ACC3TAX S1 2018: Comprehensive Taxation Law Analysis of Emily Baff

This report provides a detailed analysis of Emily Baff's tax liability for the year ended 30th June 2018. It examines her assessable income, including salary, rental income, and capital gains, and identifies allowable deductions such as interest on loans and legal fees. The report also addresses non-allowable deductions, like expenses for home mortgage payments and capital improvements to the rental property. Additionally, it includes a letter of recommendation addressing the tax implications of compensation payments and legal fees incurred from a lawsuit against her employer, referencing relevant sections of the ITAA 1997 and case law. The final calculation of Emily's taxable income is $420,920, with a total tax liability of $144,330.4.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to requirement A:..........................................................................................................2
Answer to requirement B:..........................................................................................................3
Reference List:...........................................................................................................................5

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Answer to requirement A:
As defined under “Section 6 of the ITAA 1936” income that are derived from the
personal exertion contains of salaries, wages, bonuses, fees, gratuity etc. Likewise the receipt
of salary income constitutes income from personal exertion and would be subjected for
assessment. According to “section 8-1 of the ITAA 1997” an individual can claim deductions
from their assessable income relating to the interest for the borrowing expenses (Robin and
Barkoczy 2018). The interest on loan that is incurred for Emily’s investment property is an
allowable deductions under “section 8-1 of the ITAA 1997”. It was noticed that Emily used a
portion of $200,000 the borrowing to pay-off her home mortgage. The interest occurred for
that borrowing expenses is a non-allowable deductions under negative limbs of “section 8-1
(2) (b) of the ITAA 1997” because it is private in nature.
Emily reports an expense of $22,000 for replacement of the roof of the rental property
however under “section 25-10 of the ITAA 1997” she cannot claim an allowable deductions
since the expenses were capital in nature. Citing the decisions of court in “Western Suburbs
Cinemas v Federal Commissioner of Taxation” deductions were denied to the taxpayer for
expenses that are significantly capital in nature (Robin 2017).
As per the ATO taxpayers are required to disregard any capital gains or loss from
collectibles that are acquired for less than $500. Likewise, Emily must disregard the capital
gains made from the selling collectibles as the same was acquired for less than $500.
The total taxable income for Emily for the year ended 30th June 2018 stands $420,920
whereas the total tax liability for the year stands $144,330.4.

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Particulars Amount ($) Amount ($)
Assessable Income
Receipts of Compensation Payment 350000
Gross Salary 99920
Australian Sourced Rental Income 15000
Net Capital gains on disposal
BHP Shares
Proceeds 10000
Cost Base 6000
Gross Capital Gains (Proceeds less costs) 4000
Less: Loss from ACACIA shares 3000
Net Capital gains on BHP Shares 1000
Capital gains on Orica Shares 5000
Less: Capital loss 4000 1000
Total gross capital gains 2000
50% CGT Discount 1000
Total assessable income 465920
Allowable Deductions
Interest on Loan (400,000*4%) 16000
Installation of Air-Conditions 4000
Legal Fees 25000
Total Allowable Deductions 45000
Total Taxable Income 420920
Tax on Taxable Income 162646
Add: Medicare Levy 8418.4
Less: PayG 26734
Total Tax Payable 144330.4
In the Books of Emily Baff
Statement of Tax Liability
For the Year ended 30 June 2018
Answer to requirement B:
Letter of Recommendations
To Emily Buff
From Tax Accountant
Dear Emily,

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We request to draw your kind attention towards our recommendations based on the
receipts of compensation reported by and the legal fees that you incurred in bringing law suit
against your employer. Guidelines provided under “Taxation ruling of IT 2424” states that
compensation payment which is paid by the employer to the employees in respect of earnings
that are lost possess income characteristics which is subjected to taxation (Blakelock and
King 2017). Employers usually discriminates among its employees based on gender. One
common examples of discriminations includes paying less salary to female than the male
counterparts despite the equal proportion of work done by female in comparison to the male
counterparts.
As defined under “section 6-5 of the ITAA 1997” compensation payments that
possess the character of income is subjected to taxation (Robin and Barkoczy 2018). Receipts
of compensation payment by your employer possess the characteristics of income under
“section 6-5 of the ITAA 1997” which would be included in your tax return for assessment.
As explained under “section 8-1 of the ITAA 1997” an individual taxpayer is entitled
to claim allowable deductions for expenses incurred at the time of producing assessable. The
legal expenses reported by you for bringing a law suit against your employer is an allowable
deductions under the positive limbs of “section 8-1 of the ITAA 1997” (Robin 2017). Citing
the verdict of court in “Magna Alloys and Research Pty Ltd v Federal Commissioner of
Taxation (1980)” the taxpayer was allowed to claim deductions for legal expenses since the
expenses possess more than outlying association with taxpayers income creating activities
(McDaniel 2017). Henceforth, the legal expenses reported by you is an allowable deductions
under “section 8-1 of the ITAA 1997”.
We hope the recommendations provided has helped you in serving your purpose and
look forward to serve you again.

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Thank You

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Reference List:
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor,
The, 37(6), p.18.
McDaniel, P., 2017. Federal Income Taxation. Foundation Press.
Robin and Barkoczy Woellner (stephen & murphy, shirley et al.), 2018. Australian taxation
law 2018. Oxford University Press.
Robin, H, 2017. Australian taxation law 2017. Oxford University Press.