University Personal Finance - Assessment 1.2: Income Tax and Insurance

This assignment, a solution to a personal finance assessment, addresses income tax and insurance decisions. It includes calculations of taxable income, allowable deductions, and tax payable based on a mini-case study. The document analyzes assessable income, deductions like health cover, car expenses, and training course expenses, referencing relevant sections of the ITAA 1936 and 1997. It also assesses personal insurance needs, calculating financial obligations and available resources to determine insurance coverage requirements. The assignment considers income, assets, debts, and future financial needs, providing a comprehensive overview of personal financial planning aspects.

Running head: PERSONAL FINANCE
Personal Finance
Name of the Student
Name of the University
Authors Note
Course ID

1PERSONAL FINANCE
Table of Contents
Answer to question Mini Case 3:...............................................................................................2
Answer to question Mini Case 4:...............................................................................................3
References:.................................................................................................................................5

2PERSONAL FINANCE
Answer to question Mini Case 3:
According to the Australian taxation office an individual taxpayer is required to
declare the income that they have received for each of the financial year in their tax return.
According to the ATO the employment income comprises of the money that is received by
working as the employee (Ato.gov.au 2019). As per the “section 6 of the ITAA 1936”
income obtained from the personal exertion includes salaries, wages etc. received in capacity
of the employee. Usually income that is received by the taxpayer is regarded as ordinary
income under “section 6-5, ITAA 1997”. As held in “CT v Scott (1935)” income does not
signify the word of art and should be determined in compliance with the ordinary concepts
and usages (Woellner et al. 2016). The salary of $65,000 is included for assessment purpose
as it amounts to ordinary income under “section 6-5, ITAA 1997”.
A taxpayer is permitted to claim deduction under “section 8-1 of the ITAA 1997” for
the outgoings that are occurred in producing income. Evidently, under the negative limbs of
“section 8-1 (2), ITAA 1997” an individual is not allowed to claim deduction for outgoings
that are private, domestic or capital in nature (Barkoczy 2016). Taylor will be denied
deduction under “section 8-1 (2), ITAA 1997” for food and household, credit card payments
and entertainment expenses. These expenses are private and domestic in nature and does not
satisfies the eligibility of positive limbs (Ato.gov.au 2019).
Self-education expenditure is usually allowed for deduction when it is occurred for
maintaining or increasing the skills of employment of taxpayer in an occupation in which the
taxpayer is presently employed, particularly when the expenses improves the prospect of
promotion or generating higher income. As held in “FCT v Studdert (1991)” the taxpayer
was allowed deduction for undergoing flying lesson as it would enhance the performance in
his present job and increase the prospect of promotion (Barkoczy 2016). The training course

3PERSONAL FINANCE
expenses will be allowable deduction under “section 8-1, ITAA 1997” for Taylor because it
is occurred in improving future prospect.
In the Books of Taylor
Calculation of Taxable Income
For the year ended 2018
Particulars Amount ($) Amount ($)
Assessable Income
Gross Salary 65000
Total Assessable income
Allowable Deductions
Health Cover 1950
Car Expenses 1100
Training Course Expenses 1500
Mortgage Payments 14500
Total allowable deductions 19050
Total Taxable Income 45950
Tax on Taxable Income 6480.75
Add: Medicare Levy 919
Less: Low income tax offset 310.75
Total Tax Payable 7089
Answer to question Mini Case 4:
Financial Obligations (1) Amount
Mortgage 2,10,000 2,10,000
Car Lease 30,000 30,000
Other Debts 18,000 18,000
Monthly expenses 5,500*12*26- 1,000*12*12 15,72,000
Emergency fund 10,000 10,000
Funeral fund 15,000 15,000
Sum Total 18,55,000
Available Resources (2) Amount
Home 4,75,000 4,75,000
Income 68,000*26 1768000
Superannuation 1,75,000 1,75,000
Fund 48000 48000
Car Value 10,000 10,000
Business Equipment 35,000 35,000
Life Cover 2,00,000 2,00,000

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Sum Total 27,11,000
Insurance Coverage (2-1) 8,56,000
On the basis of the above computation the total available resources for Sam stands
$27,11,000 while the total financial obligations for Sam stands $18,55,000. It is also assumed
that Chase and Sam two children are presently not dependent. As a result, monthly
expenditure of $1,000 would be incurred by Sam and Chase to support both their children.
Sam is also anticipated to retire at the age of 65 years. The after tax income of Sam amounted
to $68,000 has been included for calculation purpose till the age of 65 years to project the
total income. in other words, a total of 26 years has been considered from the current age of
Sam to compute the income. In order to cover the family future requirements upon the death
of Sam they would be requiring an insurance coverage of $8,56,000.

5PERSONAL FINANCE
References:
Ato.gov.au. (2019). Deductions you can claim. [online] Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/
[Accessed 4 Apr. 2019].
Ato.gov.au. (2019). Income you must declare. [online] Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/
[Accessed 4 Apr. 2019].
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.