Taxation Law Assignment: Income, Deductions, Capital Gains, Advice

This taxation law case study provides a comprehensive analysis of an individual's financial situation for tax purposes. It covers various income sources, including employment income, dividends, and rental property income, as well as associated deductions. The assignment includes an assessment of capital gains and losses from share transactions, considering the application of the discount method and relevant tax legislation. The case study addresses fringe benefits, superannuation contributions, and work-related expenses. It also covers the tax implications of renting a property to a family member and provides a depreciation schedule. The solution includes a letter of advice to the client, working papers detailing calculations and assumptions, and references to relevant sections of the ITAA 1997 and ITAA 1936. The case study emphasizes the importance of accurate record-keeping and understanding the tax implications of various financial transactions. This case study provides a detailed analysis of a taxation law scenario, offering a complete overview of the client's financial situation for tax purposes.

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
Working Papers..........................................................................................................................4
Income and deduction related to work:..................................................................................4
Capital gains:..........................................................................................................................5
Rental property Income and Deduction:................................................................................5
Depreciation Schedule:..........................................................................................................6
Income and Deduction from other sources:...........................................................................6
References:.................................................................................................................................8

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Private & Confidential: Letter of Advice
To Raman Brar
From: Sonnet Tax Consultants
Date: 18th May 2019
Dear Brar
In regard to progress our meeting and discussion on the telephone we are attaching
our letter of advice with regard to the several sources of income as requested by you.
Scope:
To advise the taxpayer on the matters associated to the receipt of income from
numerous sources and deductions that can be claimed.
Facts:
Attached is below the applicable facts and assumptions on the basis of which the letter
of advice has been prepared. If you find any attached calculations or facts incorrect or not in
agreement with your understanding, then you can simply communicate with as us since this
will have effect on your advice.
Summary of Advice
We are summarizing the advice below on the basis of the opinion and assumption we
deem appropriate to each matters outlined above. We are encouraging you to read the
discussion in combination with the advice given. Income from personal exertion amounts to
services that is rendered in capacity of the employee. The gross salary of $130,000 holds
adequate nexus with your personal exertion earnings and we have included it for assessment
within ordinary sense of “section 6-5, ITAA 1997”. While the tax withheld amounts to

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$38,376 which we have later used for claiming income tax offset to lower your total tax
payable.
With regard to “section 23L, ITAA 1936” where the fringe benefit is provided to the
employee by the employer then the sum will be considered as non-taxable fringe benefit but
the employer will be considered taxable for the charge of fringe benefit provided. The
superannuation contribution and payment of mobile phone is a non-taxable fringe benefit for
you. Your total assessable income with respect to “section 44, ITAA 1936” also includes the
receipts of dividend derived from your numerous portfolios. The dividend has attached
franking credit and we have initially included into your assessable income but it is later
claimed as franking tax offset under “section 207-20 (11), ITAA 1997” to lower overall tax
payable.
Your share portfolios include the BHP and MYR shares which you have took from
your father following his demise. On 1st December 2017 you took the control of shares but
you sold those shares on 5th January 2018. You did not hold the shares for 12 months to be
considered eligible for discount method. Your MYR shares resulted a capital loss, however
you can deduct the loss from the gains made from BHP shares.
The ATO explains that when the house is sublet the family members then the rent is
ought to be charged on the basis of common marketable rate. With regard to ATO guidelines
as you have rented your daughter the property. As a result, we have charged the rent based on
the overall marketable rate. We have below attached the work papers with fittings
descriptions of our assumptions for each transaction are given below.
Once you have read this letter and you wish to proceed then we will be filing your tax
return with the ATO in relation to the points that have attached. We are hoping for your
response soon.

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Yours Sincerely
Associate Taxation
Sonnet Tax Consultants
Working Papers
Income and deduction related to work:
The employment receipt is taxable as personal service earnings inside the ordinary
conception of “section 6-5, ITAA 1997”. While no deduction is allowed for the dry cleaning
of work suits under “section 8-1, ITAA 1997” since the outlays are personal in nature. The
expenses incurred is occurred in producing the taxable income. The dividends are taxable
under “section 44 (1), ITAA 1997” while the superannuation contribution and phone bill

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payment is an expense payment fringe benefit and under “section 23L, ITAA 1936” no tax is
payable.
Work related car expenses:
The client has failed to keep record of expense relating to the business portion of car
use. As a result, the client will only be permissible to claim deduction for outlays till 5000 km
for overall distance of car based on 0.66 cents per kilometre.
Capital gains:
The share portfolios consist of the BHP and MYR shares which the client has
inherited from his father soon after his passing away. The shares were inherited on 1st
December 2017 but it was traded on 5th January 2018. The shares for 12 months to be
considered eligible for discount method under “section 115-40, ITAA 1997” (Woellner et al.,
2016). The taxpayers MYR shares resulted a capital loss, however the client can deduct the
loss from the gains made from BHP shares.
Rental property Income and Deduction:
Soon after the construction of the rental property it was sub-let to the daughter of the
taxpayer. It is recommended that the rent must be charged in terms of general commercial
rate. As the house was let out from the period 1st March to 30th June the expenses have only
been considered for deduction during this period only. Acquisition expenses such as stamp
duty and other legal fees on purchase of property are treated as acquisition cost and it is

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included into the total cost base under “section 110-25 (1-6), ITAA 1997” since it is capital
expenses (Barkoczy 2016).
Depreciation Schedule:
The taxpayer does not wish to follow the pool method for computing the decline in
assets values (Murray et al. 2018). As a result, diminishing value method has been implied to
compute the depreciation on the basis of every asset’s effective life.
Other sources Income and Deduction:
During the year the taxpayer reported the receipt of compensation payment from the
car accident. Citing the case of “Whitaker v FCT” the receipts from personal injury is
considered as tax exempted amount and not included for assessment purpose (Freudenberg et
al. 2017). The outgoings membership fees to financial advice-givers is allowed for tax

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deduction under “section 26-55 of the ITAA 1997” while vogue living magazine subscription
are non-deductible. The donation has been considered for deduction under “section 26-55 of
the ITAA 1997” (Main 2019). The personal super contribution is permitted for deduction and
the 50% of replacement is included into taxable income while the rest 50% is considered for
tax deduction.
Tax Payables and Tax Offsets:

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.
Main, J., 2019. Taxation: Buying or selling: beware the sting of GST. LSJ: Law Society of
NSW Journal, (55), p.73.
Murray, I., Taylor, J., Walpole, M., Burton, M. and Ciro, T., 2018. Understanding Taxation
Law 2019.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.