Detailed Analysis of Joe Harper's Taxation Law and Tax Return

This report analyzes the income tax return of Joe Harper, an electrician and contractor, for the year 2018-19, focusing on Australian taxation law and the Income Tax Assessment Act 1997. It details the calculation of Joe's taxable income, including income from business and profession ($150,000), house property ($47,795), and other income ($1,250), along with capital gains. The report examines allowable deductions such as council rates, insurance, repairs, and charitable donations, totaling $5,900. Capital gains tax implications are discussed, considering the sale of shares, personal assets like a car and speedboat, and paintings. The final income tax return shows a total assessable income of $449,045, a taxable income of $443,145, and a total tax payable of $107,672.22, including Medicare levy. The report provides a comprehensive overview of the tax provisions and calculations relevant to Joe Harper's financial situation.

TAXATION LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.BUSINESS AND PROFESSION.............................................................................................1
2.INCOME FROM HOUSE PROPERTY...................................................................................1
3.CAPITAL GAIN.......................................................................................................................2
4.OTHER INCOME....................................................................................................................3
5.DEDUCTIONS.........................................................................................................................3
INCOME TAX RETURN............................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Income Tax Assessment Act, 1997 is established to provide the tax impositions,
calculations & for collecting commonwealth income taxes. In Australia tax is imposed by
federal government over taxable earnings of corporations and individuals. Tax is levied by
government at progressive rates on individuals and on corporations at one out of two rates given.
The Act gives provisions and guidelines about all the transactions which are required to be
reported in the income tax return. The given case study is related to the Taxable Income of Joe
Harper who is electrician and works as individual contractor (Sharkey and Murray, 2016). The
tax return is to be prepared to find out the taxable liability of Joe after taking into account all the
income he has earned during the year. The tax liability is to be reduced by claiming allowable
deductions. The report will give understanding about the tax provisions applicable while
preparing tax returns.
1.BUSINESS AND PROFESSION
Service Income $150000
Mr Joe is electrician and contractor who earn income by providing services to the clients. The
income earned from services is $ 150000 during the year. The whole amount earned by Joe is
an assessable income and taxable as per ITAA,97 . The taxation department provides for the
expenses that can be claimed as deduction by the individual for services. The owing of $3000 is
transferred by Joe directly from client to red cross as charity. The withholding tax is deducted
on wages of the workers which is paid to government on behalf of the workers . There is no
credit for the withholding tax on the return of Joe as it is deducted from wages.
2.INCOME FROM HOUSE PROPERTY
HOUSE INCOME
Rent Income 60000
Deductible Expenses
Council rates 1680
Insurance 850
Repairs 2185
Trimming Shop Awning 750
Repair of floor 1200
Interest 5078
Interest Accrued 462 12205
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Income from House Property 47795
Joe is having income of $47795 from house property. The income from house property is
assessable and taxable under ITAA, 97. The income earned from renting the house is taxable
under the separate head income from house property (Martin and Xiang, 2015).. The expenses
earned by the owner on the house property can be claimed as deduction id they satisfy the
criteria laid down by the taxation office of Australia. Immediate deduction are available for
expenses relating to management & maintenance of property.
Joe has claimed deduction for council rates of $1680, insurance of $850 and paintings on
internal and external are deductible as they were for maintaining the building. Other repairs
work include concrete flooring of the house amounting to $1200. Interest on mortgage is
deductible expense as they are covered under the list provided by the Australian taxation office.
Interest of $462 is also allowed for deduction as it is accrued in the year but paid in next year
(Deductions, 2017). Joe has incurred expenses for trimming the back of shop awning on
request of council department. All the expenses amounting to $ 12205 that are claimed as
deduction are provided by the Australian Taxation Office.
3.CAPITAL GAIN
Particulars Shares Sports Car
Painting
A
Painting
B Speedboat
Sale Proceeds 700000 60000 2500 1000 16000
Cost of Acq. 20000 7000 2200 1200 24000
Capital Gain/Loss 680000 53000 -300 -300 -8000
Gain/Loss Gain exempt loss loss loss
Taxable Cap. Gain (680000*50%) 340000
Capital gain tax is applicable to all the assets that are acquired before September 20, 1985. The
provisions of capital gain tax provides for the assets on which capital gain tax is applicable. Joe
is using the discounting method for claiming the capital gain as Joe is filing an individual
return (CGT assets and exemptions, 2019). This method provides for the deduction of 50% on
the capital gain earned. Joe has sold some of its assets. Joe has earned capital gain on sale of
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shares which were acquire in October 1996. The capital gain is allowed for 50% deduction tax
will be paid on half of $680000 that is $340000. As per the guidelines of Australian Taxation
Office the car is an exempt asset. Therefore the capital gain earned on sale of car is exempted by
the taxation department as it is a personal asset. Paintings come under personal collectables
which are exempted if acquired for less than $500. The paintings are acquired for more than
$500 therefore they are not eligible for exemption. Being personal assets capital loss on sale
of paintings is not allowed for offset against capital gain from shares (Discounting Method of
Capital Gain, 2019). Speedboat is also covered under personal asset of individual according to
guidelines given by the taxation office. Therefore the capital loss of $8000 on sale of speedboat
is not allowed for offset against capital gain. Capital gains can raise the tax liability of individual
to considerable extent.
4.OTHER INCOME
OTHER INCOME
Gifts
I pad 500
Not
assessable
Holiday Voucher 2000
Not
assessable
Paid Trip 1250 Assessable
Total other income 1250
Other income includes the in come which is earned by assessee from sources other than
regular business activity or by providing services. Joe has received gifts of $3750 which
includes I pad, holiday voucher and paid trip. I pad has market value of $ 500 an d is received
from client for good services. It is exempted for tax purposes and also not required to be
disclosed in tax returns. The holiday voucher of $2000 is not an assessable income as provided
by the client for prompt services(Davis, 2016). But all paid expense trip by client is an assessable
income and not allowed for deductions. The paid trip is not gift in monetary term and does not
give the fix amount that can be claimed by Joe.
5.DEDUCTIONS
DEDUCTIONS
Gifts
Red Cross 100
Salvation Army 1000
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Donations
Red Cross 3000
Tax Agent Fees
Tax Return 500
Lodgement fees 1000
Telephone Bill
Office Use(40%) 300
Total Deductions 5900
Australian Taxation Office provides the list for deductions that can be claimed by
assessee. For claiming the deductions it must satisfy the conditions related to the expense.
Guidelines are given for limits of deductions. Joe has given charity to Red cross of $3000 by
client directly. It has also given gift of $100 to red cross. These are allowed for deduction as red
cross is recognised charitable organisation that receives donations for their workings. Joe has
also made of $1000 for painting. The amount was to be used for funding salvation army
therefore the bid is treated as charity and deduction is allowed as given for salvation army.
Joe has paid return filing fees and for lodgement of objection to the tax consultant of
$1000. These are deductible as they are used for maintaining the tax affairs of the individual as
given by taxation office of Australia. As per guidelines deduction for telephone bill is allowed
provided it is for the business use and not for personal use only. The telephone is partially used
for the business purpose and partially for the personal use (Chomik and Piggott, 2016).
Deduction can be claimed only up to the business use therefore telephone expense of $ 300 is
only allows as deduction where the rest was used for calling wife and children that are not for
business purpose. In total Joe can claim the deduction of $ 5900 in his tax return. All these
deductions are claimed as per the provisions of ITAA, 97 (Income and Deductions, 2017).
All these heads are calculated for getting the taxable income of Joe for the Year 2018-19.
INCOME TAX RETURN
Income Tax Return for 2018-19
Business Income 60000
Income from House Property 47795
Total other income 1250
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Capital Gain 340000
Total Assessable Income 449045
Total Allowable dedn. -5900
Taxable Income 443145
Tax on taxable Income 105561
Tax on income 25661
Tax on Capital Gain(23.5%) 79900
Medicare Levy(2 %) 2111.22
Total Tax Payable 107672.22
Income Tax Return is prepared as per the legislations and format given by the taxation
office of Australia. Joe is having income from business and profession amounting to $60000.
Income from house property amounts to $47795 after claiming all the expenses as deductions.
From other income assessable income is $1250 and under last head that is capital gain it is
having the gain of $340000 on shares and no offset is available for capital loss on personal asset
(Freebairn, , 2016). Total assessable income of Joe is $ 449045 after claiming deductions he has
taxable income of $443145 which puts him in highest tax bracket. When an assessee is put
under highest tax bracket his capital gain tax is reduced to 23.5% as per provisions of ITAA, 97.
The tax liability of Joe is $105561 as per the tax slab rates. Medicare levy is 2% on the tax
liability which amounts to $2111.22 and is payable by Joe. The total tax payable by Joe
amounts to $107672 after claiming all the deductions (Income Tax Return Instructions, 2017).
CONCLUSION
Joe is having the total tax liability of $ 107672 for the year 2018-19. The tax return is
prepared as per the provisions, rules and guidelines provided by Australian Taxation Office and
Income Tax Assessment Act. 1997. The tax liability is arrived at after claiming all the allowable
deductions.
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REFERENCES
Books and Journals
Chomik, R. and Piggott, J., 2016. The Australian retirement income system: comparisons with
and lessons for the United States. Reimagining Pensions: The Next 40 Years. p.274.
Davis, K. T., 2016. Dividend imputation and the Australian financial system. Kevin Davis'
Dividend Imputation and the Australian Financial System'JASSA: The Finsia Journal of
Applied Finance. 1. pp.35-40.
Freebairn, J., 2016. Design alternatives for an Australian allowance for corporate equity. Austl.
Tax F.. 31. p.555.
Martin, B. and Xiang, N., 2015. The Australian retirement income system: Structure, effects and
future. Work, Aging and Retirement. 1(2). pp.133-143.
Sharkey, N. and Murray, I., 2016. Reinventing administrative leadership in Australian taxation:
beware the fine balance of social psychological and rule of law principles. Austl. Tax F.. 31.
p.63.
Online
Income Tax Return Instructions. 2017.[Online]. Available through :
<https://www.ato.gov.au/Forms/Company-tax-return-instructions-2017/?page=35>.
Income and Deductions. 2017.[Online]. Available through :
<https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-
work-related-deductions/Claiming-mobile-phone,-internet-and-home-phone-expenses/>.
Deductions. 2017.[Online]. Available through :<https://www.ato.gov.au/Individuals/Income-
and-deductions/Deductions-you-can-claim/>
Discounting Method of Capital Gain. 2019.[Online]. Available
through :<https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-
loss/Working-out-your-capital-gain/The-discount-method-of-calculating-your-capital-gain/>
CGT assets and exemptions. 2019.[Online]. Available through
:<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/>
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