In Australia, all the rules and regulation with respect to the taxation of the income is defined by the government of Australia in the Income Tax Assessment Act 1997. The Income tax is a levy on the employment income which is received by the individual in terms of the salary and wages (Saad, 2014). The present study is based on the assessment of the income of the individual. In this study, it has been evaluated that the various deduction is available to the individual. However, for claiming these deductions, certain conditions have to be fulfilled. Further, the study also prescribes about the eligibility for the deduction of the expenses with respect to the period in which income is generated.
Summary of the case
In the present study, it has been given that deduction of the expenses in respect of the interest and expenses associated with the rental property is not allowed for the period in which the income is not earned. In the given examination, a company prepared the tax return of its client and sent to the client for the signature. The client did not put the signature on the tax return and reply to the company that claiming of the interest and expenses related with the rental property for the first four periods is not correct because in the first four periods he was not generating the income. The deductibility of the interest and expenses should be as per the matching concept that means a deduction is allowed only for the period in which the income was earned.
The provision under the Income Tax Assessment Act 1997
The income tax Assessment Act 1997, prescribe all the rules, regulations with respect to the taxation system of Australia. Income tax is a levy on money received by the individual such as salary income, rental income, interest income and so on (Woellner & et al. 2016). Further, the individual is allowed to claim the deduction of the expenses which is related to earning the income of the individual. Every individual must declare the annual income in the income tax return. However, while calculating the taxable income, the certain deduction is allowed to the individual which are deductible from the income of the individual (Chardon, Freudenberg, and Brimble, 2016).
For ascertaining the taxable income, the individual is entitled to claim some deduction which is directly related to the generating the income. In the Income-tax assessment act, the individual is allowed for claiming the general and some specific deduction from the assessable income during the year (James, 2016).
According to the section 8-1 of the income tax assessment act general deduction refers to the expenses which are directly connected with the generating the income of the individual. However, the expenses which are personal, private and the capital nature are not allowed for the deduction from the assessable income (Australian taxation office, 2018).
Further, according to the section 8-5 of the income tax assessment act, expenses other than the general expenses are allowed for the deduction under this section. However deduction is allowed only at a one time, no individual can take double deduction form the assessable income during the year (Australian taxation office, 2018).
Employment income refers to the income which is derived by the individual from a job; whether it is part time or full time, the individual must include all the income in the tax return. The income may be received by the employee as cash or in a bank account. At the time of computing the salary, all the commission, allowances, bonus and any benefit must be included in the taxable income of the employee.
The employee is allowed to claim the deduction from the assessable income. In this regards for ascertaining the deduction of the expenses, there are some conditions which must be fulfilled. The condition is that the employee must spend the money in relation to the work and the expense which was incurred by the employee was not reimbursed by the employer (Australian taxation office, 2018). Further, it must be related with the generation of the income; the expenses must not be related with the non-employment income. Along with this, the employee must maintain the record for claiming the deduction under this act.
Moreover, if the expenses which are related to the work as well as for the personal purpose, then the deduction can be claimed only to the extent of this is related to the work of the employee. Personal expenses are not deductible from the assessable income of the employee.
The employee can claim the expenses which are associated with the work, from the financial year in which the expenses are incurred (Australian taxation office, 2018). This is even applicable when the salary received is received later, but the expenses are incurred, the employee is eligible to claim the expenses. Income tax does not apply the matching concept, which means the expenses must be related to the period in which the income earned. Since the tax is a levy on the income which is earned during the financial year, therefore all the expenses which are related with the working of the employee or assist in generating the income of the financial year are eligible for the deduction.
Therefore from all provision of the income tax, it has been seen that income tax is a levy on the income of the individual which is earned during the financial year. All the expenses which assist in generating the income are deductible from the income of the individual. For this, the employee must maintain the record of the expenses for claiming the deduction (Ciconte, & et al. 2016).
Analysis of the present case
The present study is related with the individual who has been the management accountant in the company and also working as part-time employment related with teaching profession in any institution. The individual acquired the property on rent and incurred the interest and other expenses for the rental property. At the time of tax return, the individual object that the deduction in respect of the interest and other expenses is not allowed for the four-month period because at that time income was not generated. It is the opposite of the matching concept. The matching concept refers that all the expenses which are related to the generating the income must be related for the period in which the income was earned. However, the matching concept is very important at the time of accrual basis of accounting in the business where the all the expenses and income are recognized only in a period in which they are incurred, or the income is earned, however in the income tax the concept of matching revenue and the expense is not applicable.
Since the employee is generating the income from the accountancy profession as well as from the institution, all the income must be included in the total income of the employee. Therefore the salary which was received as a management accountant and the salary which was received as a teacher from the institution are included in the assessable income even if the individual is engaged in the teaching profession as a part-time employee.
Further according to the above provisions of the income tax assessment act 1997, the employee is allowed to claim the general and the specific deduction from the assessable income. In the present study, the employee incurred the expenses which are in nature of interest and other expenses related to the rented property (Doerrenberg, Peichl, and Siegloch, 2017). It has been seen that the employee acquired the rented property, which enables to the employee for the working. Since it is given in the study, that employee is teaching part-time and acquired the rental property, which suggests that the rented property acquired by the employee only for the part-time teaching at the institute. Further for claiming the deduction under the act, some conditions must be satisfied by the employee, which is already described above. In this case, the interest and other expenses are directly related with the working of the employee or the generation of the income of the employee. Further, the rental expenses of the employee are not reimbursed by the employer, and it has been assumed that the employee maintains all the recorded for availing the deduction from the assessable income of the financial year. Therefore due to all the above reasons the interest and other expense are allowed for the deduction, and the employee can claim the deduction of the expenses from the assessable income as per the rules of the income tax assessment act.
Another issue is raised by the employee is that the expenses of the four months are not allowed for the deduction because the income was not generated at that time. However, according to the income tax assessment act, income tax is charged on the income which was earned by the employee during the financial year and all the expenses which are incurred by the employee for generating the income are allowed for the deduction. In the act, it has not been given that the deduction of the expenses is allowed only if the income is earned in a particular month. In other words it can say that all the expenses incurred during the financial year, which is direct connected with the generation of the income is allowed for the deduction from the assessable income of the employer.
On the basis of the above analysis, it has been seen that the contention of the employee is not correct, he is allowed to claim the deduction of the expenses in the financial year.
Conclusion
On the basis of the above study, it has been seen that the government of Australia made the various rules and regulations for the assessment of the income of the individual. With this regards the employment income includes the income which is derived by the working or the job. All the income from the employment has to be included in the employment income of the employee. In case of the employment income, income tax is a levy on the total salary received by the employee. Further, whether the job is part-time or the full time, it does not make any impact on the assessable income. Along with this, the income tax assessment act also provided various general and specific deductions for the employees, which they can claim under the income tax act and can be reduced from the assessable income of the employee. However, the expenses must be related with the generation of the income of the employee.
Apart from the above, through the above analysis, it has been concluded that in the income tax matching concept is not applicable. Income tax is a levy on the income of the individual which is earned during the financial year by the employee; therefore all the expenses related with the income which are incurred for obtaining the income should be deductible from the assessable income of the employee.
References
Australian taxation office, (2018). Deductions you can claim. Retrieved from <https://www.ato.gov.au/individuals/income-and-deductions/income-you-must-declare/employment-income/>.
Australian taxation office, (2018). Employment income. Retrieved from <https://www.ato.gov.au/individuals/income-and-deductions/income-you-must-declare/employment-income/>.
Chardon, T., Freudenberg, B. and Brimble, M., (2016). Tax literacy in Australia: not knowing your deduction from your offset. Austl. Tax F., 31, p.321.
Ciconte, W., Donohoe, M., Lisowsky, P. and Mayberry, M., (2016). Predictable uncertainty: The relation between unrecognized tax benefits and future income tax cash outflows.
Doerrenberg, P., Peichl, A. and Siegloch, S., (2017). The elasticity of taxable income in the presence of deduction possibilities. Journal of Public Economics, 151, pp.41-55.
James, K., (2016). The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Saad, N., (2014).Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., (2016). Australian Taxation Law 2016. OUP Catalogue
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download