Taxation Law: Income, Deductions, Offsets and Levies - Detailed Report

This taxation law report provides advice to Malathi regarding her income and tax obligations for the year. It covers various aspects of her income, including her gross salary, dividend income from shares, capital gains from share sales, and rental property income. The report details assessable income, allowable deductions such as car expenses and donations, and tax offsets available. It also addresses the tax implications of fringe benefits provided by her employer and the inheritance of shares from her father. The report advises on the correct treatment of rental income from a property rented to a family member and outlines the calculation of tax payable, Medicare levy, and applicable offsets, providing an estimate of the total tax liability. This document is available on Desklib, where students can find past papers and solved assignments.

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

1TAXATION LAW
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:.....................................................................................................................5
Depreciation Worksheet:........................................................................................................5
Income and Deduction from Other Sources:..........................................................................6
Tax Payable, Offsets and Levies:...........................................................................................7
References:.................................................................................................................................8

2TAXATION LAW
Letter of Advice:
To Malathi
From Tax Advisors
Date: 31st January 2019
Dear Malathi
We would like to draw your attention towards our letter of advice based on the
materials that you have reported all through the year. We would like to inform you that the
gross salary of $140,000 that you have reported will be subjected to taxation with respect to
ordinary concepts of “section 6-5, ITAA 1997”. The withholding tax from your gross salary
is subjected to tax offset as this would lower down the income tax liability.
Your employer made an additional superannuation contribution of $12,000 and
mobile phone bill was paid by your employer. Subject to section 23L of the ITAA 1936 these
are non-assessable and amounts to fringe benefit for the employer. You also reported the
receipts of dividend from shares of CBA, COH, TLS, FLT and Digital Feet Pty. The dividend
income that is received by you will be treated for assessment as statutory income within the
meaning of “section 44, ITAA 1936”. The franking credits that has been received you is
attached with dividend. Therefore, it is included for taxation purpose on the basis of “section
207-20 (11), ITAA 1997” as the statutory income and an income tax offset can be claimed for
the same.
During the year you inherited shares from your father after his death. The shares were
held for less than twelve months before its disposal. You will not be eligible for the
discounted method to this CGT event under “section 115-40, ITAA 1997”. Although, the

3TAXATION LAW
sales proceeds from the MYR sales resulted capital loss. The loss that has originated can be
claimed as offset against the loss derived from the BHP shares.
During the year you also made income from the rental property by letting your
property to your daughter. As per the ATO when the rental property is rented to the family
members then the property should charge rent based on the general commercial rate.
Therefore, you must charge the rent based on the general commercial rate. You also incurred
expenses related to rental property. However, you can only claim deduction for the time till
the property was rented out.
Your expenses also include the dry cleaning of work suits. This is a private expense
and non-deductible because it satisfies the negative limbs of “section 8-1 (2), ITAA 1997” it
is not related to any specific clothing. The letter aims to offer you with the recommendation
that you should wisely make investment in shares which yields you higher profit and as this
helps in balancing income.
We anticipate that the letter has helped you in meeting your purpose and look forward
to serve you again.
Thank You
Work Papers:
Work Related Income and Deductions:
The gross salary is an ordinary income within the concepts of “section 6-5, ITAA
1997”. The dividends are taxable as the statutory income based on “section 44 (1), ITAA
1997”. The taxpayer has received franking credits attached with dividends therefore it is
assessable as statutory income under “section 207 (20) (1), ITAA 1997” and income tax
offset has been claimed for the same (Kenny 2013). The mobile phone bill and

4TAXATION LAW
superannuation contribution made by employer is non-taxable fringe benefit under “section
23L, ITAA 1936”.
Work Related Income and Deductions Amount (AUD$) Amount (AUD$)
Income from Employment
Gross Payments 1,40,000$
Less: Tax Withheld 42,232$
1,82,232$
Australian Sourced Dividend Income
Digital Feet Pty Ltd
Fully Franked Dividend 1,68,000$
Gross Up for Franking Credits (168000 x 30/70) 72,000$ 2,40,000$
CBA Shares
Fully franked Dividend From CBA Shares 990$
Gross Up for Franking Credits (990 x 30/70) 424$ 1,414$
COH Shares
Fully franked Dividend From COH Shares 1,300$
Gross Up for Franking Credits (1300 x 30/70) 557$ 1,857$
FLT Shares
Fully franked Dividend From FLT Shares 400$
Gross Up for Franking Credits (400 x 30/70) 171$ 571$
TLS Shares
Fully franked Dividend From TLS Shares 155$
Gross Up for Franking Credits (155 x 30/70) 66$ 221$
Total Employment Income 4,26,296$
Working Papers
Work related Car Expenses:
Work Related Deductions Car Expense
Total 5000 kilometers Under section (28-90) 5,000$
Rate per kilometer 0.66$
Total car expense 3,300$
Total Work Related Deductions
3,300$
The taxpayer has not used the log book method to record the expenses. The taxpayer
should use the cents per kilometre here. The taxpayer can only claim 5000 km at the rate of
0.66 cents.

5TAXATION LAW
Capital Gains:
The taxpayer inherited the shares from the father following his death. The shares were
held for less than 12 months therefore, the taxpayer is not eligible for discounted method
under “section 114-40, ITAA 1997” (Krever 2013). The capital loss can be offset against
BHP gains under “section 102-10 (1), ITAA 1997”.
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 property was let out to daughter immediately after the settlement on 1st March.
The rent should be charged based on general commercial rate. The deduction for expenses on
property is claimed only for the period till the property was rented out under “section 8-1,
ITAA 1997” (Morgan, Mortimer and Pinto 2013). While the capital costs incurred for rental
property such as stamp duty on purchase, construction costs and other incidental costs are
excluded from deduction.

6TAXATION LAW
Gross Rental Income
Gross Rent (1st March to 30 June) 7,040$
Allowable Rental Deductions (1st March to 30 June)
Body Corporate Fees 450$
Council rates 317$
Water rates 113$
Insurance 228$
Loan Repayment 2,800$
Quantity surveyor report fees 233$
Capital Allowance (Depreciation) 1,036$
Total Rental Deductions 5,177$
Net Income from Rental Property 1,863$
Income and Deduction from Other Sources
Income from Rental Property
Depreciation Worksheet:
The taxpayer has not used the pool method for the purpose of depreciation. Therefore,
diminishing value method is followed to calculate the depreciation based on the effective life
of assets.
Asset Type Base Value Days Held Days in Year Percentage Effective 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
Income and Deduction from Other Sources:
Income from other sources includes the accidental compensation. The expenditure
occurred for the laundry of work suits is not included for assessments under “section 8-1,
ITAA 1997” because it meets the negative limbs and non-deductible under negative limbs.
Payments for financial membership is allowed for specific deduction under “section 26-55 of
the ITAA 1997” (Woellner 2013). The donation made to Cancer Council and Sea Shepherd is
permissible deduction under “section 26-55 of the ITAA 1997”. The vegan subscriptions is
not allowed for deduction under negative limbs of “section 8-1, (2), ITAA 1997” because it
is a private expenses.

7TAXATION LAW
Accidental Compensation Received 8,000$
Replacement Income 2,000$
Total Other Income 10,000$
Other Deductions
Personal Contributions on Superannuation 12,000$
Donations
Cancer Council of Australia 1,200$
Sea Shepherd 1,200$
Finance Advisors Membership Fees 940$
Subscription to The Economist 120$
Fees paid to bank for loan 800$
Insurancen policy of Replacement Income 2,000$
BUPA Insurance (860/12x2) 143$
Total Other Deductions 18,403$
Other Income
The personal superannuation contribution is permitted for deduction under
“subdivision 290-C of the ITAA 1997”. While the replacement income of 50% is included
for deduction while the remaining 50% is included for assessment.
Tax Payable, Offsets and Levies:
Tax Payable, Offsets and Levies
Taxable Income 3,93,792$
Tax Payable on Taxable Income 1,50,438$
Less: Offsets
Private Health Insurance Offsets 83$
Sub-Total 1,50,521$
Add: Medicare Levy 7,876$
Sub Total 1,58,397$
Less: Credits
Tax Withheld 42,232$
Franking Tax Offsets (Refundable) 73,219$
Sub Total 1,15,451$
Estimated Tax Payable 42,946.24$

8TAXATION LAW
References:
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Woellner, R. 2013. Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.