Taxable Income Computation and Analysis: Holistic Health Business

This assignment solution details the computation of taxable income for Dale Teal's holistic health business for the assessment year 2017-2018. It covers various income sources, including salary, business income, interest, dividends (franked and unfranked), and capital gains. The solution provides a breakdown of income from salary as a prison guard and the income from her sole trader holistic health business, accounting for cash receipts, invoices, and trading stock. It also addresses the tax implications of different types of dividends, detailing how franking credits impact taxable income. Furthermore, the document outlines the calculation of capital gains from the sale of rental property, stamps, and shares, considering indexation benefits where applicable. Deductions such as income protection insurance, life insurance premiums, and franking credits are also factored into the computation to arrive at the final taxable income. In addition, the assignment analyzes the residential status of an individual named Amity, applying Australian Taxation Office guidelines to determine residency based on physical presence, domicile, and superannuation membership.

COMPUTATION OF TAXABLE INCOME
Name of Assessee DALE TEAL
Husband’s Name TRENT TEAL
Status Individual Assessment Year 2017-2018
Residential Status Resident Year Ended 30.06.2017
Particular of Business HOLISTIC HEALTH BUSINESS Date of Birth 01/11/1966
Sex Female
Computation of Total Income
Income from Salary 85,000
Blackhand
(A private high security facility)
Salary 85,000
Income from Business or Profession 97,838
HOLISTIC HEALTH BUSINESS
Add:
Professional income 97,838
Total 97,838
Income from Other Sources 2,180
Interest From Bank A/c 2,180
2,180
Income from Imputation
Income from unfranked dividend
Income from partially franked dividend
Income from fully franked dividend
4,000
9,500
14,350
27,850
Income from Capital gain
Profit on sale of capital assets*(see notes) 46,600
46,600
Gross Total Income 2,73,668

Less: Deductions
Income protection insurance
Life insurance premium
Franking credit*(See notes)
7,390
7,55
6,157.5
(14,302.5)
Total Taxable Income 2,45,165.5
Round off 2,45,165.5
STATEMENT OF ADVICE
1. Salary shall be taxable in the hands of assesse and shall be included in computation of calculation net taxable
income. It is to be taxed as any other business income. A noncommercial loss can be set off against salary
income on fulfillment of the prescribed condition in Australian Taxation Office. It includes commissions,
bonuses or any other payment received which is directly related to employment such as gratuities, pensions
and other payments provided they fulfill the demanded criteria.
2. The PAYG withholding is the amount the employer withheld while making payment to employees it will not be
taxable in the hands of employees rather it is like prepaid tax for which the employer will get the credit while
paying for other taxes such as GST.
3. Business income is calculated after considering all the incomes which are related to business whether it is
sale of goods or services or any other income related to business or profession. The taxable business income
is net of all the deductible expenses that is the expenses which are directly attributable to conducting of
business such as rent, office expenses, administration expenses and also selling expenses.
4. Income from bank interest is taxable as any other ordinary income. It should be according to the statement of
interest payers that is the amount shown in the return should be equal to what has been shown in the payers
statement.
5. Income from imputation that is the total of franked dividend, partially franked dividend and unfranked dividend.
The franked dividend are those dividend on which the tax has been already paid by the company distributing
the dividend of which the investor get the credit while calculating the net taxable income. The unfranked
dividend are those which do not get any credit while calculation of net taxable income. In case of franked
income firstly while calculating the income the dividend is taken as gross and after that the already paid tax
that is the credit is deducted from the taxable income which inturn reduces the net taxable income. On the
other hand in case of unfranked dividend the total dividend received is taxable. So in this case it is assumed
that the company distributing income has tax rate of 30% so the balance of 70% will be considered as income
and rest will be taken as input while calculation of taxable income.
6. Income from computation of capital gain: All the calculation is done considering the indexation table.
a) Rental property sold:
Particulars Amount($)
Sale value 3,40,000
(-)cost of
acquisition(180000/66.7*110.5)
(2,98,200)
Long term capital gain 41,800
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b) Stamp sold:
Particulars Amount($)
Sale value 25,000
(-)cost of acquisition (50)
Long term capital gain 24,950
c) Shares sold(500 shares):
Particulars Amount($)
Sale value 2,000
(-)cost of
acquisition(10,000/100.4*110.7)
(11025.9)
Long term capital gain (9025.9)
d) Shares sold(2500 shares):
Particulars Amount($)
Sale value 18,750
(-)cost of
acquisition(18,000/66.7*110.7)
(29,874)
Long term capital gain (11,124.1)
TOTAL CAPITAL GAIN OR LOSS=41,800+24,950-9,025.9-11,124.1=46,600
EXPLAINATION FOR LONG TERM CAPITAK GAIN OR LOSS
1. Rental property was purchased on 15/5/1996 and sold on 25/8/2017 for $25000 so as per above calculation
it is Long term capital gain also the indexation benefit is taken to reduce the sale value and in turn reduce
the net taxable income.
2. Stamp are personal collectibles. As per Australian Taxation Office sale of collectibles are to be included in
calculation of net taxable income. But no indexation benefit is available as the stamps are sold in the same
year in which they were purchased.
3. The boat is a personal asset and as per Australian Taxation Office loss or gain on sale of personal asset is not
to be taken under the calculation of net taxable income.
4. The sale on shares is also capital gain but it is taken as ordinary business income but capital loss can be used
to set off other capital gain on other assets.
5. The sale of 1000 shares on 1/4/2017 is not taken in the calculation of taxable income because any asset
purchased before 20th September 1985. Exemptions are given for such sale of capital assets.
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6. The sale of 2500 shares shall be taken in calculation of taxable income and also indexation benefit will also
be available on such sale incidence.
DEDUCTIONS
i. Certain deductions are available as per Australian Taxation Office which helps in reducing the Net
taxable income. There are different deductions for different head such as expenses related to
business which help in reducing the business income are which pertains directly with operations of
business activities.
ii. Also there are certain deduction related to interest earned and dividend earned which are deducted
from gross interest or dividend earned that is loan taken to invest in shares or investments to earn
income.
iii. There are some other deductions which help in reducing the taxable income such life insurance
premium , income protection insurance.
So while computing the net taxable income of Dale we have considered some deductions which are as
follows:
 Income protection insurance is deducted from gross taxable income as prescribed by Australian
taxation office.
 Also Australian taxation office has prescribe premium to be paid for life insurance for assesse to
be deducted from gross taxable income to arrive at net taxable income.
 Franking credit which is basically the tax already paid by dividend distribution company is also
deducted while calculation of taxable income but credit for franked dividend are allowed and no
credit is allowed for unfranked dividends.
PART 2- ANALYZING THE RESIDENTIAL STATUS OF INDIVIDUAL
As per Australian taxation office an individual is considered as official resident if:
i. If a person was Australia for more than half financial year.
ii. If an individual is residing in Australia permanently without in doubt of living in any other country.
iii. A person who is a member of any specific superannuation plans.
If any of the above condition is fulfilled the person is considered as an Resident in Australia.
RESIDENTIAL STATUS OF AMITY
Amity has been in Adelaide (Australia) since seven years till January 2016 and has been a proper resident in
Australia for regular seven years. As first and second condition is always fulfilled in her case.
Now Amity is send to Kiribati for 2 years and with a choice to extend the stay for another 3 years if the pay
was good and all lifestyle was also comfortable.
But both husband and wife returned to Australia on July 2017.
So if we analyze their stay with the conditions of residential status of Amity the outcomes comes as follows:
a. Amity was not is Australia for a whole year so first condition becomes Void ab initio as they
departed on January 2016 and arrived in Australia on July 2017 that is they were not in Australia in
the financial year that is between 1ST July 2016 to 30th June 2017.
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b. Also the second condition also is not fulfilled that is they are not domiciled in Australia as per the
given information.
c. The third condition is also not fulfilled as neither husband or wife are a member of any specific
superannuation plan, earlier they were members in health insurance membership but they
discontinued it afterwards and Amity is member of Chartered tax advisor which is not covered in
any specific superannuation plan.
So after all this analyzation of such condition it is declared that Amity was not a resident in the
financial year 1st June 2016 to 30th July 2017.
Bibliography
Amount not included in income. (n.d.). Retrieved from www.ato.gov.au
Australian residency. (n.d.). Retrieved from www.oecd.org
capital gain taxes. (n.d.). Retrieved from www.commbank.com.au
Government superannuation scheme. (n.d.). Retrieved from www.australia.gov.au
INCOME TAX. (n.d.). Retrieved from home.kpmg.com
Information on residency of tax payers. (n.d.).
PAYG installments. (n.d.). Retrieved from www.ato.gov.au
Payments need to be wthheld. (n.d.). Retrieved from www.ato.gov.au
SINGHANIA. (n.d.). DIRECT AND INDIRECT TAXES.
TAX DEDUCTIONS. (n.d.). Retrieved from
https://www.business.gov.au/info/run/finance-and-accounting/accounting/tax-deductions
taxing capital gains. (n.d.). Retrieved from www.taxpolicycenter.org
Withholding tax from wages and salaries. (n.d.). Retrieved from www.business.gov.au
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