Taxation Law: Analyzing Taxable Income, Deductions, and Tax Payable

This taxation law assignment presents a detailed analysis of a taxpayer's financial situation, offering insights into taxable income, allowable deductions, and tax liabilities. The assignment includes a letter of advice addressing the taxpayer's gross salary, dividends, and capital gains from the sale of inherited shares. It covers work-related expenses, car expenses, and depreciation of a rental property. The analysis references relevant sections of the ITAA 1997 and ITAA 1936, providing calculations for tax payable, offsets, and levies. The solution also addresses non-deductible expenses and offers a comprehensive overview of the taxpayer's tax obligations. This assignment provides a practical application of taxation law principles, including income assessment, deduction eligibility, and tax calculation, offering a valuable resource for students seeking to understand and apply tax regulations.

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
Work Papers:..............................................................................................................................3
Work Related Income and Deductions:.................................................................................3
Work related Car Expenses:...................................................................................................4
Capital Gains:.........................................................................................................................4
Rental Property:.....................................................................................................................4
Depreciation Worksheet:........................................................................................................5
Income and Deduction from Other Sources:..........................................................................5
Tax Payable, Offsets and Levies:...........................................................................................6
References:.................................................................................................................................7

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Letter of Advice:
To Sworup
From Tax Advisors
Date: 27th January 2019
Dear Sworup
The letter seeks to address your taxable earnings and allowable deductions made by
you during the year of taxation. We would like to inform you that your gross salary of
$140,000 is included for assessment based on the ordinary concepts of “section 6-5, ITAA
1997”. However, the amount that is withheld from your salary can be claimed as income tax
deduction for reducing your tax liability.
The superannuation contribution and mobile phone paid by your employer is a non-
assessable under section 23L, ITAA 1936. The dividends received form the CBA, COH,
TLS, FLT and Digital Feet Pty Ltd is included for assessment as statutory income under
section “section 44, ITAA 1936” while the franking credits related to franked dividend is
also assessable income under “section 207-20 (11), ITAA 1997” but you can claim tax offset
to reduce your tax liability.
Following the demise of your father you inherited the shares on 1st December 2017.
The inherit shares of BHP were sold at $25.63 on 5th January 2018. This is less than 12
months and discounted method is not applicable to the CGT event under “section 115-40,
ITAA 1997”. However, the sales proceeds from MYR shares resulted loss. It is
recommended that you can offset the loss against the capital gains derived from BHP shares.
You have rented your property to your daughter and as per the ATO you are advised
to charge rent on the basis of the general commercial rate. The rental expenses incurred by

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you will be allowed as deduction. The dry cleaning of your work suit is non-deductible under
section 8-1, ITAA 1997 because it is not a specific clothing related to work. On the basis of
the calculation the net amount of tax that you should pay to ATO is $42,946.24.
Thank You
Work Papers:
Work Related Income and Deductions:
The gross salary is taxable under “section 6-5, ITAA 1997”. The dividends is
included for assessment as statutory income under “section 44 (1), ITAA 1997” (Barkoczy
2014). The mobile phone bill and superannuation contribution made by employer is non-
taxable fringe benefit under “section 23L, ITAA 1936”.

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Work related Car Expenses:
As the taxpayer has not maintained log book therefore cents per kilometre method is
followed. The car expenses that is eligible for deduction is only for 5000 kilometre @ 0.66
per km = $3,300.
Capital Gains:
The shares were inherited by the taxpayer on 1st December 2017 and eventually sold
on 5th January 2018. The shares were held for less than 12 months so discounted method is
applicable under “section 115-40, ITAA 1997” for the CGT event.
Gross Sales Proceeds from Sale of BHP Shares (CGT A1 S-104-10 (1)) 51,260$
Add: Brokerage Fees (Section 110-25)(2)), ITAA 1997 115$
Total Sales Proceeds 51,375$
Purchase Price for BHP Shares (110-25)(3)), ITAA 1997 10,000$ 41,375$
Gross Sales Proceeds from Sale of MYR Shares (CGT A1 S-104-10 (1)) 10,800$
Add: Brokerage Fees (Section 110-25)(2)), ITAA 1997 50$
Total Sales Proceeds 10,850$
Purchase Price for MYR Shares (110-25)(3)), ITAA 1997 32,800$
Net Capital Loss from Sale of MYR Shares (102-10(1)), ITAA 1997 -21,950$
Net Capital Gains 19,425$
Capital Gains from Investment
Rental Property:
The taxpayer here should charge rent based on the commercial rate since the property
was let out his daughter. The expenses on sub-letting the property is permitted for deduction
under “section 8-1, ITAA 1997”. The stamp duty on purchase, construction costs and
incidental costs are capital expenses under “section 110-25 (1-6), ITAA 1997”.

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Depreciation Worksheet:
Asset Type Base Value Days Held Days in Year PercentageEffective life Total Depreciation Closing Balance
15200 Stove 750 121 365 200% 12 41 709
Hot Water System 850 121 365 200% 12 47 803
Carpet 3750 121 365 200% 10 249 3501
Dishwasher 700 121 365 200% 8 58 642
Air Conditioner 1200 121 365 200% 10 80 1120
Window Curtains 2700 121 365 200% 6 298 2402
Refrigerator 880 121 365 200% 6 97 783
Washing Machine 1500 121 365 200% 6 166 1334
Depreciation Schedule
The diminishing method has been followed for computing the depreciation of the
rental property assets. The depreciation of assets is done based on their effective life.
Link:(https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT
%2FATO%2F00015)
Income and Deduction from Other Sources:
The expenses on laundry of work suit and vegan living subscription is non-deductible
under “section 8-1, ITAA 1997” as it falls under the negative limbs. Payment to financial
advisors falls under “section 26-55 of the ITAA 1997” for specific deduction (Sadiq et al.
2014). Donation to Cancer council and sea Shepherd is deductible under “section 26-55 of
the ITAA 1997”.

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The personal superannuation contribution to Sunsuper is allowed for deduction under
“subdivision 290-C of the ITAA 1997”. The replacement income of 50% is claimed for
deduction whereas the remaining $50% is included for assessment.
Tax Payable, Offsets and Levies:

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References:
Barkoczy, S. 2014. Foundations of taxation law 2014.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., and Ting, A. 2014.
Principles of taxation law.