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Tax Law - Question 1

Tax Law - Part 1

Statement of Assessable Income

For the year ending June 30, 2019

All Amounts in $000

Salaries

 

From: Local college

31000

Less standard Deduction

0

Income from house property

0

Profits and gains of business *(W1)

1233

Salary from other sources *(W2)

451.2

Gross Total Income

32684.2

Less: Deductions u/s 80L (2.8*5)

(14)

Total Assessable Income

32670.2

Working 1:

Gain or loss from the business:

Sales (3100+430-340)

3190

Less cost of goods sold (1300+430-235)

(1495)

Gross profit

1695

Less Expenses

 

Salary expense

(410)

Legal fees

(50)

Employee reimbursement

(2)

Net profit

1233

Working 2:

Salary from other sources:

Cash from a competitor in Melbourne

450

Winning a trophy

1.2

Total other sources of income

451.2

Tax Law - Part 2

Deductions that can be claimed:

When completing the return based on taxation, William can claim deductions for some of the expenses, but there is a condition too. The condition is that these expenses should also be directly related to the income of William. Following conditions are to be met to claim the deductions:

  • William must spend the money on himself, and this money is not reimbursed. Moreover, it should be directly relatable to the earnings of the income of William, and William must have any record to prove the relation of expenses and deductions. In this case, William has a record of its business expenses, but he is unable to prove the personal expenses. So deduction shall not be made if William has no record of money that he has spent on himself. Other than personal expenses, William has recorded its work-related expenses so he can claim the deduction of a portion of work-related. The work-related expenses of William are $462,000. William can claim the following deduction related to expenses that directly related to the business of business:
    1. Traveling expenses
    2. Clothing, laundry and dry-cleaning expenses
    3. Home office expenses
    4. Expenses related to self-education (ato.gov.au, 2020 )
  • Other deductions include the:
    1. ATO Interest – reporting and calculating
    2. Gifts and donation
    3. Cost of managing tax affairs
    4. Interest charged by ATO
    5. Dividend or other income deductions (ato.gov.au, 2020 )

In the section of other deduction, William has made a charity of 5 television with a cost of 14,000 dollars. Moreover, reimbursement to the employee can be claimed by William. The overall deductions that can be claimed are as follows:

Deductions = Expenses (Salary + Legal Fees + Employee Reimbursement) + Charity

= 462,000 + 14,000 = 476,000

Tax Law - Question 2

According to the Income Tax Assessment Act 1997, following are a list of deductions that can be claimed:

  • Travelling and vehicle expenses
  • Clothing and dry cleaning
  • Home offices expenses in case of work from home
  • Expenses related to self-education
  • Other work-related deductions
  1. This is an expense related to the legal proceedings. The legal proceedings are related to working. To be on the safe side, William made expenses to be on the safe side. It falls in the category of other work-related deductions. Other deductions are the cost of managing tax affairs. William can claim 3000 dollars as deductions.
  2. The cost of vehicles and travel costs can be claimed as deductibles. The traveling was for the purpose of working with William so William can claim the travel expenses as per the provision of Income Assessment Act 1997.

Tax Law - Question 3

Taxable Income:

Income from salary

25,000

Income from business * W1

15,000

Dividend income

0

Total income

40,000

Less: Deductions

0

Taxable Income

40,000

Working 1:

Income from business:

Notional Salary

5000

Interest on capital

8000

Share of profit (5000 * 40%)

2000

Total income from business

15000

According to the Income Tax Assessment 1997, total income will be the sum of all heads of income and final tax regimes. After deducting the deductibles from total income, taxable income can be calculated (Federal Register of Legislation, 2020 )

Tax Law - Question 4

Dividend Imputation:

The Australian Dividend Imputation System is the taxation system related to the corporations in which few or all tax that has been paid by the corporation is attributed or imputed to the members of company by means of credit of taxation to decrease the balance of payable income tax on the distribution. The objective of this system is the collection of taxes on the distributed income at the rate of shareholders tax. The other objective is the elimination of the double taxation of profit of the company. 1st taxation at the corporate level on the profits of the company and second taxation is on the distribution of dividends to the members of the company (superannuation.asn.au, 2015 ).

The dividend imputation system works by giving the firms of Australia the capacity to issue the franked dividend to shareholders. Franked dividends are dividends that are paid on the basis of profits of taxes. The shareholders receive both after-tax dividend and franking credit, representing the liability of the company. The dividends received at the end of the shareholders are net of taxation because the company has already paid the taxes on behalf of the shareholders. Shareholders are no needed to pay the taxes on the dividend income, but they have the right to show the tax expense related to the dividends in their personal books while giving the taxes on other incomes (superannuation.asn.au, 2015 ).

References for Tax Law

ato.gov.au. (2020 ). Deductions you can claim. Retrieved from ato.gov.au: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/

Federal Register of Legislation. (2020 ). Income Tax Assessment Act 1997. Retrieved from Federal Register of Legislation: https://www.legislation.gov.au/Details/C2019C00049/Html/Volume_6

superannuation.asn.au. (2015 ). Dividend imputation – its rationale and its impact on superannuation outcomes. Retrieved from superannuation.asn.au: https://www.superannuation.asn.au/ArticleDocuments/359/ASFA_Dividend-imputation.pdf.aspx?Embed=Y

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