Taxation Law: Calculating Tax Liabilities for John and Frank

This assignment provides a detailed solution to a taxation law problem, focusing on the calculation of income tax liabilities for two individuals, John and Frank, under the Australian tax system. The solution meticulously calculates their taxable incomes, considering various income sources such as professional fees, sales, dividends, interest, salary, and rental income. It also includes a thorough analysis of deductible expenses, such as office rent, employee salaries, depreciation, legal expenses, and interest on loans. The assignment further addresses capital gains tax, including short-term and long-term capital gains, and incorporates relevant tax rates and regulations. The calculations adhere to the Income Tax Assessment Act 1997 (ITAA 1997) and relevant case law, providing a comprehensive understanding of the taxation principles involved. The assignment also includes working notes and references to support the calculations and conclusions.

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

1TAXATION LAW
Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................6
References:....................................................................................................................................13

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Answer 1:
Calculation of tax liability of John:
Calculation of tax liability of John
Particulars Amount ($) Amount
($)
Taxable receipts:
Professional accounting fees received 100,000.00
Sales 25,000.00
Exempt income -
Dividend (7000 x 50%) 3,500.00
Interest received from Singapore company (9000 +1000) 10,000.00
Gross salary from part time lecturing at CPA (26000 + 4000) 30,000.00
Refund of medical expenses is exempt -
Rental income 10,000.00
178,500.
00
Less: deductible expenses and other deductions

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Office rent deductible under s8-1 of ITAA 1997 14,000.00
Relevant cost for Do it superannuation guide (20000+10000-
13000)
17,000.00
Legal expenses for recovering accounting fee is allowed as per s8-1
of ITAA 1997
5,000.00
Salary to employee allowed as per s8-1 of ITAA 1997 30,000.00
Depreciation on Laptop (800 x 40%) 320.0
0
Tax fees of tax agent allowed as per s8-1 of ITAA 1997 1,000.00
Borrowing expenses allowed as per s8-1 of ITAA 1997 3,000.00
Interest paid on loan for acquiring investment property is allowed
as deduction
20,000.00
Painting cost of investment property allowed as per s8-1 of ITAA
1997
5,000.00
Roof tiles replacement costs 1,000.00
Legal expenses for lease on investment property 5,000.00
Maintenance of John's invalid father 5,000.00
Rates on Family home (1000 x 10%) 100.0

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0
Electricity on family home (1000 x 10%) 100.0
0
106,520.
00
71,980.
00
Short term capital gain
Short term capital gain (40000 -20000) 20,000.00
Short term loss (15000 -10000) (5,000.00
)
15,000.00
Less: Discount @33.33% 5,000.00
Net short term capital gain taxable 10,000.
00
Gross taxable income 81,980.
00
Less: Carry forward tax loss 18,000.

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00
Net taxable income 63,980.
00
Tax liability of John
Net taxable income 63,980.00
Short term capital gain out of the above (20000 -5000) 10,000.00
Net taxable income without capital gain (63980 -10000) 53,980.00
Tax rate on short-term capital gain 15%
Tax on short term capital gain 1,500.
00
Tax up to $18200 Nil
Tax from $18201 to $37000 3571.81
Tax from $3701 to $53980 5518.175
Income tax payable 10,589.
99
Medicare levy @ 2% 1,279.
60

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Total tax payable 11,869.
59
The net taxable income John is $63,980 and income tax payable is $10,589.99 and $1,279.60 is
Medicare levy payable calculated @ 2% on taxable income (Australia, 2016).
Notes:
I. Professional fees is ordinary income taxable as per s6-5 of Income Tax Assessment Act 1997
(ITAA).
II. Revenue from sales is taxable as per 6-5 of ITAA.
III. Military income as per s11-5 of ITAA.
IV. Capital gain is taxable at the rate of 15%.
V. Dividend which is not franked is assessed as ordinary income as per s6-5 of ITAA.
VI. Interest received from foreign company entities is taxable and to be included in computation
of taxable income.
VII. Gross salary is assessable as ordinary income under s6-5 of ITAA.
VIII. Refund for medical expenses from Government Medicare is exempt as per s11-15 of ITAA.
IX. Rental income is taxable as per s65 of ITAA.
X. Office rent, cost of goods sold, legal expenses to earn revenue and all other expenses incurred
wholly for the purpose of earning income from business are allowed as deduction as per s8-1
of ITAA as these are revenue expenditures. All expenses incurred to produce taxable income
is allowed as deduction as per the decision in Finn v FCT.

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Out of the gross taxable income of $71,980 before considering short term capital gain $30,000 is
income from salary assessable as ordinary income under s6-5 of Income Tax Assessment Act
1997 (ITAA 1997) and the balance is income from business and investment property. In
calculating the taxable profit from business the revenue expenditures as per section 8-1 of
Income Tax Assessment Act 1997 have been deducted (Saad, 2014).
Answer 2:
Calculation of tax liability of Frank:
Calculation of tax liability of Frank
Particulars Amount
($)
Amount
($)
Taxable receipts
Fees received 60,000.
00
Rental income from investment property 15,000.
00
Retting win is taxable income 200
.00
Part time income from military services is exempt income
Dividend not franked 5,000.

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00
Gross interest income from Singapore 10,000.
00
90,200.
00
Less: Expenditures
Rates on investment property 3,000.
00
Interest paid on loan for acquiring investment property is allowed as
deduction
5,000.
00
Repairs to income producing property as per s8-1 of ITAA 1997 10,000.
00
Borrowing expenses allowed as per s8-1 of ITAA 1997 3,000.
00
Electricity on home 1000 x 10% 100
.00
Costs of superannuation guide (10000+5000-7000) 8,000.
00
Roof tiles replacement costs

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Legal expenses for lease on investment property
29,100.
00
Taxable income from business 61,100.
00
Gross salary income assessable as ordinary income as per s6-5 of ITAA 1997 30,000.
00
Net capital gain for the year 40,000.
00
131,100.
00
Less: Division 36 loss from previous year 9,000.
00
Net taxable income 122,100.
00
Tax liability of John
Net taxable income 122,100.
00