Taxation Law: Emily Buff's Tax Liability and Recommendations

This assignment solution analyzes Emily Buff's tax liability, encompassing assessable income, allowable deductions, and tax payable for the year ending June 30, 2018. The solution addresses various aspects of taxation law, including deductions related to investment properties (interest, air conditioner installation, legal fees), capital gains tax on the sale of BHP and Orica shares, and the treatment of collectables. It also examines the tax implications of a compensation payment received by Emily, referencing relevant taxation rulings and legal precedents. The assignment provides a detailed breakdown of Emily's tax calculation, including her taxable income, Medicare levy, and total tax liability. Furthermore, it includes a letter of recommendation from a tax accountant offering guidance on the compensation payment and legal expenses, citing relevant sections of the ITAA 1997 and case law. The solution concludes with a comprehensive reference list of taxation law resources.

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

1TAXATION LAW
Table of Contents
Answer to Requirement A:.........................................................................................................2
Answer to requirement B:..........................................................................................................4
Letter of Recommendations:......................................................................................................4
Reference List:...........................................................................................................................6

2TAXATION LAW
Answer to Requirement A:
Accordingly, an individual can claim deductions relating to the borrowing expenses
related with the purchase of the investment property. This includes the interest on borrowing
where a person can claim an allowable deduction1. Similarly, the loan taken by Emily buff to
purchase an investment property would be allowed for deductions. It must be noted that
Emily shall only be allowed to claim deductions relating to the use of $400,000 that was used
for purchasing the contract investment, Emily would not be allowed to claim deductions
relating to the rest $200,000 as this was used to pay off Emily home mortgage which
constitute personal use of loan.
An individual is allowed to claim deductions relating to the rental property capital
works. Similarly, Emily, reported expenses on purchase of new Air conditioner for the rental
property and the same would be allowed as deductions. “Section 25-10 of the ITAA 1997”
allows a person to claim deductions relating to repairs to the premises. However, an
individual is not allowed to claim deductions for repairs that involve significant improvement
or replacement cost incurred on the property2. This is because these expenses are capital in
nature and not allowed as deductions.
As held in “Western Suburbs Cinemas v Federal Commissioner of Taxation” the
taxpayer was denied deductions relating to expenses that are significant in nature or capital in
nature3. Therefore, Emily would not be allowed to claim deductions under “section 25-10 of
1 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
2 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
3 Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013

3TAXATION LAW
the ITAA 1997” relating to cost incurred on leak of the roof since the expenses incurred was
capital in nature. Additionally, the capital gains reported on the sale of BHP shares would be
subjected to capital gains however the capital loss can be bought forward and the same can be
set off against the capital gains reported on the Orica Shares.
The collectables represent those items that are kept largely for the purpose of personal
use or employment4. The Australian taxation office requires the taxpayers to disregard any
capital gains or losses from the collectable if the collectable is acquired for $500 or less.
Similarly, in case of Emily, she would be required to disregard the capital gains from the sale
of collectable since the value of collectable is less than $500.
The total taxable income for Emily stands $420,000 and her Medicare levy stands
$8400 with total tax liability standing 143,898.
In the Books of Emily Baff
Statement of Tax Liability
For the Year ended 30 June 2018
Particulars Amount ($) Amount ($)
Assessable Income
Receipts of Compensation Payment 350000
Gross Salary 99000
Australian Sourced Rental Income 15000
Net Capital gains on disposal
BHP Shares
Proceeds 10000
Cost Base 6000
Gross Capital Gains (Proceeds less costs) 4000
Less: Loss from ACACIA shares 3000
Net Capital gains on BHP Shares 1000
Capital gains on Orica Shares 5000
Less: Capital loss 4000 1000
Total gross capital gains 2000
50% CGT Discount 1000
Total assessable income 465000
Allowable Deductions
4 Woellner, R. H et al, Australian Taxation Law 2014

4TAXATION LAW
Interest on Loan (400,000*4%) 16000
Installation of Air-Conditions 4000
Legal Fees 25000
Total Allowable Deductions 45000
Total Taxable Income 420000
Tax on Taxable Income 162232
Add: Medicare Levy 8400
Less: PayG 26734
Total Tax Payable 143898
Answer to requirement B:
Letter of Recommendations:
To Emily Buff
From Tax Accountant
Dear Emily,
We would like to draw your attention towards the receipts of compensation payment
and the legal costs incurred by you. The taxation ruling of Income Tax Ruling of 2434
provides guidance on compensation payments relating to unlawful actions of discriminations.
As evident you received compensation from the employer for paying you less than the male
worker. The Taxation Ruling of IT 2434 provides that it is unlawful for the employer to
differentiate based on the grounds of gender in the terms or conditions of employment
provided to employees.
Similarly, the compensation that is paid to make up for the salaries that would have
been received based on the grounds of discriminatory conduct of the employer will be held in
the nature of income and would be held for taxation following the receipt. Similarly, the
receipt of compensation payment will be included in your assessable income and would be
held for taxation. Referring to the Judgement in “FCT v Rowe (1995)” legal expenditure was

5TAXATION LAW
allowed for deductions since it was related the employment activities of the taxpayer.
Therefore, the legal expenses will be allowed as deductions incurred by you with reference to
“section 8-1 of the ITAA 1997”.
I hope that the recommendations provided to you would is helpful in meeting your
anticipations and the advice provided to you would help in resolving your query.
Thank You

6TAXATION LAW
Reference List:
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)
Woellner, R. H et al, Australian Taxation Law 2014