Tax Deductions, Capital Gains, And Business Taxation: A Comprehensive Guide

  1. Assessable income as per Income Tax Assessment Act 1997 is the income of a tax payer which is considered for the purpose of calculating his or her taxable income.
  2. Ordinary incomes are income from salary and income from business. Statutory incomes include but not limited to capital gain and dividend.
  3. Tax audit, Revenue audit and E-Audit. Tax audit is the audit conducted with the objective of evaluating the tax liability reported by a tax payer. Revenue audit is to assess the validity of revenue reported in income tax return and e-audit is the electronic audit.
  4. Residents are liable to pay income tax in Australia for all income whereas non-residents are only responsible to pay income tax on the income accruing or receiving in Australia. Residents are liable to file income tax return on or before the due date no such requirements is there for non-residents.
  5. Resides test considers an individual’s residence in the country. In case an individual resides in Australia, he is an Australian resident for tax purposes. Domicile test considers the permanent home of an individual. The 183-day test considers whether an individual has stayed 183 days or more in a tax year with or without any breaks to determine tax residency of the individual. The superannuation test is for the employees of Australian Government working overseas.
  6. Principle number 5 is in relation with independence. The professional must have adequate arrangements to manage conflicts of interest while discharging his duties and responsibilities as a tax professional in the country.
  7. Not to have any financial interests with the clients except providing professional services as tax professional and should not accept any other engagement in the organization apart from providing professionals services as tax professional to the client.
  8. John should communicate directly with Daniel and let him know that this is against the professional code of conduct and he will not be including any fictitious expenditures to comply with the professional code of conduct as a tax practitioner.
  9. A tax payer must keep at-least for 5 years however, in special cases Australia Taxation Office may order taxpayers to maintain records for longer period than 5 years. In such cases tax payers will have to keep record for such long periods for income tax purposes (Braithwaite, 2017)     

Scenario

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Lodgement date

Scenario 1

31 October

Scenario 2

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31 October

Scenario 3

31 October

Scenario 4

29 October

Scenario 5

28 February

Scenario 6

29 April

Scenario 7

28 July

Note: For actual scenarios please referred to the question.

    1. Bank account details.
    2. Bank statement.
    3. Contract agreement.
    4. Supporting documents of income.
    5. Supporting documents of expenditures.
  1. The details of the supplier including name and address of business and ABN number.
    1. Individual with salary income.
    2. Individual with income from profession.
    3. Individual with income from business.
    4. Companies conducting business operations.
    5. Individual with capital gain (James, Sawyer & Wallschutzky,

Scenario

Income type

A lotto win

Exempt income

Wages

Assessable income 

A capital gain

Statutory income 

A gift received from a friend

Assessable income 

A car allowance from an employer

Non-Assessable income 

A tax refund cheque

Non-Assessable income 

Bank interest received

Assessable income 

A family tax benefit

Exempt income

Interest on home loan of $16,200 is not tax deductible.                                           

    1. Interest on credit card of $276 is not tax deductible.
    2. Interest on investment property of $14,360 is tax deductible.
    3. Interest on personal loan is not tax deductible.
    4. Insurance on home of $630 is not tax deductible.
    5. Insurance on car of $540 is not tax deductible.
    6. Insurance on investment property worth $570 is tax deductible

Name

Taxable income

LITO

Bill

14 500

NA

Sally

35 000

$445

John

56 600

$151

Fred

69 300

Nil

Allie

78 844

Nil

Name

 Taxable income

 Residence status

 Tax

 Steven

 34 000

 Resident

   3,001.81

 Martin

 65 400

 Non-resident

                –  

 Gary

 65 400

 Resident

 12,801.49

 Russell

 17 500

 Resident

 Nil

 June

 17 200

 Non-resident

 Harry

 19 750

 Resident

       294.31

 Sharon

 110 930

 Resident

 28,675.22

 Hanna

 90 320

 Non-resident

 Nil 

 Courtney

 224 864

 Resident

 74,419.47

Yes, as it is essential for the baker while working.

    1. Yes, as safety boots are essential or safety and security of the factory workers.
    2.  
    3. since it is plain uniform.
    4. No, as it is not special glasses essential for the road repairer to do the job as such.
    5. No, as it is not special glasses essential for the road repairer to do the job as such.
    6. Yes, as it is part of hospital administration.
    7. Yes as it is essential for the services of the doctors.
    8. Yes, as it is essential for the work performed by the wielder to keep his eyes safe.
    9. Yes, as it is essential for the identification of the football club one represents.
    10. Yes, as it is part of the uniform of the chef.
    11. Yes, as it is essential for the baggage handlers to wear the ear plugs.
    12. Yes, it is for the organization.
  1. Belinda will be allowed to get deduction for laundry expenses of her uniform even if it is washed along with other personal clothes of Belind

Particulars

Total expenses

Tax deductible

Petrol

                             1,600.00

                                      1,309.09

Depreciation

                             2,812.00

                                      2,300.73

Registraion

                                 350.00

                                         286.36

Insurance

                                 600.00

                                         490.91

Tyres and battery

                             1,075.00

                                         879.55

Servicing

                                 525.00

                                         429.55

Total tax deductible expenses

 

                                      5,696.18

Asset

Original cost

Opening adjustable value

Depreciation rate

Depreciation

Closing adjustable value

Electric guitar

$3,600

$1,289

20% DV

$257.80

$1,031.20

Drum set

$3,000

$550

10% PC

$300

$250.00

Electric keyboard

$4,000

$961

30% DV

$288.30

$672.70

Michael will be able to claim $550 as depreciation for tax purposes in 2013/2014 return

An enterprise means an organization conducting operations of business with the motive of earning profit from business

Particulars 

 Amount ($)

 Total fees charged including GST 

           60,500.00

 Thus, GST collected (60500 x 10/110)

             5,500.00

   

 Business expenses 

             6,600.00

 GST paid (6600 x 10/110)

                 600.00

   

 GST Payable (5500-600)

             4,900.00

Name

Gordon Smith

Trading name

Awesome Furniture

Do you have more than one trading name

No

Do you have a tax file number

Yes

Tax file number

TFN 999 999 999

Contact phone numbers

0402 111 211

Main business location or address

269 Harold Street, Croydon, NSW, 2136

Postal address for service of notices and communication

PO Box 206, Ashfield, NSW 2135

Email address for correspondence

: [email protected]

Do you wish to register for access to the Tax Office’s online services for business?

NA

Bank Account Name

Gordon Smith

Bank Account Number

123456

Other information

Not applicable due to lack of information

Particulars

Amount ($)

Amount ($)

 Sale proceeds

        240,000.00

 

 Less: Settlement fees 

             5,500.00

 

 Net proceed from sales 

 

              234,500.00

 Less: Cost base: 

   

 Cost of the property 

        175,000.00

 

 Stamp duty 

             5,000.00

 

 Solicitor fees 

             2,000.00

 
   

              182,000.00

 Short term capital gain 

 

                52,500.00

Fringe benefit tax is paid by the employer for providing non-monetary benefits of certain kind to its employees. Examples include:

  • Providing car to an employee for work and private purpose.
  • Providing interest free loan to the employees.
   

Tax deductibility

Doctor union fee

450

Deductible

Laundering of compulsory uniform

90

Deductible

Jacket when working night shifts

85

Deductible

Stethoscope

120

Deductible

Text book –Diabetes management

70

Deductible

Text book –Law for doctors

65

Deductible

Taxi fares when called in at short notice

70

Deductible

Plain watch

60

Non deductible

Phone calls to check shifts

8

Non deductible

Shoes

85

Non deductible

Scissors to cut surgical gauze

15

Capital expenditure

Reasons:

The expenditures which are not tax deductible is because these are not expenditures necessary for the profession of the doctor.

Requirements:

The expenditures must be incurred for the profession and all necessary records and documents shall be maintained.

Task 2:

 Answer 1:

Particulars 

 Amount ($)

 Amount ($)

 Sale proceeds 

 

              215,000.00

 Less: 

   

 Solicitor’s fees 

             1,500.00

 

 Real estate fees 

             4,000.00

 
   

                   5,500.00

 Net proceed from sale 

 

              209,500.00

     

 Less: Cost basis 

   

 Cost of acquisition 

        150,000.00

 

 Stamp duty 

             5,000.00

 

 Solicitor’s fees 

             2,000.00

 
   

              157,000.00

   

                52,500.00

 Less: CGT discount @50%

                26,250.00

 Net capital gain 

 

                26,250.00

Answer 2:

Income tax return 

 Name 

 Gordon Smith 

 

 Particulars 

 Amount ($)

 Amount ($)

 Revenue 

 

                57,560.00

 Less: Allowable expenditures 

 

 Particle boards 

             9,624.00

 

 Various tools 

                 755.00

 

 Insurance expenditure 

                 580.00

 

 Telephone expenses

                 900.00

 

 Stationery expenses 

                 890.00

 

 Rent 

           15,000.00

 

 Advertisement expenses 

                 438.00

 
   

                28,187.00

 Taxable income 

 

                29,373.00

     

 Income tax liability 

 

                   2,122.68

Answer 3:

Part a:

Questions

Answers

Reasons

What are the primary sources of your income?  

Income from business, interest on investments and dividend

To have a basic knowledge about the differ sources of income.

The amount of turnover of your business in last three years and in the current year?

$50,000; $55,000; $62,000 and in current year $75,000.

To make a preliminary assessment about the tax slab of the client.

The amount of interest you earned this year?

$1750.

To assess the tax liability for interest.

Is the dividend fully franked?

Yes

Whether dividend will be taxable or not.

Part b:

Income tax return of David Lucas.

Name 

 David Lucas

 Particulars 

 Amount ($)

 Amount ($)

 Income from salary 

       55,630.00

 Unit trust distribution is not taxable 

 –

 Capital gain 

             260.00

 Interest from overseas bank 

               47.00

 Bank interests 

               84.00

Dividend (not franked) 

               50.00

 Net income from investment property 

 Rent received 

       13,240.00

 

 Interest expenses 

     (10,700.00)

 

 Agent commission 

           (910.00)

 

 Repair 

           (128.00)

 

 Rates 

           (930.00)

 

 Advertisement 

             (45.00)

 
   

             527.00

 Taxable income 

       56,598.00

     

 Tax liability 

9940.84

References

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

James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1).