SCU Taxation Case Study: Individual Tax Return and Letter of Advice

This assignment presents a detailed solution to a taxation case study involving the preparation of work papers, calculation of taxable income and income tax payable, preparation of an individual tax return, and a letter of advice. The client, Salil, reported a gross salary, personal superannuation contributions, and capital gains from share sales. The solution addresses the tax implications of these items, including allowable deductions, capital gains tax (CGT) considerations, and rental property income. It also covers work-related expenses, private health insurance offsets, and other income sources like accidental compensation. The document includes comprehensive work papers detailing income, deductions, offsets, and levies, providing a clear and structured analysis of Salil's tax situation. The final tax payable or refund is estimated, offering a complete overview of the client's tax obligations and potential benefits. Desklib provides a platform for students to access similar solved assignments and past papers for effective study and learning.

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

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Table of Contents
Letter of Advice:........................................................................................................................2
Work Papers:..............................................................................................................................4
Work Related Income and Deductions:.................................................................................4
Capital gains:..........................................................................................................................5
Rental Property:.....................................................................................................................6
Income and Deduction from Other Sources:..........................................................................6
Tax Payable, Offsets and Levies:...........................................................................................7
References:.................................................................................................................................8

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Letter of Advice:
To Salil
From Tax Advisors
Date: 9th January 2019
Dear Salil
We would like to draw your kind attention towards our noteworthy advice that relates
to the information that is furnished by you during the year ended 30th June 2018. To simple
the matters, you reported a gross salary of $140,000 and tax withheld of $42,232. With
respect to the section 6 of the ITAA 1936 the gross salary represents income from personal
exertion that is received you in capacity of employee. Therefore, they gross salary of
$140,000 has been held as income based on the ordinary concepts of “section 6-5, ITAA
1997”. Whereas your tax withheld would be subjected to income tax offset from your net tax
payable amount to reduce your tax liability.
Your also reported a personal superannuation contribution during the year. Therefore,
you can claim an allowable deduction for the superannuation contribution made you
personally as the same helps in providing a true reflex of your income. During the year you
reported capital gains from the sale of BHP shares. However, we would like to notify you that
the sales proceeds obtained from the sale of BHP shares is held as pre-CGT asset because the
shares were acquired before 20 September 1985 and hence it is not included for assessment.
You also reported the sale of MYR shares but the sales proceed yielded capital loss. A
recommendation can be provided in this regard is that you can balance your income against
the expenditure as this would not only help in enhancing your financial position but would
also allow you greater savings.

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From the evidences furnished you it was noticed that you incurred certain work
related car expenses. It is noticed that 80% of the expenses were related for business.
Therefore, with respect to the positive limbs of “section 8-1 of the ITAA 1997” are eligible
for claiming the work related deduction for car expenses. This is because these expenses were
incurred by you during the course employment in producing taxable income.
We noticed that your let-out your rental property to your daughter. To matters simple,
as you have rented out your property to your daughter the rent needs to be at the normal
commercial rate. Any kind of expenditure that is incurred by you on the rental property can
be claimed as deduction for the part of the property that is let-out for rent.
We found you paying the premium for private health insurance during the year. We
would like to recommend you that you would be allowed to claim tax offsets from your
taxable income for the government rebate received by you on your private health insurance
premium.
We hope that the above stated advice has served your purpose and we look forward to
hear from you soon.
Thank You

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Work Papers:
Work Related Income and Deductions:
Under the head of work related income and deduction the present of work papers
consists of the gross salary, allowance received for phone and superannuation contributions
made by the employer. With respect to the “section 6-5 of the ITAA 1997” the gross salary
has been included for assessment based on the ordinary concept (Woellner et al. 2016). The
fully franked dividends received from the shares are included into the taxable income based
on “section 44 (1) of the ITAA 1936”.
While the expenses incurred here on car by the client is included as allowable tax
deductions based on “section 8-1 of the ITAA 1997”. The expenses were incurred as the part
of employment in the derivation of assessable income.
Working Papers
Work Related Income and Deductions
Amount
($)
Amount
($)
Income from Employment
Gross Payments 140000
Less: Tax Withheld 42232
Phone Allowance ($88 x 12 months) 1056
Less: Superannuation Contributions 12000 86824
Australian Sourced Dividend Income
CBA Shares
Fully franked Dividend From CBA
Shares 693
Gross Up for Franking Credits (990 x
30/70) 297 990
COH Shares
Fully franked Dividend From COH
Shares 910
Gross Up for Franking Credits (1300 x
30/70) 390 1300
FLT Shares
Fully franked Dividend From FLT
Shares 280

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Gross Up for Franking Credits (400 x
30/70) 120 400
TLS Shares
Fully franked Dividend From TLS
Shares 108.5
Gross Up for Franking Credits (155 x
30/70) 46.5 155
Total Employment Income 89669
Work Related Deductions
Fuel & Oil 5560
Servicing 960
Registration 608
Insurance 1440
Tyres 1120
Excess of Insurance Claims 600
Car Washing 960
Total Work Related Deductions 11248
Capital gains:
Capital gains are only applied on the assets that is acquired on or after the 20th
September 1985. As per the “section 102-5 of the ITAA 1997” an individual is required to
include the capital gains in their assessable income (Barkoczy 2016). While the capital loss
must be quarantined or can be only offset against the capital gains. The sales proceeds
obtained from the sale of BHP shares is held as pre-CGT asset because the shares were
acquired before 20 September 1985 and hence it is not included for assessment. While the
sale of MYR shares is not deductible and the net loss has been carried forward.
Capital Gains from Investment
Gross Sales Proceeds from Sale of MYR Shares 10800
Add: Brokerage Fees 50
Total Sales Proceeds 10850
Purchase Price for MYR Shares 32800
Net Capital Loss from Sale of MYR Shares -21950
Net Capital Loss from Sale of MYR Shares -21950

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Rental Property:
On a general note, when a person rents the property to their family member then the
rent should be based on the normal commercial rate. While any expenditure incurred on the
property should related to that let-out part of the property and the same is allowed for
deduction. The client has let-out the property to his daughter therefore the rent is charged
based on the commercial rate and the expenses incurred in relation to the property has been
included for deductions.
Income from Rental Property
Gross Rental Income 22880
Allowable Rental Deductions
Body Corporate Fees 1350
Council rates 950
Water rates 340
Insurance 685
Loan Repayment 8400
Quantity surveyor report fees 699
Capital Allowance (Depreciation) 4932
Total Rental Deductions 17356
Net Income from Rental Property 5524
Income and Deduction from Other Sources:
This set of work papers lists the explanation relating to income and deduction from
other sources. As per the ATO an individual can receive compensation from any accidental
insurance policy or the workers scheme compensation. Receipt of such amount should be
included for assessment. Similarly, the client here receives an accidental compensation for
suffering injuries in accident and the same has been included for assessment under the
income from other sources. The client here occurs expenses on the dry cleaning of work
clothes and also incurs expenses on donations. Therefore, these expenses are allowed as tax
deductible expenditure.

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Income and Deduction from Other Sources
Other Income
Accidental Compensation Received 8000
Total Other Income 8000
Other Deductions
Dry Cleaning of works suits 650
Personal Contributions on Superannuation 12000
Donations
Cancer Council of Australia 1200
Sea Shepherd 1200
Finance Advisors Membership Fees 940
Subscription to The Economist 120
Vegan Living Subscription 150
Fees paid to bank for loan 800
Insurance policy 2000
Total Other Deductions 19060
Tax Payable, Offsets and Levies:
Tax Payable, Offsets and Levies
Taxable Income 127116
Tax Payable on Taxable Income 24,664.92
Less: Offsets
Private Health Insurance Offsets 83
Add: Medicare Levy 2542.32
Sub Total 27,290.24
Less: Credits
Tax Withheld 42232
Franking Tax Offsets (Refundable) 853
Sub Total 43085
Estimated Tax Refund 5794.76

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References:
Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.