to $62440 which is still above limit. Client does not deals in buying or selling of
luxury cars therefore luxury car tax on values exceeding $ 64132 at 33% will not apply.
OTHER ISSUES
ITEM VALUE REFERENCE / AUTHORITY ALLOWAB
LE
DEDUCTIO
N
Dry Cleaning work $ 950 Deduction disallowed under negative NO
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suits D3 limb s8-1 as conventional clothing can be
for domestic or private nature.
Personal
superannuation
contribution D12
$ 6000
Donations D9 $ 1300 Div 30 ITAA97
ss 30-20to 30-105
It is must to be true gift FCT & McPhail
(1968)
Value more than $ 2
Disposed outside ordinary course of
business.
Not testamentary gift.
1300
Donation ''Sea
Shepherd''
$ 1300 Tax deductible gifts are not entitled to be
received by company (Australian
Government 2018).
NO
Membership fees for
Association of
Financial Advisors D5
$ 1040 Payments for membership of business,
trade or professional association are
allowed for deduction; s25-55 ITAA.
However limited to maximum of $42, so
full amount should be claimed as
deduction u/s 8-1 as nexus could be
satisfied.
1040
Subscription to 'The
Economist' D5
$150 Nexus is satisfied though 1st limb of s8-1
ITAA97.
150
Subscription to
''Vegan Living''
Magazine D5
$ 200 It is satisfying negative limb s8-1 as is
not related to earning assessable income.
NO
Bank Fees for
establishing loan D7
$ 970 Borrowing expense s25-25 ITAA97
Deductible for five years as less than 25
year loan =970/5*170/365
90
Insurance Policy $ 6000 Only 50% can be claimed for
replacement of income s6-5.
3000
BUPA Private Health
Care M1
$ 930 Deduction is not allowed as rebate has
already been received.
Rebate 83
Loan repayments for
rental property
(interest) D7
$ 7200 Interest accrued on funds borrowed for
purchasing income producing asset. FCT
v Munro (1926)
7200
TAX PAYABLE, OFFSETS AND LEVIES
Item Amount
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Assessable Income
Net Salary $110103
Company dividends $84000
Dividend shares $2465
Rental property received $7360
Total Assessable Income $203928
Allowable Deductions
Capital Work Deduction $4500
Rental property deduction $19495
Rental property depreciation $160
Car deductions $3400
Donations $ 1300
Financial Advisor membership $1040
Subscription to The Economist $ 150
Bank loan fees $ 90
Insurance policy $ 3000
Total Allowable deductions $ 33135
Taxable Income $170793
Income Tax (30.05% $50690
Medicare Levy (2%) $3415
Medicare Levy Surcharge (1.5%)(274 days) $1923
Budget Repair Levy (2%) $3415
Franking Credit Off Set $25940
Net Taxation payable $33503
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Lee, J., 2018. The Effectiveness of Part IVA of the Income Tax Assessment Act 1936 (CTH):
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international comparison. American Behavioral Scientist. 62(13). pp.1759-1776.
Neilson, T., 2018. Effect of share premium account on continuity of ownership test analysis.
Tax Specialist. 22(1). p.15.
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Tax Specialist. 22(1). p.15.
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Spiro, P. S., 2018. Tax policy and the underground economy. In Size, causes and consequences
of the underground economy (pp. 179-201). Routledge.
Summers, A., 2015. Continuing professional development in Australia: Barriers and support.
The Journal of Continuing Education in Nursing. 46(8). pp.337-339.
Tang, R. and Wan, J., 2015. Fringe benefits tax and fly-in fly-out arrangements: John Holland
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Tucker, J. and Hutchens, B., 2019. Tax files: Case law update-tax considerations following
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Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic Review.
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