Taxation Law Assignment: Tax Implications and Advice for Harpreet Kaur

This assignment solution addresses a taxation law case study for an individual, Harpreet Kaur, focusing on her income and tax liabilities for the income year. The solution includes a letter of advice from Pitchers Tax Partners, outlining the scope of the advice and summarizing key tax implications. The analysis covers various income sources such as salary, dividends, and capital gains from the sale of inherited shares (BHP and MYR). It also addresses deductions related to work expenses, car expenses, and rental property income and expenses. The assignment provides a detailed breakdown of each income and deduction category, including references to relevant sections of the ITAA 1997 and ITAA 1936. The solution also includes a depreciation schedule and discusses the tax treatment of compensation receipts and membership fees. The advice provided aims to help Harpreet Kaur understand her tax position and manage her expenses effectively, with recommendations for offsetting capital losses against gains and ensuring commercial rates are applied for rental property transactions.

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

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Table of Contents
Letter of Advice.........................................................................................................................2
Working Papers..........................................................................................................................4
Income and deduction related to work:..................................................................................4
Work related Car Deduction:.................................................................................................5
Capital gains:..........................................................................................................................5
Income and Deduction from Rental property:.......................................................................6
Depreciation Schedule:..........................................................................................................6
Income and Deduction from other sources:...........................................................................7
References:.................................................................................................................................8

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Letter of Advice
To Harpreet Kaur
From: Pitchers Tax Partners
Date: 18th May 2019
Dear Harpreet
Scope of the letter:
The letter takes into the account the matters associated to the taxation of the earnings
that is received by you during the income year from the several transactions during the year.
The letter would address the tax position and would also provide you valuable
recommendations to manage your expenses. A supplement of income and expenses from
every head has been explained in the letter for your easy understanding.
Summarized advice:
We have attached our summarized opinion in regard to our statement for each matters
that is drawn above. We are recommending you to read the summarized option of our advice
to further understand your tax liability for the year. We noticed that you received gross salary
of $130,000 from your employment. The gross salary that is received by you amounts to
income derived from the personal exertion and the amount is received by you from your
personal services rendered. The gross salary will attract tax liability because it is an ordinary
income under the “section 6-5, ITAA 1997”. While the tax that is withheld from your gross
salary is eligible for tax offset.
Evidences from the transaction reported suggest that your employer contributed in
your superannuation fund and paid for your mobile phone expenses. We would like to make
you aware that under “section 23L of the ITAA 1997” when the employee receives any type

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of fringe benefit by employer then the amount will be treated as non-assessable fringe
benefit. The employer will be taxable for the expense payment fringe benefit. You received
dividend from numerous share portfolios. Referring to “section 44, ITAA 1936” your
dividend is taxable income. While under “section 207-20 (11), ITAA 1997” you will be
permitted to claim tax offset for the franking credits that is attached your dividends as this
will be helpful in lowering your total tax payable to ATO.
You inherited the shares upon the expiry of your father. The shares of BHP and MYR
were inherited by you on 1st December 2017. The inherited shares were disposed on 5th
January 2018. The twelvemonth ownership rule was not met by you since the shares were not
under your ownership for twelve months and consequently you cannot claim CGT discount
when you make any capital gains from the sale of these shares. We noticed your MYR shares
resulted in capital loss while your BHP shares yielded capital gains. We recommend you that
can offset the capital loss against the gains from BHP shares.
The ATO explains that when a person rents the property to their family member then
rent need to be paid with respect to overall commercial rate. As we found out that you rented
the property to your daughter soon after the completion of construction. Therefore, the rent
need to be paid with respect to marketable rate. We have attached the rental property
schedule where details regarding your rental income and expenses have been disclosed.
We hope that the advice that is provided to you has been helpful in ascertaining your
tax liability. If you find anything inappropriate, then let us know as this will impact your tax
position.
Yours Sincerely
Associate Taxation
Pitchers Tax Partners

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Working Papers
Income and deduction related to work:
The receipt from the employment is chargeable as ordinary income inside ordinary
meaning of “section 6-5, ITAA 1997”. You also reported expenses related to dry cleaning of
work suits. As held in “Lunney v FCT (1958)” deduction for expenses that are private in
nature are not permitted for deduction under “section 8-1, ITAA 1997” (Miller and Oats
2016). Similarly, the dry cleaning of suits is not permitted for deduction as it is a private
outlay. The dividends have been contained within for taxation as statutory earnings in the
provision of “section 44 (1), ITAA 1997”.

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Work related Car Deduction:
No logbook has been maintained by the client for the car expenses incurred. The
client will be permitted to deduction for outgoings till 5000 kilometre for the total distance of
car at a 0.66 cents per kilometre.
Capital gains:
The client inherited the shares upon the death of his father. The shares of BHP and
MYR were inherited on 1st December 2017. The inherited shares were sold on 5th January
2018. The twelvemonth ownership rule was not met since the shares were not under the
ownership for twelve months and consequently the client cannot claim CGT discount when
making any capital gains from the disposal of these shares (Jones and Rhoades-Catanach
2015). It is noticed the MYR shares resulted in capital loss while the BHP shares yielded
capital gains. It is recommending that losses can offset from the gains made by BHP shares.

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Income and Deduction from Rental property:
The ATO explains that when person let-out the house on rent to a member of family
then rent is ought to be paid with respect to general commercial rate. As noticed that the
client has lent the property to her daughter soon after the completion of construction.
Therefore, the rent must be paid with respect to commercial rate (Morgan, Mortimer and
Pinto 2018). The stamp duty and legal fees is not included for deduction because forms the
part of cost base under “section 110-25 (1-6), ITAA 1997” for CGT purpose.
Depreciation Schedule:
The client in this situation has not elected to make use of the pool method in
determining the total depreciation. Rather, the client has elected to apply the diminishing
value method for computing the decline in value of assets based on the useful life.

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Income and Deduction from other sources:
Compensation receipts received for accidental payment is not an income. Referring to
“Whitaker v FCT (1998)” the compensation amount from the personal injury is a tax free
sum and not included for taxable purpose (Robin 2019). The expenses were incurred for
membership fees is allowed permissible deduction under “section 26-55 of the ITAA 1997”
but vogue living magazine subscription is not permitted for deduction. The personal super
contribution is allowable f deduction and 50% of replacement is a taxable earnings while the
left over 50% is considered as tax deduction.

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References:
Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., Mortimer, C. and Pinto, D., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Robin, H., 2019. Australian Taxation Law 2019. Oxford University Press.