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Taxation Law

Solution

Himanshu Patel, who is 59 years old sole trader and also registered under GST, he is also working as import /Export agent with Blue Marlin Pty Ltd. He also has his investment property in Lakemba Sydney Himanshu is taking care of his wife Hayali Patel, who has lost eye sight in her left eye 9 months ago, on the 1st of October 2018 as a result of a car accident. Himanshu is solely taking care of Hayali.

Hayali Patel is 30 July 1989 born, currently receives disability pension from Centre link $9,200 for the 2020 tax year. She has no deductions to claim for the 2020 tax year.

So Himanshu as a resident of Australia has income from different sources, he has declared that he don’t have any health insurance done. His assessable and deduction are to be calculated to know the taxable income as follow:-

Income from

As per ITAA97, Taxable Income= Assessable Income – Deductions, and in this case it can be assessed and calculated in the following manner (i Know, 2020) A taxpayer's "assessable income" is broadly their regular income and their statutory earnings but excludes their exempt earnings

As per Sec 6 – 5(2) of ITAA97 applies for all ordinary income earned or derived in Australia or includes all ordinary income derived directly or indirectly, whether in out from Australia in an income Year.

Sec 8-1, applies to deductions or expenses or any outgoing to the extent

  1. If incurred for gaining or producing the said assessable income
  2. If is compulsory to incur this expenses for the business purpose to attain this income.

Assumption taken for calculating Depreciation as per note 1 for business income, and effective life as per note 1 for rental income

       

S.No.

Particulars

Assessable Income

Deduction

Net Assessable

 Remarks

           

1

Part A- Income from Blue Marlin Pty Ltd

       
 

1st of July 2019 to the 30th of June 2020

Wages

 $7800

 

 $7800

Section 6 -5(2) as ordinary Income

 

Shift allowance

 $2000

 

 $2000

FBT allowance will be part of the perks

 

Software Fee

$800

$800

0

Office related mandatory expenses

 

Car Benefit (covered under FBT)

$60000

 

$60000

FBT but will has to be included in the assessable income

 

Telephone and Stationery Allowance

$300

$300

 

Office related mandatory expenses

2

Part B- Business Income

       
 

Profit from business

$20604

 

$20604

As per profit and loss account statement as attached Annexure 2

3

Part C- Rental income from Investment Property

       
 

Income from or loss from the investment property as per annexure 4

-$9465

-$9465

Income as calculated per Annexure 4

       
 

Gross Assessable Income

$82039

$1100

$80939

 

4

Deduction allowed for caring disable person (ATO, 2020)

     

No Claimed ,Hayali can claim

           
 

 Assessable Income ( Net)

   

103805

 

Working Notes for Calculation

Annexure 1- Depreciation

On the basis of the Note 1 given in the case study following depreciation is calculated

     

Op balance as

Business

 

Dep for

Asset Detail

Cost

No of useful yr

on 01.07.19

usage

DIV Method

 business

Mobile Phone

3000

4

2188

60%

Diminishing

426

Office Furniture

15000

10

13375

100%

Prime Cost

1500

Laptop ( 1.8.20)

4000

3

 

100%

 

NA

Printer(1.3.2020)

150

2

 

!00%

 

150

     

Total Depreciation =

   

$2076

Annexure – 2

Profit and Loss account as on 30th June 2020

Particular

 

in $

Income

   

Sales

 

82800

Closing Stock as on 30th June 2020

 

8400

Consumption for personal use

 

2000

Total Income

 

93200

Less:

   

Purchases

 

42450

Opening Inventory as on 1st July 2019

 

7100

Gross Profit

 

43650

Add: Other non-operating Income

   

• Volume rebates from overseas suppliers -Discount

3500

 

• Insurance Claim received against r extensive damage

7900

11400

Less: Expenses

   

Repairs carried -storm damage

2700

 

Medical costs - injuries

900

 

Fines for breach of Australian Customers regulations

900

 

 Net wages to employees

12000

 

PAYG withheld from employees and paid to the ATO

2900

 

Superannuation for employees

1230

 

Superannuation guarantee charge

190

 

Fringe benefit tax

850

 

Lease payments on shop fittings and plant equipment

940

 

 Fee for maintenance of computer systems

560

 

 Other tax deductible operating expenses

9200

 

Decline in value ( Depreciation )- As per Annexure 1

2076

34446

Net Income

 

20604

(Australian Government , 2020) TR 2020/3 Income tax: effective life of depreciating assets (applicable from 1 July 2020), under this section 40-100 of the Income Tax Assessment Act 1997 (ITAA 1997). Effective life applicable. As per Sec 40-95 , If one first uses a depreciating asset or have it installed ready for use within five years of the time (the relevant time):·

  • One entered into the contract to acquire it
  • One started to construct it, or
  • One otherwise acquired it,

(Jolly, 2019), following deductions can be claimed from the investment property as allowed by ATO,

 Management and maintenance costs which could be deducted include:

  • Advertisement to discover fresh tenants
  • Bank Charges as well as loan charges
  • Body company fees, cleaning costs and also council rates
  • Gasoline and electricity charges not paid out by the tenant
  • Insurance of House, landlord and documents
  • Land Tax
  • Supervisor fee for property
  • Any Repair and Maintenance charges
  • Travel and automobile expenses for rent collection or even inspections

Cost as incurred due to assessment or maybe maintenance, Borrowing expenses e.g. interest or principal repaid. Other borrowing fees include:

  • Loan processing fee
  • If any Mortgage insurance is there
  • Title Fee
  • Broker Cost for Mortgage
  • Stamp Duty for mortgage

In this case let’s assume that commissioner has decided the effective life as 5 years for depreciable assets in the property so the calculation of that is:-

Annexure 3

Particulars

in $

Purchase Price as on 01.07.2019

300000

Cost base of the Property

 

Land and building

276800

Depreciable assets adjustable

 

Carpets

5000

Hot water system electric

1200

Ceiling fans

1600

 Barbecue (fixed)

1400

Window blinds internal

8000

Window curtains

6000

Total

23200

Useful life in years

5

Construction costs of brick room to store garbage and Gardening equipment 2 mnth

200

 

Depreciation for the year 2020

4840

Annexure 4 – Rental income from Property

Particulars

in $

Rent Received

23750

Compensation

1300

Insurance Claim

2100

Total Income from property

27150

Deduction

 

Interest on Loan

23800

Application Fee

825

Council & Water rates $3,400

3400

Building Insurance premium $850

850

Payment to solicitors – for lease preparation fees $150

150

 – to eject tenants for non-payment of rent $375

375

Repairs – to paint the outside walls of the house, carried out on 10 July 2019 $1,100

1100

Garden hose and attachments $165

165

Travel costs to the rental property for inspections as per note 3

830

Pest control costs to eliminate cockroach infestation

280

Depreciation as per annexure 3

4840

Total Deduction allowed

36615

Loss from Property

-9465

Calculation of Tax liability:-

Tax Slab F Y 19-20

Net Taxable Income

Tax (in $)

Assessable income

80939

 

Medicare Levy ( due to no insurance charges)

1214.085

 

Total Taxable

82153.085

 

0-$18200

 

0

$18201-$37000 @ 19%

 

3572

$37000-$82153@32.5%

 

20785

     

Total tax Liability

 

24356.73

Medicare levy @1%

 

243.5673

Total Tax Liability( A)

 

24600.29

Pay G - Instalment Paid

 

2500

Total paid (B)

 

22100.29

TAX Payable ( B-A)

 

22100.29

Tax offset:

Though the tax offset is available as per ATO on the basis of following eligibility but If you've a disability or maybe you care for an individual with a disability, you might be eligible for specific tax offsets. (ATO, 2020)

Tax offsets, often called rebates, directly lower the level of tax payable on the taxable income of yours.

Generally, offsets are able to decrease your tax payable to zero but by themselves they cannot help you your money back.

Based on the circumstances of yours, you might be permitted to a tax offset whether one is

  • A senior citizen or a pensioner
  • Receive specific allowances from the government or perhaps any payments
  • Maintains a carer for any dependents which reduces the income

But in his case as no expenses are clearly mentioned that is how much he has spent on his wife’s treatment so it cannot be claimed unless properly identified and maintained with evidence separately.

Invalid and invalid carer

Tax offset is only available where the taxpayer maintains an invalid or an invalid carer who is an eligible dependent. In addition, access to the offset is income tested where the combined adjusted taxable income is more than $100,000 for the 2019 year

Assessable income for Hayali Patel can be calculated separately, which will be

Pension received from Centerlink = $9200

Interest recd from joint Acount = $500

Total Income = $9700

Deduction available due to disability =$ 9200

Taxable income = Nil (as upto $18200 , tax is nil)

Tax = Nil

Following are explanations are used to calculate the taxable income under various heads:-

Part 1

Personal services income (PSI) Could be the client a sole trader? whether yes, use the CPA Australia 2019 PSI/PSB self-assessment checklist to decide if the prospect is governed by the private services income provisions by figuring out regardless of whether they're conducting your own services enterprise (PSB).

If the person is having on a PSB the' Professional items schedule and business for people 2019' must be finished. A copy of related instructions and the schedule are readily available on the ATO site. If the person isn't having on a PSB that individual won't be permitted to deductions for land tax, rates, mortgage interest, or rent, or maybe for payments or maybe superannuation contributions manufactured in respect of an associate for instance a spouse.

Part 2 and Part 3

If the taxpayer derived revenue from any organization (other than the private service revenue provided at product fourteen), complete and connect a 2019 Business along with expert things schedule.

The customer might be permitted to a small business tax offset of up to 1dolar1 1,000 if the prospect is a small business entity for the 2019 season. The tax offset is available where client 's aggregated turnover is under five dolars million for the 2019 season, so the offset is the same as eight % of the income tax payable on the client's complete net business revenue that is capped to a maximum quantity of 1dolar1 1,000.

A copy of the company and professional things schedule for people for 2019 are readily available on the ATO site.

Separate disclosure is necessary in regard associated with a net loss or income from a company carrying on a business and primary production carrying on non-primary production activities.

Did the customer make a gain or maybe loss from the disposal of any cryptocurrency like a bitcoin in the season ended thirty June 2019? In that case, there are very likely to be tax consequences. These differ based on the dynamics of the client 's instances. If a taxpayer is having on a company which requires transacting with cryptocurrency the trading inventory regulations apply, instead of the CGT rules. Proceeds from the purchase of cryptocurrency kept as trading inventory in a company are ordinary income, so the expense of obtaining cryptocurrency held as trading inventory is deductible. Far more info on whether a taxpayer is having on a company which requires transacting in a cryptocurrency can be obtained on the ATO site. Everybody involved in obtaining or perhaps getting rid of cryptocurrency needs to preserve data in relation to such transactions. Additionally, if the transaction happens in a different country, there may in addition be taxation effects in which foreign country.

References for Comprehensive Individual Tax Return

ATO. (2020). /income-and-deductions/offsets-and-rebates/super-related-tax-offsets/. Retrieved from https://www.ato.gov.au/individuals: https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/

ATO. (2020, July). https://www.ato.gov.au/individuals/people-with-disability/tax-offsets/. Retrieved from https://www.ato.gov.au/: https://www.ato.gov.au/individuals/people-with-disability/tax-offsets/

Australian Government . (2020). TXR/TR20203/NAT/ATO/00001. Retrieved from https://www.ato.gov.au/law/view/document?docid=TXR/TR20203/NAT/ATO/00001: https://www.ato.gov.au/law/view/document?docid=TXR/TR20203/NAT/ATO/00001

i Know. (2020). assessable-income. Retrieved from https://iknow.cch.com.au/topic/tlp1041/overview/assessable-income: https://iknow.cch.com.au/topic/tlp1041/overview/assessable-income

Jolly, W. (2019). rental-income-tax. Retrieved from https://www.savings.com.au: https://www.savings.com.au/home-loans/investing/rental-income-tax

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Law Assignment Help

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