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Taxation Law

Table of Contents

Information / Facts of Case.

Sole Trader Expense with Explanation.

General Advise on Sole Trader Business to Michael

Stock Valuation as a Sole Trader.

Income from house property related assessment

Disability Pension received by Michal’s Spouse.

Interest from Bank Account – Joint Account

Information / Facts of Case

Name: Michael Zack

TFN: 300 001 000

Date of Birth: 15 July 1974

Address: 3 Dimple Street, Melbourne VIC 3358

Contact: 0456 587 987 (Work: 03 9578 3648)

Bank account: BSB 225887 Account 378458

Michael is not covered by a private hospital cover.

Spouse: Susan Zack

Date of Birth: 30 July 1989

Currently receives disability pension from Centrelink $5,200 for the 2019 tax year. She has no deductions to claim for the 2019 tax year.

Sole Trader Expense with Explanation

Cash payments included:

  • Cash Drawings by Michael $3,000 - 
  • Fines for breach of Australian Customers regulations $900 – This particular xpense is not deductible according to the FederalCommissioner of which states that all of the respective fines and penalties apparently incurred along the process related to earning of assessable income are not deductible according to section 51 of the Income Tax Assessment Act with respect to the purposes of estimating the assessable income of the respective tax year respectively.
  • Net wages to employees $12,000 – Deductible for Taxation as other expenses of the sole trader structure.
  • PAYG withheld from employees and paid to the ATO $2,900 – Shown as expenses in the tax statement
  • Superannuation for employees $1,230 – Shown as part of the section G of the income tax return format.
  • Superannuation guarantee charge $190 – This is paid in the form of penalties for not paying the superannuation on time. Hence, this particular expense is not deductible according to the FederalCommissioner of which states that all of the respective fines and penalties apparently incurred along the process related to earning of assessable income are not deductible according to section 51 of the Income Tax Assessment Act with respect to the purposes of estimating the assessable income of the respective tax year respectively.
  • Fringe benefit tax $850 - Will be dealt with in the FBT return. This is not related to the income tax return of the small business. However according to the Australian Taxation office employers in case of small business can always claim an income tax deduction for the cost of providing fringe benefits and for the FBT that is payable by the same.
  • Lease payments on shop fittings and plant equipment $940 – Business Expense that can be classified as the other expense in the income tax return.
  • PAYG instalments for Michael’s personal tax commitments $2,500 – Personal tax commitments related cash flow is not in relation to the
  • Fee for maintenance of computer systems – Business Expense that can be classified as the other expense in the income tax return. Covering the period 1/4/2019 to 30/9/2019 amounting to a total of $1,680.
  • Other tax deductible operating expenses $9,200 - Business Expense that can be classified as the other expense in the income tax return
  • Decline in value (see note 1) $ 3293, according to te estimation as given below

Depriciation Expenses

     
 

 Opening WDV

 Depriciation

 Closing WDV

 Mobile

2,188

547

1,641

 Furniture

13,375

1,338

12,037

 Laptop

4,000

1,333

2,667

 Printer

150

75

75

General Advise on Sole Trader Business to Michael

As a sole trader, Michal can cliam a number of tax deductions related to majority of expenses thos would be incurred while running the business provided they are related to the operations of the company.

Some of these deductions include but are not limited to the following:

  • Business travel expenses such as movement from one place to another using bus, car or other means of transport.
  • Vehicle related spend those are inclusive of but not limited to fuel and oil, servicing and maintenance, loan interest on the purchase or lease payments, including the insurance premiums paid by the trader.
  • Maintenance and repair cost of the equipment used for the business such as machinery, tools, or business operational premises
  • Expenses related to the Home office running for the business that includes rent and other operational expenses like electricity as well as water supply and the like.
  • Other expenses those are required for running a company such as stationery, advertising, banking , finance expenses and accounting and other related trade subscriptions etc.,
  • Personal superannuation contributions for the sole trader as well as his employees and related trade insurance premiums.
  • Depriciation expenses related to the assets used for the business
  • All prepaid and business related bad debts.

Stock Valuation as a Sole Trader

In this case according to the governing regulations of the ATO, any of the three methods namely the cost price method, the market value method as well as the replacement value method could be used. In this particular case since the market value is the closest of all the three methods owing to the realistic nature of this particular methodology. The same has been reflected in the returns submitted along with this particular paper.

Income from House Property Related Assessment

Receipts

  • Rent received (net of agent commission withheld $1,250) by 28 June 2019 $23,750 – To be assessed as income coupled with agent commission which would be deducted against expenses.
  • Compensation from Rental bond board for tenants who left and
  • did not pay the rent they owed (see note 2) $1,300 – This would be accounted in the form of other income accordin to the section 63 of the Income Tax Act.
  • Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2019 $3,000 – Accounted as income for the period of receipt to be disclosed as part of the income from house property for the accounting year 2019.
  • Insurance recovery for storm damage to roof $2,100 – Cannot be Accounted in the form of income as the cost of repairs would have been accounted for according to the section 62(3) of the Income Tax Rules 2011.

Payments

  • Mortgage repayments to Westpac Bank – principal $4,500
    • interest $23,800 – According to Taxation Determination TD 2012/1, the interest paid on loan and principle would be deducted against rent received.
  • Loan application fees to Westpac Bank for a 10-year mortgage loan – Deductible as part of the loan repayment mechanism.
  • Council & Water rates $3,400 – Deductible as part of the expenses in the house property according to section 62 of the law.
  • Building Insurance premium $850 - Deductible as part of the expenses in the house property according to section 62 of the law.
  • Payment to solicitors – for lease preparation fees $150 - Deductible as part of the expenses in the house property according to section 62 of the law.
  • Repairs – to paint the outside walls of the house, carried out on 10 July 2018 $1,100 - Deductible as part of the expenses in the house property according to section 62 of the law.
  • Construction costs of brick room to store garbage bins
  • and gardening equipment, carried out on 1 May 2019 $6,000 – Capitalised as part of the premises for depreciation.
  • Garden hose and attachments $165 – Not related to the business
  • Travel costs to the rental property for inspections (see Note 3) $830 – Cannot be deducted as specified by TR 2000 / 2 of the Income Tax rules.
  • All expenses related to the acquisition of property will be added to the value of the property and deducted as part of the cost while arriving at any capital loss / gain during the future sale of the property and hence this cannot be reduced from the rental income respectively.
  • Pest control costs to eliminate cockroach infestation $280 – Deductible as part of the expenses in the house property according to section 62 of the law.
  • Payments to the Australian Taxation Office
    • Additional tax on an amended assessment $400 – Penalty and tax cannot be deducted as viable expenses.
    • Interest paid on late lodgement $150 - Penalty and tax cannot be deducted as viable expenses.

Disability Pension received by Michal’s Spouse

Under section 52-10 and subsection 52-65(4) of the Income Tax Assessment Act 1997, the amount of disability income is not taxable. Hence the amount received would not be included into the taxable ambit.

Interest from Bank Account – Joint Account

According to Taxation Determination TD 2017/11, Michael will be assessed for the interest income from the joint bank account.

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