Examples Of Assessable Income And Deductions For Taxation Purposes

Trading Stock Under Section 70-10

The following persons are resident taxpayers who are not liable for the Medicare Levy Surcharge. The information given relates to the 2015/16 tax year:

1. Glenn derived taxable income of $22,000 and his wife Rowena derived taxable income of $6,000. They do not have any children.

Glenn and Rowena does not have to pay the Medicare levy since their combined family taxable income stands $28,000 which does not exceed the family Medicare levy threshold of $36,001.

1. Kath derived taxable income of $41,000 and her husband Fred derived taxable income of $18,000. They have three dependent children.

Computation of Medicare Levy In the Books of Kath and Fred For the year ended 2015/16 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper Particulars Amount ($) Amount ($) Assessable Income Kath 41000 Fred 18000 Total Assessable Income 59000 Medicare Levy Payable (41,000*2%) 820

1. Beck derived taxable income of $29,000 and her de facto partner Roy derived taxable income $23,000. They have four dependent children.

Computation of Medicare Levy In the Books of Beck and Roy For the year ended 2015/16 Particulars Amount ($) Amount ($) Assessable Income Beck 29000 Roy 23000 Total Assessable Income 52000 Medicare Levy Payable Nil

1. Will derived taxable income of $36,000 and his wife Tina derived taxable income of $22,000. They have three dependent children.

Computation of Medicare Levy In the Books of Will and Tina For the year ended 2015/16 Particulars Amount ($) Amount ($) Assessable Income Will 36000 Tina 22000 Total Assessable Income 58000 Medicare Levy Payable (36000*2%) 720

Fred, a resident taxpayer aged 47, has taxable income of $145,345 and reportable fringe benefits of $17,170. During the year Fred has paid PAYG tax instalments totalling $13,480. His wife, Jani, has taxable income of $27,000.

They have seven children and no private health insurance.

Required: Calculate Fred’s net tax payable for the 2016/17 tax year.

Tip: Check if Medicare Levy Surcharge will apply to Fred and, if applicable, include in your calculations.

Computation of Taxable Income In the books of Fred for the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Gross Salary 145345 Add: PayG 13480 Add: Fringe benefit 17170 Total Assessable Income 175995 Allowable Deductions 0 Total taxable Income 175995 Tax on taxable income 52750.15 Add: Medicare levy 3519.9 Less: PayG 13480 Total Tax Payable 42790.05

The following questions are based on the material in Chapter 2:

Ned Markson is a resident taxpayer employed by Acme Holdings Ltd. The following transactions were all as a consequence of Ned’s employment:

• Net weekly wages totalled $78,000 for the year.
• Total PAYG tax withheld from Ned’s weekly wages from Acme and forwarded to the ATO amounted to $19,000.
• Additional wages paid to Ned as a Christmas bonus of $6,000 net (net of $4,200 PAYG tax withheld).
• Reimbursement of out-of-pocket travel costs of $1,200 that Ned incurred during his employment.
• A taxable travel allowance totalling $2,800. No PAYG was withheld from this amount.
• Acme paid health insurance premiums for Ned and his wife to the value of $2,750.
• Superannuation contributed $10,000 to Acme Holdings Superannuation Fund on behalf of Ned.

Required:

For each of these transactions indicate which amounts are to be included in Ned’s assessable income and provide Ned’s total assessable income.

Answer: Transactions that will be included in the taxable income of Ned are as follows;

1. The total amount of net weekly wages will be included in the assessable income of Ned
2. The receipt of Christmas bonus will be included in the Ned’s assessable income
3. Ned will be subjected to claiming an allowable deductions on the travelling cost since it is not covered under the fringe benefit tax.
4. Ned will be able to claim an allowable deductions relating to the cost incurred on travelling allowance since under section 8-1 of the ITAA 1997 the expenditure incurred by Ned is in the course of employment and the same can be claimed as allowable deductions.
5. The superannuation contribution that is made by Ned will be subjected to allowable deductions under section 8-1 of the ITAA 1997.
6. The premium paid by Ned will be subjected to allowable deductions.

The total amount assessable income of Ned is stated below;

Answer: Transactions that will be included in the taxable income of Ned are as follows; g. The total amount of net weekly wages will be included in the assessable income of Ned h. The receipt of Christmas bonus will be included in the Ned’s assessable income i. Ned will be subjected to claiming an allowable deductions on the travelling cost since it is not covered under the fringe benefit tax. j. Ned will be able to claim an allowable deductions relating to the cost incurred on travelling allowance since under section 8-1 of the ITAA 1997 the expenditure incurred by Ned is in the course of employment and the same can be claimed as allowable deductions. k. The superannuation contribution that is made by Ned will be subjected to allowable deductions under section 8-1 of the ITAA 1997. l. The premium paid by Ned will be subjected to allowable deductions. The total amount assessable income of Ned is stated below; Computation of Assessable Income In the books of Ned Markson  For the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Net Weekly Wages 78000 Christmas Bonus 6000 Total Assessable Income 84000 Travelling cost 1200 Travelling Allowances 2800 Superannuation Contribution 10000 Premium on health insurance 2750 Total Allowable Deductions 16750 Total Assessable Income 67250

(Calculation of tax payable from dividend income)

Jim Dough, a single resident taxpayer, received the following amounts from investments during the 2016/17 tax year:

Fully Franked Dividends – Dynamic Ltd (franking credit $9,000)         $ 21,000

Partly Franked Dividends – Static Ltd (franking credit $2,400)              15,000

Unfranked Dividends – Lost Ground Ltd       20,000

Jim had no other income or deductions during the year.

Required:

1. Calculate Dough’s taxable income for the 2016/17 tax year.
2. Calculate Dough’s net tax payable or refundable for the 2016/17 tax year.

Computation of Assessable Income In the books of Jim Dough  For the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Australian Sourced Dividend Income 78000 Fully Franked Dividends 21000 Gross up Franking Credits 9000 30000 Partly Franked Dividends 15000 Gross up Franking Credits 2400 17400 Un-franked Dividend 20000 Total Taxable Income 67400 Computation of Assessable Income In the books of Jim Dough  For the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Australian Sourced Dividend Income 78000 Fully Franked Dividends 21000 Gross up Franking Credits 9000 30000 Partly Franked Dividends 15000 Gross up Franking Credits 2400 17400 Un-franked Dividend 20000 Total Taxable Income 67400 Tax on taxable income 13452 Add: Medicare levy 1348 Less: Franking Credit 11400 Total tax payable 3400

(Taxable income from Australian and foreign sources)

Yvette Jankic, a resident single taxpayer aged 31, worked in New Zealand from 1 July 2016 until 15 November 2016 and has provided the following information for the 2016/17 tax year:

Receipts	$
Interest (net of TFN tax withheld $490)	510
Interest from United Kingdom (net of withholding tax $300)	2,700
Dividend from the U.S. state of Georgia (net of withholding tax $2,100)	3,900
Gross salary – Australian employment (PAYG tax $5,285 withheld)	21,000
Reportable fringe benefit as per PAYG Summary	6,252
Net salary – New Zealand employment (tax withheld $2,540)	12,650
Bonus from Australian Employer for exceptional performance	2,000

Payments	$
Interest and Dividend deductions relating to United Kingdom and Georgia investments	250
Work-related deductions relating to Australian employment	300

Note – Yvette does not have private health insurance.

Required:

1. Calculate Yvette’s taxable income for the 2016/17 tax
2. Calculate Yvette’s net tax payable or refundable for the2016/17 tax

Computation of Assessable Income In the books of Yvette Jankic  For the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Gross Salary 21000 Add: PayG 5285 26285 Add: Fringe benefit 6252 Salary from New Zealand Employment 12650 Add: Withholding 2540 15190 Bonus from Australian employer 2000 Interest 510 Interest from UK 2700 Dividend from US State of Georgia 3900 Total Assessable Income 50585 Allowable Deductions Interest and dividend deductions 250 Work related deductions 300 Total allowable deductions 550 Total Taxable Income 50035 Computation of Assessable Income In the books of Yvette Jankic  For the year 2016/17 Particulars Amount ($) Amount ($) Assessable Income Gross Salary 21000 Add: PayG 5285 26285 Add: Fringe benefit 6252 Salary from New Zealand Employment 12650 Add: Withholding 2540 15190 Bonus from Australian employer 2000 Interest 510 Interest from UK 2700 Dividend from US State of Georgia 3900 Total Assessable Income 50585 Allowable Deductions Interest and dividend deductions 250 Work related deductions 300 Total allowable deductions 550 Total Taxable Income 50035 Tax on taxable income 7808.38 Add: Medicare levy 1000.7 Less: Foreign Income tax offset Interest 20 Interest from UK 300 Dividend from US State of Georgia 1800 PayG withheld 5285 New Zealand Employment tax withheld 2540 Net tax refundable -1135.92

The following questions are based on the material in Chapter 4:

On 10 April 1988, Penny Pleb, an Australian resident, purchased a block of land for $74,000 as an investment. On 19 February 2017, she sold the land for $125,000.

Penny also sold shares in Prosperous Ltd for $32,000 on 1 August 2016. The shares had cost Penny $8,000 on 17 July 2008. Penny did not dispose of any other assets during the year, nor did she have any capital losses from previous years.

Calculate using the indexed cost base method and also using only the discount method (without indexing) to determine the most favourable outcome for Penny. Show your workings for each method.

Computation of Capital Gains Tax of Sale of Land Particulars Amount ($) Sale Price 125000 Less: Cost of Selling 0 Adjusted Sale Price 125000 Purchase Price 74000 Add: Cost of Purchase 0 Adjusted purchase Price of asset 74000 Capital Gains/(loss) 51000 CGT Old Regime Indexed capital gain/loss 29,080 Tax payable under old regime (marginal tax rate x indexation factor x capital gain) 5,540 CGT New Regime Tax payable under Discount regime (marginal tax rate x half capital gain) 4,413 Computation of Capital Gains Tax of Sale of Shares Particulars Amount ($) Sale price $32,000 less Cost of selling $0 Adjusted sale price $32,000 Purchase price $8,000 add Cost of purchase and ownership $0 Adjusted purchase price of asset $8,000 Capital gain/loss $24,000 CGT Old Regime Indexed capital gain/loss 24,000 Tax payable under old regime (marginal tax rate x indexation factor x capital gain) 3,940 CGT New Regime Tax payable under Discount regime (marginal tax rate x half capital gain) 1,020

Brad Emerson, a resident taxpayer, sold the following CGT assets during the 2016/17 tax year:

ASSET	COST BASE	ACQUISITION DATE	DISPOSAL DATE	SALE PRICE
Shares – AAA	$48,000	19 Jan 87	20 Feb 17	$71,000
Shares – BBB	$62,000	30 May 05	17 Apr 17	$77,000
Shares – CCC	$49,000	8 Jun 09	24 Mar 17	$35,000

Determine the minimum amount of capital gains that Brad is able to include as assessable income in his 2016/17 income tax return.

Income from Personal Exertion

Calculate using the indexed cost base method and also using only the discount method (without indexing) to determine the most favourable outcome for Brad. Show your workings for each method.

Computation of Capital Gains Tax In the books of Brad Emersion For the Year ended 2016/17 Asset 1 Asset 2 Asset 3 Asset name Shares AAA Shares BBB Shares CCC Indexation option Capital gain $ 0 N/A N/A CGT payable $ 0 N/A N/A Discount method Capital gain $ 23,000 $ 15,000 $ -14,000 CGT payable $ 173 $ 113 $ 0 Least capital gain $ 0 $ 15,000 $ -14,000 Least CGT payable method Indexation Discount Discount option method method

(Partial main residence exemption)

Benita Ford, a resident taxpayer purchased a house on 30 June 2007 which she used as her main residence for 2 years until 30 June 2009. She then leased the property to tenants for 8 years until the property was sold on 30 June 2017. Benita will apply the main residence exemption for 6 years of this period.

• The house was originally purchased for$420,000.
• The market value of the property on 30 June 2009 was $475,000.
• The house was sold for$705,000.

Benita did not dispose of any other assets during the 2016/17 tax year.

Calculate Benita’s Net Capital Gain in respect of the 2016/17 tax year (after allowing for the partial main residence exemption).

Computation of Capital Gains Tax In the Books of Benita Ford For the Year ended 2016-17 Sale price $705,000 less Cost of selling $0 Adjusted sale price $705,000 Purchase price $420,000 add Cost of purchase and ownership $0 Adjusted purchase price of asset $420,000 Capital gain/loss  $      2,85,000 Number of days where the ownership was not the main residence 2,190 Total number of days in ownership 730 Net Capital Gains  $        8,55,000 Total Capital Gain from CGT Event x Number of days in your ownership period when the dwelling was not your main residence Total number of days in ownership period

The following questions are based on the material in Chapter 5

(Foreign Pension)

Leonard Expat, a 58 year-old resident taxpayer with private health insurance, received a government pension from the United Kingdom that is taxable in Australia, but not in the United Kingdom. Leonard is exempt from tax in the United Kingdom, but subject to tax as an Australian resident taxpayer.

During the 2016/17 tax year, Leonard received $15,000 of pension, and also derived interest and unfranked dividends of $48,000.

1. Calculate Leonard’s tax payable or refundable for the 2016/17 tax

Computation of Taxable Income In the Books of Leonard Expat For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Income From Pension 15000 Interest and Un-franked Dividend 48000 Total Assessable Income 63000 Allowable Deduction 0 Total Taxable Income 63000 Computation of Taxable Income In the Books of Leonard Expat For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Income From Pension 15000 Interest and Un-franked Dividend 48000 Total Assessable Income 63000 Allowable Deduction 0 Total Taxable Income 63000 Tax on Taxable Income 12022 Add: Medicare Levy 1260 Total Tax Payable 13282

The following questions are based on the material in Chapter 5

(Superannuation lump sum, low cap  amount)

Stan Eckhardt, aged 57, received a superannuation lump sum of $310,000 from his superannuation fund upon retirement on 15 April 2017. PAYG tax of $28,170 was withheld from the lump sum. The lump sum comprised entirely of an element taxed in the fund.

Stan also received gross wages of $85,000 up to the date of his retirement.  PAYG tax of $22,110 was withheld from Stan’s wages. Stan has adequate private health insurance.

1. Calculate Stan’s net tax payable or refundable for the 2016/17 taxa.

Computation of Taxable Income In the Books of Stan Eckhardt For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Gross Wages 85000 Superannuation Lump sum 310000 Total Assessable Income 395000 Allowable Deduction 0 Total Taxable Income 395000 Computation of Taxable Income In the Books of Stan Eckhardt For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Gross Wages 85000 Superannuation Lump sum 310000 Total Assessable Income 395000 Allowable Deduction 0 Total Taxable Income 395000 Tax on Taxable Income 150982 Add: Medicare Levy 7900 Less: 15% Tax Offset 46500 Less: PayG Withholding on Superannuation 28170 Less: PayG Withholding on Wages 22110 Total Tax Payable 62102

On 14 August 2016, Tammy Gochi, aged 53, retired from her job as chief executive officer of Megacorp Limited to commence service as a volunteer for Whalepeace International. She received a superannuation lump sum of $160,000 which entirely comprised an element taxed in the fund. PAYG tax of $34,500 was withheld from the lump sum.

During the remainder of the 2016/17 tax year, Tammy also received a superannuation income stream benefit of $40,000 from the fund. PAYG tax of $9,780 was withheld from this amount. The entire amount was taxed in the fund.

Tammy’s only other income during the 2016/17 tax year was gross salary of $36,290 for the period up to the date of her retirement. PAYG tax of $9,035 was withheld by her employer. Tammy has private hospital insurance.

1. Calculate Tammy’s net tax payable or refundable for the 2016/17 tax

Computation of Taxable Income In the Books of Tamay Gochi For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Gross Salary 36290 Superannuation Lump sum 160000 Income Stream Benefit 40000 Total Assessable Income 236290 Allowable Deduction 0 Total Taxable Income 236290 Computation of Taxable Income In the Books of Tamay Gochi For the year ended 2016-17 Particulars Amount ($) Amount ($) Assessable Income Gross Salary 36290 Superannuation Lump sum 160000 Income Stream Benefit 40000 Total Assessable Income 236290 Allowable Deduction 0 Total Taxable Income 236290 Tax on Taxable Income 79562.5 Add: Medicare Levy 4725.8 Less: 15% Tax Offset 24000 Less: PayG Withholding on Superannuation 34500 Less: PayG Withholding on Salary 9035 Less: Withholding from Income Stream 9780 Total Tax Payable 6973.3

Calculating Tax Payable

The following questions are based on the material in Chapter 6:

(Small business asset pool, additions)

Gwyneth is a resident, individual small business taxpayer. As at 30 June 2016, she had a General small business pool balance of $ 41,800.

During the year Gwyneth purchased an asset for $34,800 with an effective life of 5 years and another asset for $40,400 with an effective life of 30 years.

There were no disposals during the year.

Calculation Item Pool Balance Depreciation Claim Closing pool balance from previous year   $    41,800.00 Opening pool balance for current year   $    41,800.00 Add : New asset purchase  $    75,200.00 Subtotal  $ 1,17,000.00 Less: Proceeds of asset sale or disposal  $                –    Subtotal  $ 1,17,000.00 Pool deduction claim (30% of $41,800)  $    12,540.00  $          12,540.00 Subtotal  $ 1,04,460.00 New asset deduction claim (15% of $75,200)  $    11,280.00  $          11,280.00 Calculation of Small Business Pool Balance Calculation Item Pool Balance Depreciation Claim Closing pool balance from previous year   $    41,800.00 Opening pool balance for current year   $    41,800.00 Add : New asset purchase  $    75,200.00 Subtotal  $ 1,17,000.00 Less: Proceeds of asset sale or disposal  $                –    Subtotal  $ 1,17,000.00 Pool deduction claim (30% of $41,800)  $    12,540.00  $          12,540.00 Subtotal  $ 1,04,460.00 New asset deduction claim (15% of $75,200)  $    11,280.00  $          11,280.00 Total depreciation for current year  $          23,820.00 Closing pool balance  $    93,180.00

The following questions are based on the material in Chapter 7:

(Identification of trading stock)

Required: Identify which of the following would be classed as trading stock under Section 70-10:

• Pairs of shoes held by a retailer for resale.
• Shares held by an
• Blocks of land held by a property
• Clothing held by a retail clothes shop, currently under lay by.
• Petrol held in underground tanks by a service
• Raw materials held in store by a
• Stationery supplies held for office use by an insurance company.
• Videos held for hire by a video

(a) Trading Stock under Section 70-10 (b) Cannot be classified as trading stock (c) Land held by property investor would be classified as the trading stock under division 70 of the ITAA 1997 (d) Clothing held by the retail clothes shop will be classified as trading stock since the clothes are acquired or held for the purpose of selling in the ordinary course of business (e) Petrol held by an underground tank by a service station will be classified as trading stock petrol is acquired for selling them in ordinary course of business. (f) Raw materials held by the store manufacturer will be regarded as trading stock under section 70-10 of the ITAA 1997 since it is held for the purpose of manufacturing and will be treated as trading stock.  (g) Will not be classified as trading stock since the stationary supplies it is not for the purpose of resale or exchange. The stationary supplies are for office use only and therefore cannot be treated as trading stock under section 70-10 of the ITAA 1997. (h) Videos held by hire video store is for the purpose of sale or exchange in the ordinary course of business. Therefore it will be treated as trading stock under section 70-10 of the ITAA 1997.

(Business deductions for employing others)

Zac Harris operates a retail outlet selling kitchen utensils. During the 2016/17 tax year, Zac had the following transactions relating to his employees:

• Zac paid net wages to his employees totalling$215,000.
• As at 30 June 2017, there was one week’s worth of wages that remained unpaid amounting to $4,500. Zac made a journal entry accruing this amount as an expense.
• Zac deducted $74,000 of PAYG tax from his employee’s wages. Of this amount, $9,000 was paid on 5 July
• Zac paid a retiring employee $7,000 of annual leave entitlements on termination.
• Zac paid an employee a redundancy payment of $15,000. The employee had given 7 years’ service to
• Zac provided for an increase in annual and long service leave of$8,500.
• Zac paid travel allowances amounting to$3,400.

Required: Identify which amounts are allowed as deductions for Zac’s business for the 2016/17 tax year.

The net wages of $215000 paid to the employee is allowable deduction because it is necessary for generating assessable income as per section 8-1 of the ITAA 1997 The accounting for the purpose of tax can be done using the accrual and cash basis. The Taxation Ruling TR 98/1 provides that the accrual method of accounting is the appropriate method for business. Therefore, the accrued wages of $4500 should be allowed as deduction because accrual method of accounting is followed. The PAYG is the tax amount deducted by the employer from the employees in order to deposit it with the ATO. It is a liability of the business and it cannot be deducted as an expenses. The termination payment are paid to the employee for the service provided during employment. The employment termination payments are made in lump sum and are taxed in a different manner. The annual leave entitlement is not part of the ETP but a concessional tax treatment can be received. The redundancy payment are made to thee employee that are dismissed from employment as the job is abolished. The redundancy payments are made in replacement of salary or wages for the outgoing employee. Therefore, the redundancy payment will be allowed as deduction by the business. The section 26-10 of the ITAA 97 provides that loss or outgoing for annual or long service leave is not allowed as deduction except the mount paid in the income year or an accrued leave transfer payment made during the year. In the current case Zack has provided for the increase but no amount related to annual leave is paid to the employee. Therefore, the amount is not allowed as deduction. The travel allowance of $3400 paid is included as a part of the salary or wages of the employee. It is an allowable expenditure for the business.

The following questions are based on the material in Chapter 9:

(Tax related expenditure)

Required: For each of the following resident individual taxpayers, calculate the amount that they would be entitled to claim as a deduction for the 2016/17 tax year:

• On 10 August 2016, Dennis paid $100 to Australia Post to lodge his income tax return via Tax Pack

• Daniel paid three PAYG tax instalments of $6,000 each in October 2016, January 2017 and April

• On 24 August 2017, Wilson paid his tax agent a fee of $300 for preparing his 2016/17 income tax return during July 2017.

• On 5 October 2016, Hope paid her cousin who is studying to be anaccountant $200 to prepare her 2015/16 income tax

• During the year, Jacqueline paid a total of $42,000 in payroll tax.

• On 15 April 2017, Josh paid $13,600 in fringe benefits

• During the year, Krystal travelled a total of 400 kilometres in her 2,800cc Ford Falcon driving to her tax agent for meetings involving tax planning and attending to her income tax and fringe benefits tax returns. She did not use her car for any other work or business related trips during the

• On 15 February 2017, Raelene paid $11,800 land tax on her business premises.

• On 27 January 2017, Dirk paid $18,900 in NSW land tax on his family’s holiday house. He did not use this property for business or producing rental

• On 1 August 2016, Troy paid his solicitor $700 to prepare a submission to the Administrative Appeals Tribunal relating to his 2013 income tax assessment which Troy was

• On 15 March 2017, Leonie paid $7,000 on her 2015 income tax assessment. This amount included $6,000 of income tax, $800 of penalties and $200 from the shortfall interest

(a) The section 69 of the ITAA 97 allows deduction in respect of tax related expenditure. The electronic transmission of information related to expenditure is allowed as deduction. Therefore the amount of $100 incurred for lodging the income tax return via post office is not allowed as deduction. (b) The PAYG instalment is the tax amount that is withhold by the employer and is deposited with the ATO. Therefore, the amount of $6000 is not tax related expenditure so it is not allowed as deduction. (c) The section 25-5 ITAA97 allows deduction for the expenses incurred in the management of the tax related affair. Therefore the amount of $300 paid as tax agent fees is allowed as deduction but as the amount is paid in August so it is not allowed as deduction under section 8-1 in the year 2016-17. (d) The amount paid for preparing the tax related expenditure is allowed as deduction under section 8-1 ITAA 97. The amount of $200 paid for preparing the income tax return of 2015-16 is allowed as deduction. (e) The payroll tax of $42000 is a liability and it is not a tax related expenditure so it is not allowed as deduction. (f) The FBT of $ 13600 is a tax liability that is required to be deposited with the ATO. The FBT amount is not used for calculating the tax liability of the individual.  This amount is not a tax related expenditure hence it is not allowed as deduction. (g) The Division 28 allows the taxpayer to claim deduction for the car travel used for the purpose of visiting the tax agent. It is because visiting the tax agent is regarded as the business kilometre for the purpose of tax.  Therefore the car expenses used for meeting the tax planner will be allowed as deduction. (h) The land tax is a liability that is required to be paid. The land tax of $11800 paid on business premises is an allowable expenditure. (i) The section 8-1 of the ITAA 97 provides that the expenses that are necessary for producing the assessable income is allowed as deduction. In this case the land tax of $18900 paid for family holiday house will be not be allowed as deduction because it is not used for producing the assessable income. (j) The ATO 2002/367 provides that the cost incurred for objecting and appealing against the tax decision is allowed as deduction under section 25-5(1)(a). Therefore the  amount of $700 paid to solicitor will be allowed as deduction. (k) The section 26-5 of the ITAA 97 provides that the amount paid as penalty cannot be claimed as deduction. The income tax paid is not an allowable deduction and the interest charged for the shortfall amount is also not allowed as deduction. The amount of $7000 is not allowed as deduction as deductible expenses.

(Calculation of deductions – business taxpayer)

Ricky Falzano conducts business operating a waste removal service and has provided the following data in respect of the 2016/17 tax year:

INCOME
Gross Income	$ 1,638,940
EXPENDITURE
Net Wages paid to employees	743,900
PAYG tax withheld from employees’ wages	296,720
PAYG tax instalments paid	87,845
Fringe Benefits Tax paid	5,155
Entertainment of employees (subject to FBT)	5,380
Entertainment of clients (not subject to FBT)	9,235
Annual leave paid	14,780
Annual leave provided	5,560
Rent paid to Ricky’s brother for the business premises	137,000
Payroll Tax paid	19,430
Employees superannuation contributions	98,020
Personal superannuation contributions for Ricky	50,000
Superannuation Guarantee Charge paid	11,315
Other overheads paid	69,330

Note 1 – The market value of rent for the business premises was $65,000.

Note 2 – The deduction available to Ricky for decline in value on his equipment and office fittings was $46,780.

Required: Calculate Ricky’s taxable income for the 2016/17 tax year.

Calculation of Ricky’s Taxable Income Particulars Amount Amount Gross Income 1638940 Assessable Income 1638940 Allowable Deductions Gross Wages 1040620 Entertainment Expenses (subject to FBT) 5380 Annual leave paid (s26-10 ITAA97) 14870 Rent paid 65000 Personal Superannuation contribution 50000 Other overhead paid 69330 Depreciation 46780 Total Allowable Deductions 1291980 Taxable Income 346960

The following questions are based on the material in Chapter 10:

(Application of decline in value methods)

On 1 July 2016, Di Lifter commenced business operating a retail nursery. Di chooses to apply her own estimates of effective life to various assets purchased during her first year of trading.

Asset	Cost ($)	Date of Purchase	Effective Life (years)	Depreciation Method
Chemical Sprayer	40,000	1 July 16	10	Prime Cost
Temperature Gauge	12,000	1 July 16	6	Diminishing Value
Soil Elevator	37,500	1 Nov 16	15	Prime Cost
Deleafer	10,500	1 Feb 17	7	Diminishing Value

For each asset, calculate only the deduction for decline in value available to Di for the 2016/17 tax year.

Asset Cost ($) Date of Purchase Days held Effective Life (years) Depreciation Method Formula Depreciation Amount ($) Chemical Sprayer 40,000 01-07-16 365 10 Prime Cost Asset’s cost × (days held/365) × (100%/asset’s effective life) 4000 Temperature Gauge 12,000 01-07-16 365 6 Diminishing Value Base value × (days held/365) × (200%/asset’s effective life) 4000 Soil Elevator 37,500 01-11-16 241 15 Prime Cost Asset’s cost × (days held/365) × (100%/asset’s effective life) 1651 Deleafer 10,500 01-02-17 149 7 Diminishing Value Base value × (days held/365) × (200%/asset’s effective life) 1225

Required: The following are all resident taxpayers. In each case, calculate the deduction available for decline in value as well as any assessable income (if any) arising from the disposals during the 2016/17 tax year.

• Trevor sold shop fittings from his retail store on 31 October 2016 for $3,700. The fittings had originally cost $5,600 and were depreciated using the diminishing value method using an effective life of 10 years. The opening adjustable value was $4,000 on 1 July 2016. The fittings were originally purchased in 2008/09. Decline in value on Trevor’s other assets was$15,000.

Calculation of deduction available Particulars Amount ($) Opening Adjusted Value 4000 Days Held 123 Effective Life 10 Depreciation 270 Net Adjusted Value 3730 Termination Value 3700 Assessable Income 30

Hannah sold equipment from her factory on 31 May 2017 for $9,200. The equipment had originally cost $11,000 and was depreciated using the prime cost method using an effective life of 5 years. The opening adjustable value was $6,000 on 1 July 2016. Decline in value on Hannah’s other assets was$1,700.

Calculation of deduction available Particulars Amount ($) Opening Adjusted Value 6000 Days Held 335 Effective Life 10 Depreciation 1101 Net Adjusted Value 4899 Termination Value 3700 Assessable Income 1199

Joe sold office equipment from his law practice on 1 November 2016 for $600.  The office equipment had an original cost of $1,800 but was added to the low value pool in 2014 when it became a low value asset. The low value pool had an opening balance of $3,500 and there were no additions to the pool during the year.

Taxable Income from Australian and Foreign Sources

The balancing adjustment is required to be made when an asset is disposed. However, this balancing adjustments is not applicable in case of low value assets. In case of low value assets the amount received from disposing the low value assets is used to reduce the value of pool. This in turn reduces the future depreciation charged in the low value assets.

The balancing adjustment is required to be made when an asset is disposed. However, this balancing adjustments is not applicable in case of low value assets. In case of low value assets the amount received from disposing the low value assets is used to reduce the value of pool. This in turn reduces the future depreciation charged in the low value assets. Calculation of deduction available Particulars Amount ($) Opening Adjusted Value 3500 Depreciation rate 37.50% Depreciation 1313 Sales Value 600 Net Value of pool 713

Tommy, an employee of Kwikee Couriers, sold a phone on 15 May 2017 for $50. He had purchased the phone in 2015 for $250 and had claimed the full cost of the phone as a deduction in that

The amount of phone was claimed as deduction in the year it was purchased so there is no depreciation in the later period. The entire amount of $50 received from the sales of phone should be allowed as deduction.

The following questions are based on the material in Chapter 11:

(Calculation of zone tax offsets with notional offsets)

During the 2016/17 tax year, each of the following resident taxpayers resided in prescribed areas that are subject to zone tax offsets:

• Emmett resided in the ordinary are of Zone A for the entire year. He lives with his daughter Beth, aged 9, who has no adjusted taxable income.
• Guillame resided in the special are of Zone B for the entire year. He lives with Deni, his 24 year old daughter who is engaged in full-time studies. Deni has adjusted taxable income of $200.
• Yanni lived alone in the special are of Zone A up until his death on 31 December 2016.
• Karyn resided alone in the ordinary area of Zone A until 30 April 2017 when she returned to Perth to live.

For each of these taxpayers, calculate the zone tax offset (if any) that they are entitled to claim for the 2016/17 tax year.

The Zone Tax offset is dependent on  the usual place of  residence of the taxpayer. In this case Emmett is ordinary resident of Zone so he is allowed to claim zone tax offset. He has a daughter of age 9 so he is further allowed to claim base amount in addition to the fixed amount.

In this case Guillame is an ordinary resident of Zone B so he is allowed to claim tax offset. He has a student daughter who is dependent so allowed to claim base amount.

(a) The Zone Tax offset is dependent on  the usual place of  residence of the taxpayer. In this case Emmett is ordinary resident of Zone so he is allowed to claim zone tax offset. He has a daughter of age 9 so he is further allowed to claim base amount in addition to the fixed amount. Calculation of Zone Tax offset Particulars Amount Fixed Amount 338 Base Amount 282 Total Zone Tax offset 620 In this case Guillame is an ordinary resident of Zone B so he is allowed to claim tax offset. He has a student daughter who is dependent so allowed to claim base amount. Calculation of Zone Tax offset Particulars Amount Fixed Amount 57 Base Amount 376 Total Zone Tax offset 433 Calculation of Zone Tax offset Particulars Amount Fixed Amount 338 Base Amount Total Zone Tax offset 338 Karyn is not an ordinary resident of Zone A so she is not allowed to claim Zone tax offset.

The following questions are based on the material in Chapter 12:

(Tax losses, partner in partnership)

The following data relates to Stephanie Garner, a resident taxpayer. Stephanie derives income from a public relations business and is also a partner in a marketing business.

	2014/15	2015/16	2016/17
Assessable business income	$ 93,400	$ 126,000	$ 133,400
General business deductions	80,000	129,000	119,200
Share of Partnership Net Income (Loss)	(21,800)	14,900	(5,600)
Superannuation and Gifts	4,000	11,000	8,000
Net exempt income	1,500	3,000	2,000

General business deductions are separate from personal superannuation, gifts, partnership losses and losses of previous years.

Please assume that the necessary tests have been satisfied such that any partnership losses from Stephanie’s share in the marketing business may be deducted from other income as appropriate.

2014/15: Calculation of Taxable Income and losses that can be carried forward for 2014/15 Particulars Amount Amount Assessable business income $93,400.00 Less: Business deduction $80,000.00 Assessable Income from business $13,400.00 Personal superannuation and gifts -$4,000.00 Share of partnership business -$21,800.00 Net Taxable Income -$12,400.00 Net Exempt income $1,500.00 Carry forward of losses -$10,900.00

2015/16: Calculation of Taxable Income and losses that can be carried forward for 2015/16 Particulars Amount Amount Assessable business income $126,000.00 Less: Business deduction $129,000.00 Assessable Income from business -$3,000.00 Personal superannuation and gifts -$11,000.00 Share of partnership business $14,900.00 Net Taxable Income $900.00 Loss carried Forward -$10,900.00 Net loss carried forward -$10,000.00

2016/17: Calculation of Taxable Income and losses that can be carried forward for 2016/17 Particulars Amount Amount Assessable business income $133,400.00 Less: Business deduction $119,200.00 Assessable Income from business $14,200.00 Personal superannuation and gifts -$8,000.00 Share of partnership business -$5,600.00 Net Taxable Income $600.00 Loss carried Forward -$10,000.00 Net loss carried forward -$9,400.00

The following questions are based on the material in Chapter 13:

(Investor, capital gains)

Karl Kruger is a 38 year-old single Australian resident taxpayer. During the 2016/17 tax year, Karl received and retained the following records:

Account Summary received from XYZ Bank
Interest from Term Deposits	$ 17,200
Interest from Savings Account	350
Bank Charges relating to Term Deposits	40
Interest charged on line of credit (used for personal expenses)	715
4 February 2017 Dividend Statement from Eccy Ltd
Franked Dividend	2,100
Franking Credits	900
Rental Summary from Hawkeye Real Estate
Gross Rent Received	15,200
Rental expenses:
Agent’s Commission	920
Council Rates	1,490
Landlord Insurance	290

• Karl’s rental property was built in 1999 when total construction costs of $200,000 were incurred. Karl has owned and leased the property since 2008.
• Karl made mortgage repayments on his rental property of $20,000, of which $12,100 was principal.
• Karl also sold the following assets during the year:

ASSET	PURCHASE COST	ACQUISITION DATE	DISPOSAL DATE	SALE PRICE
Quality shares	$12,000	12 Apr 11	10 May  17	$18,600
Oil Painting	6,000	03 Mar 98	26 Feb 17	5,200
Crummy shares	4,000	21 Aug 06	03 May 17	2,500

Calculation of Capital gain Particulars Amount ($) Amount ($) Amount ($) Quality Shares Discount method Sales price 18600 Less: Purchase price 12000 Gain 6600 Less: 50% Discount 3300 Net capital gain 3300 Oil Painting Discount method (1) Sales price 5200 Less: Purchase price 6000 Gain -800 Less: 50% Discount Net capital loss -800 Indexation Method (2) Sales price 5200 Less: Indexed Cost 6152 Net capital loss -952 Lower of 1 or 2 -952 Crummy Shares Discount Method Sales price 2500 Less: Purchase price 12000 Net capital loss -9500 Total net Capital loss -6200 Capital loss for collectables -952

Statement showing Calculation of Taxable Income Particulars Amount Amount Assessable Income Interest from Term Deposits $17,200.00 Interest from Term Deposits $350.00 Frank dividend $2,100.00 Franking Credits $900.00 Rent Received $15,200.00 Total Assessable Income $35,750.00 Allowable Deductions Bank Charges relating to Term Deposits 40 Rent related expenses 2700 Interest expenses 7900 Capital Losses 6200 Total Allowable deduction $16,840.00 Taxable Income $18,910.00

1. Prepare a statement calculating Karl’s taxpayable/refundable.

Calculation of Tax payable or Refundable Particulars Amount Taxable Income $18,910.00 Tax Payable (18910-18200)*19% $134.90 Medicare Levy (2%*18910) $378.20 Total Tax Payable $513.10

The following questions are based on the material in Chapter 14:

Explain the function of the Tax Agent Services Act 2009 (TASA) and the Tax Agent Services Regulations 2009 (TASR)?

The main function of TASA is that it is tasked with ensuring that tax agent services which are being provided to the public is offered to them in compliance with professional and ethical conduct. There are certain functions which the act performs in order to ensure that the users of tax agent services receive an ethical and professional service. The functions performed are as follows: a) In order to provide tax services the tax agents must be registered. Hence, it performs the function of establishing national board to register tax agents and BAS agents. b) It also performs the function of establishing professional conduct for the tax agents and the BAS agents. c) It also performs the function of levying of sanctions that ensures discipline among the tax agents and the BAS agents.

What are the three necessary criteria for the anti-avoidance provisions of part IVA ITAA36 to apply?

In order to ensure that the provisions specified in part IVA applies the following conditions should be affirmed. 1) That a tax benefit had been received from a scheme. This implies that the specific benefit would not have been available if the scheme had not been entered into. 2)  There have been eight matters specified in the part IVA that objectively specifies that either the person himself or other person entered into the scheme and the sole purpose of it was to enjoy the tax benefit. 3) The overall practical financial consequences of the scheme were such that in its absence it would have not been possible to make available the tax benefit.

References

Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Davis, A.K., Guenther, D.A., Krull, L.K. and Williams, B.M., 2015. Do socially responsible firms pay more taxes?. The accounting review, 91(1), pp.47-68.

Duong, L. and Evans, J., 2016. Gender differences in compensation and earnings management: Evidence from Australian CFOs. Pacific-Basin Finance Journal, 40, pp.17-35.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Okello, A., 2014. Managing Income Tax Compliance through Self-Assessment (No. 14-41). International Monetary Fund.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.