Taxation Law Report: Assessment of Jane's Tax Liability and Deductions

This report provides a detailed analysis of a taxpayer's tax liabilities and potential deductions based on the provided financial information. The report begins with a letter of advice to the taxpayer, Jane, outlining the assessable income from various sources, including salary, business profits, dividends, capital gains, and rental property income. It then discusses the application of relevant sections of the ITAA 1936 and ITAA 1997 to determine the tax implications of each income source. The report further examines allowable deductions, including car-related expenses, work-related expenses (uniforms, shoes), self-education expenses, and rental property expenses, referencing relevant case law and legislation. The report includes a summary table with the calculation of taxable income, tax payable, and Medicare levy. The report concludes by summarizing the key findings and providing a comprehensive overview of the taxpayer's tax position, offering valuable insights into the complexities of Australian taxation law.

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

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Table of Contents
Letter of Advice.........................................................................................................................2

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Letter of Advice
Dear Jane
I would like to draw your kind attention towards the letter that would be
providing you valuable advice regarding the tax liability and tax deductions of transactions
that has been provided by you. Initially it is necessary to understand that Section 6 of the
ITAA 1936 provides that income from the personal exertion or income that are derived from
the personal exertion represents income comprising of earnings, salaries, commissions, fees
bonus, pension or income from business would be considered for assessment.
Section 6-5 of the ITAA 1997 defines that most of the income to the taxpayer that
comes in is regarded as the ordinary income (Woellner et al. 2016). The court of “Law of
Scott v Federal Commissioner of Taxation (1935)” defined that the word income in
compliance with the ordinary concepts and use of mankind. The total amount of salary
reported by you shall be considered assessable under section 6-5 of the ITAA 1997 as the
income from personal exertion. Additionally, is also noted that you reported a business
profits of $2,000,000 during the income year of 2016. Therefore, for the assessment of year
2017 your business will be included the taxable return and the same will held be assessable.
An important consideration has been made for the income reported from the dividend
income reported by you. These dividends possess the character of income which is a gain for
you. Therefore, the dividend income will be considered for assessment under section 6-5 of
the ITAA 1997 as income from ordinary concepts (Barkoczy 2016). Section 102-5 of the
ITAA 1997 takes into the account the net capital gain for the year of income into the
assessable income year. It is noticed that you reported a capital gain of 500,000. A CGT
discount of 50% would be provided to you for the assets that are held for 12 months or more.
It is assumed that the asset has been held by you for a minimum period of 12 months and as a

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result of this you would be entitled to 50% CGT discount for the total amount of capital gains
derived by you.
The commissioner in the case of “FCT v Dixon” has explained that income derived
from the personal receipts are regarded as taxable income (Cao et al. 2015). Similarly, the
receipt of $26,000 from the rental property income forms the part of the taxable income and
the same will be considered taxable.
The federal court in “Moore v Griffiths (1972)” explained that mere winning from
prize does not forms the part of income (Braithwaite 2017). Hence, the prize winning of
$8000 from a golf tournament is not held as income and the same will not be included in your
taxable income.
According to section 8-1 of the ITAA 1997 an individual is allowed to claim
deductions relating to the expenses or outgoing that directly related with the assessable
income. To claim a deduction, the expenditure must meet the deductibility test under positive
limbs of section 8-1 of the ITAA 1997 (Saad 2014). An expenses or outgoings that are of
private or domestic in nature might not be considered for deductions since it does not meet
the criteria of positive limbs or the it is not allowed for deductions under “section 8-1 (2) (b)
of the ITAA 1997”. The court of law in “Lunney v Federal Commissioner of taxation
(1958)” defined that an expenditure must have the necessary character of loss or outgoings in
the derivation of the taxable income.
The expenditure on car reported by you related to the work purpose will be considered
for deductions. However, under “Sub-section 136 (1)” you cannot claim the expenditure
relating to travel purpose or home and office purpose as these are expenditure constitute a
private expenditure that cannot be claimed as the allowable deductions (Miller and Oats
2016). By referring to the commissioner decisions in “Lunney v Federal Commissioner of

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Taxation” held that travel between an individual home or an individual usual place of work
is usually not held deductible. Therefore, the travel expenditure incurred by shall not be
considered as the allowable deductions.
Referring to the judgement in “Fullerton v Federal Commissioner of Taxation” the
commissioner did not allowed deductions to taxpayer for moving with his family to a new
home since these expenditures were entirely domestic or family arrangement (Barkoczy
2014).
According to the Australian taxation Law an individual is allowed to claim
expenditure of compulsory uniform, protective clothing or occupation related specific
clothing. According to the statement made by the commissioner in “Mansfield v Federal
Commissioner of Law” the court permitted the flight attendant to claim deductions relating
to cost of shoes along with the cost of stockings as these clothes were occupation specific
(Brokelind 2014). The expenditure reported by you relating to purchase of skirts and pair of
shoes will be considered as the allowable deductions. The primary reason for considering the
deductions allowable the expenses or outgoing is directly related with the assessable income.
Furthermore, the expenditure reported by you meets the deductibility test under positive
limbs of section 8-1 of the ITAA 1997.
On the other hand, occupation related self-education that are incurred by the taxpayer
are allowed for deductions. This is because the self-education expenditure are usually
considered for deductions because these expenditure are incurred in meeting or increasing the
taxpayer skills that are engaged in their occupation (Coleman and Sadiq 2013). Particularly,
these expenditure are related to improving the income earning prospects of the taxpayer.
Similarly, the examples of occupation related self-education includes an instances of cost
incurred in registering, travelling and accommodation at the professional conference will be

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held as an allowable deductions. As evident that you have reported a self-education
expenditure that are related to the attending of law conference in Melbourne.
The expenditure incurred by you on cost of registering, travel and accommodations
will be considered as the allowable deductions. According to the judgement made in
“Highfield v Federal Commissioner of Taxation” it was stated that the expenditure related
to travel, accommodations of undertaking the self-education shall be considered as the
allowable deductions (Grange et al. 2014). Therefore, the expenditure reported by you for
attending the conference in Melbourne will be considered as the allowable deductions under
section 8-1 of the ITAA 1997. The primary reason for claiming the deduction is that these
expenditure are related to improving the income earning prospects (Kenny 2013). The self-
education expenditure are typically allowed for deductions since these expenditure are
occurred in meeting or increasing your skills of your solicitor occupation.
An instances obtained from the case study suggest that you incurred expenditure on a
client in relation to the function of partnership with the client. As a result of this you regularly
engage with the client for lunch and dinner at outside (James 2014). The cost of meal
entertainment can be considered as the business related expenditure. In accordance with the
Australian taxation office you can claim an allowable deductions related to the expenditure
on the business entertainment meal purpose.
Other transactions include an expenditure incurred by you for purchase of golf clubs
since your old set was not usable anymore. In accordance to the negative limbs of “section 8-
1 (2) (b) of the ITAA 1997” an individual is barred from claiming an allowable deductions
relating to expenditure that are private or domestic in nature (Krever 2015). The court of law
in the “Lodge v Federal Commissioner of Taxation” denied a taxpayer with the private
related expenditure as the expenditure was considered neither relevant nor incidental in

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generation of assessable income. Therefore the expenditure on purchase of golf set will be
considered as entirely for private purpose. With respect to the provision of “section 8-1 (2)
(b) of the ITAA 1997” you would not be allowed to claim allowable deductions (Morgan,
Mortimer and Pinto 2013).
Section 25-10 of the ITAA 1997 allows an individual can claim expenditure related to
the rental property as long as the property has been rented out or available for rent.
Nevertheless, an exception to this rule is that an individual is barred from claiming
expenditure that is are having the nature of capital or having private nature (Sadiq et al.
2014). As evident you have reported a number of rental property expenditure that is related
solely with the objective of gaining taxable income. Therefore, with reference to section 25-
10 of the ITAA 1997 you can claim an allowable deductions for the expenditure incurred in
producing the rental income from your property.
According to the section 40-25 (1) an organization can deduct an amount from the
declining value of the depreciating asset that is held by the taxpayer during the income year
(Woellner 2013). As evident in the transactions provided you it is found that you have
purchased an asset of Air conditions, washing machines and microwave oven. These assess
entirely used for your private purpose and you can implement the diminishing method to
reduce the declining value for your depreciated assets.
In the Books of Jane Andrews
For the Year ended 2017-18
Assessable Income Amount ($) Amount ($)
Gross Salary 150000
Australian Sourced Rental Income 26000
Australian Sourced Dividend Income
Fully Franked
Virgin Australia 7000
Horizon Energy 5000
Gross up franking credits (9000*20/80)
Challenger Ltd 7200

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Total Income from Salaries 195200
Income From Capital gains
Capital Gains from Sale of Property 500000
50 % CGT Discount 250000
Total Income from Capital Gains 250000
Total Income 445200
Allowable Deductions
Car Related Deductions
Fuel 3000
car service 1480
new tyres 1300
car wash 1450
registration 450
insurance 1265
Total Operating Costs 8945
Proportion of Private Use
Total kilometre run 59000
Work related Use 22000
Private related Use 37000
Private use (%) 63%
Total deductible expenses 5610
Work Related Deductions
Skirts 2350
Shoes 250
Total Work related deductions 2600
Work related self-education
Airfares 2000
Hotels 1000
Taxi fares 150
Meals 600
Conference Costs 5000
Total Work related self-education deductions 8750
Other Work related Expenditure
Entertainment Expenses 12000
Rental property deductions
Council rates 1680
cleaning 370
insurance 1420
interest on CBA loan 1000
pest control 600
property management fees 4460

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repainting the house interior 5000
Total Rental Property Deductions 14530
Diminishing Pool Value
Air Conditions 1280
Washing Machine 950
Microwave oven 250
2480
Diminishing Pool Rate @37.5% 930
Total Allowable Deductions 44420
Total Taxable Income 400780
Tax on Taxable Income 153583
Add: Medicare Levy 8016
Less: Franking Credit 1800
Total Tax Payable 159799
As evident from the above stated computed table an assertion can be bought forward
by stating that your total amount of assessable includes $445,200. Whereas the total amount
of allowable deductions includes 44,420. The total amount of mediate levy stands 8016
which is 2% on your total income and your total amount of tax that would be payable by you
for the income year ended 2017 stands 159,799.
Conclusively, it is anticipated that the information provided in the letter have
provided a detailed explanation relating to the transaction which would be considered
assessable or transactions that would be allowed for deductions.
Thank You

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Reference List:
Barkoczy, S 2014 Foundations of taxation law.
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Brokelind, C. 2014. Principles of law: function, status and impact in EU tax law.
Amsterdam: IBFD.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and
Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Coleman, C. and Sadiq, K. 2013. Principles of taxation law.
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. principles of business taxation.
James, M. 2014 Taxation of small businesses.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths
Krever, R. 2015. Australian taxation law cases.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

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Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A.
2014. Principles of taxation law 2014.
Woellner, R. 2013. Australian taxation law select 2013. North Ryde, N.S.W.: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.