ACC3TAX S1 2019 Group Report: Taxation Law for Chris Matthews

This report examines the tax implications for Chris Matthews, focusing on transactions related to his employment and personal consultancy business. It analyzes capital gains from the sale of his main residence, considering the partial main residence exemption due to business use of the property. The report also assesses the deductibility of legal fees incurred in defending negligence claims, referencing relevant legislation and case law. Furthermore, it calculates Chris's taxable income, incorporating salary, allowances, patient fees, and allowable deductions such as subscription fees and cleaning costs. The final computation determines his total tax liability and potential tax refund for the year 2017/18, providing a comprehensive overview of his tax position.

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
Introduction:...............................................................................................................................2
Tax Implications involving the sale of house:...........................................................................2
Tax consequences of legal fees:.................................................................................................3
Computation of taxable income:................................................................................................4
Conclusion:............................................................................................................................6
References:.................................................................................................................................7

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Introduction:
The report would take into the consideration the tax consequences for Chris Matthews
for the transactions reported by the taxpayer received from numerous sources. The report
would consider receipt of income and outgoings that are incurred by taxpayers from
employment and personal consultancy business (Braithwaite and Reinhart 2019). Added
emphasis would be placed towards capital gains derived from disposal of main dwelling and
legal fees that was occurred for defending the legal charges.
Tax Implications involving the sale of house:
The ATO explains that a taxpayer should disregard the capital gains that is derived
from the sale of the main residence. However, the taxpayers are not entitled to get the full
exemption from the capital gains derived from the sale of main residence if the house has
been used for producing income such as renting out or running a business (Butler 2019). To
determine the net value of capital gains, the taxpayer must ascertain the market value of the
dwelling home especially the time when the taxpayer used the dwelling for deriving income.
Chris purchased the property on 1st March 1999 and he used it for generating revenue
on 3rd July 2014. On the 19th June 2018 Chris ultimately sold the property for $1,000,000.
Chris used the house as the main residence throughout the ownership. For a certain period of
time Chris used a portion of dwelling for running his personal consultancy business. The
rooms were modified by Chris to make it appropriate for business purpose and the rest of the
part was used for private purpose. The business use included 5% of the total floor space.
Upon selling the house, Chris made the capital gains of $572,000. As Chris has used the
house for running his own private consulting business he will only be permitted to obtain the
partial main residence exemption from the CGT (Sadiq 2019). Furthermore, the property was
within the ownership of Chris for a minimum period of 12 months. Chris can use the CGT

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discount method to calculate the net value of capital gains. The taxable amount of capital
gains is given below;
Particulars Amount ($) Amount ($)
CGT Event A1- (S 104-10(1))
Sales proceeds 1000000
Element 1 - Cost of Acqusition (S 110-25(1)) 400000
Element 2- Incidental Cost (S 110-25(2))
Stamp Duty 20000
Element 3 - Non-Capital Cost of Ownership
Conveyance Fees 8000
Total Cost of Acqusition 428000
Net Capital Gains 572000
Assessable Capital Gains 5%
Capital Gains 572000
Taxable Portion 22594
Calculation of Capital Gains
In the books of Chris Mattews
For the year ended 2017/18
Notes:
Capital Gains 572000
Percentage of Floor Area not used as main residence 5%
Percentage ofperiod of ownership not used as main residence 79%
Taxable Portion 22594
Tax consequences of legal fees:
As defined in the “section 8-1, ITAA 1997” deduction is allowed to taxpayer the
outgoings or expenses till the amount it is occurred in producing the assessable income
excluding in the circumstances where the expenditure is treated as private, domestic or
associated with earning income that is exempted (Morgan and Castelyn 2018). The federal
court in “Herald & Weekly Times Ltd v FC of T (1932)” held that the legal expenses is a
permissible deduction provided that the expenses is the outcome of revenue generating acts
of the taxpayer and legal expense are not capital, private or domestic in nature.

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Chris reports the legal expenses of $25,000 which is incurred at the time of defending
the claims relating to negligence is permitted as deduction under the provision of “section 8-
1, ITAA 1997”. Referring to “Herald & Weekly Times Ltd v FC of T (1932)” it is
understood that the legal outgoings is permitted as deduction because it was incurred in
producing the taxable earnings (Gashenko, Zima and Davidyan 2019). The legal spending is
having strong link with Chris medical practices and the outgoing is relevant to his medical
practice of gaining taxable earnings. Chris did not obtain any form of enduring advantage
from the expenses and it is correct to take into the account the legal expenses on revenue
account. Hence, Chris is permitted to get the deduction from the taxable income under the
“section 8-1, ITAA 1997” for legal outgoings that is incurred in defending the claims for
negligence damage.
Computation of taxable income:
As stated under the “section 6, ITAA 1936” income from personal exertion is earned
by the taxpayer in the form of salaries, wages, commissions, bonus, allowances etc. by
working as the employee relating to services provided or includes the revenue derived from
performing the business activities. According to “section 6-5, ITAA 1997” most of the
income which is received by the taxpayer is treated as ordinary income. The judicial
interpretation of court in “CT v Scott (1935)” explains that income is not the word of art and
to characterise the receipts with respect to the ordinary concepts it requires the application of
necessary principles.
Chris reports the receipts of remuneration and cash allowances from his employment.
The amount received is an income from private exertion or personal services under “section
6, ITAA 1936”. Denoting the judicial judgement made in “CT v Scott (1935)” the salary
receipts and allowances will be taxable as ordinary income under “section 6-5, ITAA 1997”.
Gains that arises from the business activities must be held as ordinary income (Miller and

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Oats 2016). Chris reports the receipts of patient fees out of which $12,000 has been included
into the taxable income because the remaining amount of $,3600 was not received for the
year 2017/18.
According to the Australian taxation office a person is allowed to obtain deduction for
expenses incurred in subscribing to trade, business or professional associations (Jones and
Rhoades-Catanach 2015). Chris during the year made subscription to e-clinic and the
expenses incurred for the subscription is an allowable deduction because the expenditure
were occurred by taxpayer in deriving taxable income.
Calculation of Assessable Income
In the Books of Chris Matthews
For the year ended 2017/18
Particulars Amount ($) Amount ($)
Assessable Income
Receipts from Gross Salaries 1,20,000
Receipt of Cash Allowances 3000
Receipts from Patient Fees 12000
Net capital gain on disposal of Residential property:
Taxable Portion 22594
50% CGT Discount 11297 11297
Total Assessable Income 1,46,297
Allowable Deductions
Subscription to E-Clinic 1500
Cleaning Cost 400
Legal Expenses 25000
Total Allowable Deductions 26900
Total Taxable Income 1,19,397
Tax on Taxable Income 31808.89
Add: Medicare Levy 2387.94
Less: PayG Withhold 34320
Total Tax Refundable -123.17
As understood from the calculations done above Chris will be able to get the total
amount of tax refund that amounts to $123.17 for the year ended 2017/18.

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Conclusion:
Conclusively, Chris will be allowed to get a partial amount of main residence
exemption from the capital gains tax that is obtained from the disposal of house. The total
amount of the tax refundable stands $123.17 for the year ended 2017/18.

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References:
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax
Office comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School
of Social Sciences, The Australian National University.
Butler, D., 2019. Who can provide taxation advice?. Taxation in Australia, 53(7), p.381.
Gashenko, I.V., Zima, Y.S. and Davidyan, A.V., 2019. Principles and Methods of Taxation.
In Optimization of the Taxation System: Preconditions, Tendencies and Perspectives(pp. 33-
39). Springer, Cham.
Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.