Since Alex is a resident of the UK for the tax purposes therefore, he shall be a foreigner for Australia for tax purposes. As per the question, his assessable income from Australian sources is $90,000 in 2019/2020.
a) The taxable income is the total amount of income calculated after deducting the allowed deductions as per the ATO rules i.e. Total Income – Deductions.
Thus, in the instant case, the taxable income of Alex shall be $90,000 for tax purposes in Australia as according to the question he is not allowed to any deductions.
Taxable income of Alex = $90,000 - $0 = $90,000.
b) According to ATO rules, if the income of foreign resident lies in the income threshold of $0 to $90,000 then the income rate shall be 32.5% of the total amount more than $0.
As per above answer the taxable income of Alex is $90,000 and the amount of tax payable by Alex is to be calculated at 32.5% as his income falls under this threshold of income tax.
Tax payable by Alex for 2019/2020 = $90,000 x 32.5% = $29250.
There are various sources of income for the tax purposes and one of them is Income from personal services (PSI). It is basically an individual income or sole trader’s income which is derived through personal skills or talent or efforts. General rule with respect to personal services income is that more than half of the income shall be generated through person’s labour or expertise only. There are different ATO rules for calculating assessable income and income tax in the case of income from personal services.
First step to calculate PSI is to check whether the income belongs to PSI or not. In the instant case, Anna generated her income via two contracts which were solely based on her skill or expertise as the fitness course is a skill based work. Therefore, the income generated by Anna through these two fitness training courses can be categorized as Income from personal services.
The total PSI of Anna is the total amount charged by her through the given two contracts that is $2000 (as she charged $1000 for each).
Secondly, there are certain deductions which are available to sole traders in order to calculate total assessable income for the tax purposes in case of PSI. One of the major deductions that is available to sole trader is the total amount of expenditure incurred for producing such PSI for example, expenses incurred for advertisement or fee charged for license or for registration etc.
In the instant case, Anna incurred expenditure of $100 to purchase fitness materials in the first contract. Thus, this expenditure of $100 is an allowed deduction for calculating PSI. Similarly, she incurred an expenditure of $200 as a cost of video recording material thus; it shall also be an allowed deduction in the second contract.
Conclusively, the total income from personal services of Anna for tax purposes shall be $1700 ($2000 - $100 - $200).
Capital gain is a gain received through the sale of a capital asset at a higher price than the price at which it was acquired whereas the Capital loss is the loss incurred through the sale of a capital asset at a lower price than the price at which it was acquired. According to the ATO Rules, one has pay a tax on Net capital gain acquired in am income year which is called as Capital Gain Tax (CGT) and similarly one can claim a deduction of Capital loss from the taxable income. But there are certain exemptions to the same that is there is certain capital gain which are exempted from capital gain tax like gain from those capital assets which were acquired for personal use or collectables costing for $500 or less at the time of acquisition.
In the instant case, Alex collected old gramophones for private use and secondly these collectables acquitted at $500 therefore, the profit received by selling these collectables are exempted from the assessable income i.e. capital gain tax for the purposes of tax in the year 2019/2020.
In the instant case, Sam bought the commercial building in Sydney for $2,000,000 through loan from ANZ bank. According to ATO rules, Commercial properties shall be subjected to Capital Gain tax.
Rent Amount - It is also specified rule that whenever a commercial property is put on rent then the amount of rent received from such property shall be an income for tax purposes and it shall be included for calculating assessable income.
Interest on Loan and Management fee to William - are in the nature of expenditure and as per the rules such expenditures can be claimed as a deduction from assessable income as these are allowed deductions.
In accordance with ATO rules, small business entities can claim deduction of full value of asset in case such value does not exceed $20,000. At the same time, the assesses can claim depreciation using appropriate method provided under ATO rules. In the given case, the prime cost method has been adopted for calculation of depreciation. Depreciation under prime cost method will be calculated as follows:
Depreciation under prime cost method = Asset Base *( No of days held/365 )* (100%/ effective life)
2018 =(8000* 30/365)*(100%/5)
2019 =(8000* 62/365)*(100%/5)
Accordingly, capital gain tax will be levied on sale of capital asset. The capital gain shall be calculated using CGT discount method. It states that capital gain tax will be levied after 50% discount of capital gain. Assuming that entity had claimed deduction equivalent to full value of asset.
Capital Gain = 50% (Proceeds from assets transferred – Cost Base)
= 50% (4000 – 0)
It is also stated in law that entities can declare income or claim deduction equivalent to income & expense incurred for business purposes. Accordingly, $1800 should taxed as capital gain.
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