Australian Income Tax and Tax Law Application Assignment - ACC304

This assignment presents a comprehensive analysis of Australian income tax law, addressing the tax implications for Mr. and Mrs. Elwood Blues. The assignment begins with an advisory letter that assesses the couple's residency status for tax purposes, considering factors like domicile, property ownership, and time spent in Australia. The letter provides advice on potential double taxation and allowable deductions. The second part of the assignment involves a case study of Jake, an Australian resident, and analyzes ten different tax scenarios, including income from employment, car allowances, bank interest, dividends, capital gains from share sales, capital losses, and work-related expenses. The assignment calculates Jake's taxable income and highlights relevant tax deductions. Additionally, the assignment explains negative gearing with an example and briefly discusses the tax benefits for low-income earners. All calculations and advice are based on Australian Tax Office regulations and relevant tax rulings.

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AUSTRALIAN INCOME TAX AND TAX LAW APPLICATION
Name
Course:
Professor’s Name
Institution
City
Date

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Part 1;
CPA, Smith Sckenker,
Adelaide Consultancy Ltd,
Unit 59,375 Queen Street
Brisbane, QLD RM 2536.
25Th July 2018.
Mr. & Mrs. Elwood Blue,
Elwood Blues address:
Unit 52, 246 Queen Street
Brisbane, QLD, 4000.
RE: Advisory Letter Addressing Income Tax Law Application and Implication on Mr. & Mrs.
Elwood Residency for Tax Purpose in Australia.
Dear Sir/Madam,
I agree with you that there is the need to know your residency for tax purposes since Australian
Tax Office uses individual residency status to determine how much tax one is obliged to pay as
well as how much deduction is that person allowed to claim as set-offs.
I would like to state that since the family of Mr. Elwood has legally satisfied residency test
relating to domicile according to Australian Tax Office as a result of a purchasing a house that
we are informed he has the strong connection to it he then qualifies to be a residence for tax
purposes in this scenario. Similarly, Elwood is seen to own telephone and electricity bills by
himself thus a more proof of residency.

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Likewise using the 183 days residency test of dwell within that year of income I am at liberty to
say the family Elwood has stayed for more than 183days since they came on 1St July 2017 hence
a high approval of being an Australian residence citizen for tax purposes.
The fact that Elwood is close in touch with persons who do gym to an extent of being appointed
president upon joining a local chess club that of course does Corporate Social Responsibility he
thus qualifies to be a resident tax citizen since the family has shown tight ties to the
neighborhood I which in this case is the gym and chess club fraternity.
It is therefore certain that according to TR 98/17, Tax Ruling IT 2607, 2268 as well as subsection
6(1) of the 1936 Australian Act Mr. & Mrs. Elwood qualify to be Australian resident citizen for
tax purposes hence obliged to pay taxes and claim allowable deductions that are within the ATO
tax regulation.
However, I wish to advise this family of Elwood to seek the waiver of double taxation of the
income his house earns him in Australia as stipulated in Tax Ruling 98/7 subsection 29 where
double taxation agreement allows reservation and a percentage portion of the same going to the
country of residence, in this case, is Australia. This fall upon double taxation is essential since
ATO is evident on any foreign income earned by a tax resident should be declared, and own
salary paid.
At this point I wish to inform Mr. Elwood that there is no deduction that is claimable by his
family since at the moment both the cost incurred to extend kitchen as well as electricity and
telephone bills are all termed as private expenditure since there is no business income that is
earned using this house, but he can claim any expense incurred to uplift the charity work done in
this course of being the president of the Chess Club.
I therefore strongly advise Mr. and Mrs. Elwood to do more business in Australian pursuant to
the law of the land without fear of tax since they are termed as Australian resident citizen by

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virtue of the number of days they have lived in Australia, domicile status, and finally the
proximity ties the family have had with the citizen, hence expected to declare income, file
relevant tax return and honor tax obligation expected of him.
Yours’ Faithfully,
CPA,Smith Sckenker,
C/o Adelaide Consultancy Ltd
Part 2(a) Woellner, Barkoczy, Murphy, Evans, and Pinto (2010.Pg.32)
The fact that Jake is an Australian resident for tax purpose he is bound by the law to pay income
tax from employment and any other business done upon netting off all allowed deductions and
taxes withheld as explained in the below ten tax scenarios outlined;
Information 1;
This information tells us that Jake within that financial year of 2017/2018 he earned the
consolidated gross of $86000 an amount that is to be taxed using the tax bracket $37001-$90000
since it lies within this bracket. The overall total tax calculated after considering deduction done
and the 2% medical levy provided it is expected to net off the pay as you go fee of $19820 as it is
the tax at the source that was withheld on behalf of the taxman by the company hence it is
already paid and declared.
Information 2;
According to Australian Tax Office on withholding for allowances, the law allows the company
to withhold certain benefits of course within the specified range. For instance, Australian Law on
car allowance only enables an employer to withhold a car allowance whose kilometers covered is
more than 5000km hence those whose kilometers are less than this there is no withholding done.

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Accordingly, in this case, Jake has done more than 5000kms with an excess of 1000kms thus that
is why from the allowance he has been paid $1500 is being held.
Hence allowed car allowance=$6000 * 0.75= $4500
Information 3;
Although Jake had not provided the bank with his tax number on the interest he has earned both
parties have to declare but of course the first culprit is Jake since it is an income to him and of
course the bank will have to declare this payment of $100 so as to have it being claimed as
allowable deduction from the bank side hence both sides will have to declare it Jake as am
income and bank as a deduction.
Information 4;
Australian Tax Office requires payment of tax and declaration of all dividends received whether
by cash/cheque or via reinvesting. For reinvestment purposes, it is expected that before
reinvestment is done payment is first declared and then shareholder opt to reinvest or not. In this
Jake case the $3500 un-franked dividend declared is deemed reinvest able however we must
calculate tax on it first and keep record of market shares of shares earned upon reinvestment so
as to be able to be able to claim capital gain or loss in future in case there exist the urge to
dispose of these shares. It is however expected that the employer will withhold 15% of dividends
paid hence, in this case, there is a withholding tax off=3500 * 0.15= $525
Information 5;
In this case by Jack purchasing shares and selling them there exists the need to calculate the
capital gain or loss resulting from the sale of the shares above, hence;
Cost of the share= $22 * 1000 for purchase plus the brokerage fee of $50, therefore, total cost=
50+ (22*1000) = $22050

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He later sells part of the share at =24*500=$12000 + $55 brokerage fee thus total= $12055
To get gain or loss on disposal= 22*500 = $11000 + $50 fees hence total purchase cost of the
shares being sold= $11050
Capital Gain/Loss=$12055 - $11050= $1005, this gain should be added to form part of the
income of Jack that is to be taxed.
Information 6;
This case of Jake cricket is that of disposal of an asset hence there is a capital gain or loss effect
in it calculates as= Sales Residual Of The Crickets Are = $900
Cost of this Cricket Were = ($2600)
Capital Loss/Gain = ($ 1500)
Jake is therefore seen to make the capital loss on disposal of these crickets hence is expected to
have this loss net of taxes for the next financial year or if he has pending tax in due of which we
are not informed about it.
NB; There is an assumption that there exists no usage life of the cricket an aspect that does not
see into it that there is depreciation effect.
Information 7;
Although Jake has misplaced the logbook it is assumed that the details of his car are still in the
Australian government portal and especially ATO and likewise he, therefore, can both claim the
ordinary car expense and depreciation of $6200 but only up to the percentage that relates to work
for instance in this case =95% * $ 6200 = $5890 he is just car expense that Jake is expected to
claim deduction for.
Information 8;
Although Jake does not have receipts on the calls, he made it is deemed within the law for him
to declare this free cost rather than failing to report this cost. Hence he should claim the

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deduction, but only up to that work-related percentage calls he made thus= $1400 * 60%= $840
is what he is to claim.
Information 9;
Since Jake has a receipt on the tax agency expertise job, he has been done for tax purposes he
should claim this tax agent fee of $400.
Information 10;
Since he has no dependents and has no cover as an Australian resident for tax purpose, he
qualifies for only 2% medical levy and medical levy surcharge for singles as defined in the rates
given. However, he is not eligible for medical levy surcharge since his income is less than the
minimum tax threshold of $90000.
Jake Taxable Income Statement
For The Year Ending June 2018
$
Gross Pay 86000
Add Bank interest earned 100
Dividend received 3500
Capital gain on sales of shares 1005 4605
Total Gross 90,605
Less Allowable Deductions,
Car Allowance 4500
Personal car expense and depreciation 5890
Used for work purpose
Mobile claims 840

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Tax Free Agent 400
Capital loss on sale of cricket 1500 (13130)
Net Taxable Pay for Jake 77,475
NB; The above calculation is based on assumption that Jake is Tax resident Australian citizen
who is employed and allowed the above benefits in his income hence the need to account for
them. Likewise, it should be known that the analysis is done as per the regulation of Australian
Tax Office.
Part 2(b); Saad (2014.Pg.1060)
I wish to explain to Jake negative gearing by the show of example. Assume Jake went for a
credit facility in a financial institution for $4000 and decides to invest this money in textile
wholesale business whereby it earns him $396 monthly whereas he is expected to pay a rent of
$100 and other expenses like water and electricity $50 and is likewise expected to part with $256
as payback pay of the loan facility on monthly basis. It will be realized that Jake is unable to
cater to his bills including the payment of the loan repayment since the revenue is less by;
Income Earned= $396, Cost/Expenses incurred=$256 + 100 + 50= $406
You find Jake has a shortfall of =396 - 406= ($10). Therefore negative gearing is a financial
constraint whereby an investor like Jake goes for a credit facility to generate revenue only to
realize that the revenue generated is less than the expenses incurred, thus creating the shortfall.
In this case the owner of an investment that operates in a negative gearing environment is
eligible to claim and allow the loss or shortfall as deductible allowable expense for instance in
Jakes case he is allowed by the law to claim tax deductions from other income equivalent amount
of $10 shortfall that he incurred in that month of operations. Likewise in case, he decides to sell
the whole business and make a capital gain that gain is subjected to the favorable state of tax.

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A person earning $100k a year, in a nutshell, falls under the category low-income earners since
in a monthly basis it is assumed that this person earns =100000/12= $8333 hence a very minimal
income. This first and vital significant tax benefit this person enjoys is a relief that he is not
allowed to pay tax in Australia as a tax resident since his income lies in the bracket, 0-18000
whose tax on income is nil.

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References;
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-
Social and Behavioral Sciences, 109, pp.1069-1075.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2010. Australian taxation
law. CCH Australia.