Tax Implications For Jane: Interest Income, Selling Of Vacant Land And GST Implications

Part A

From the following scenario, it is understood that Jane went to UK leaving Australia in order to visit her relatives. However, her tour was short lived and had to return to Australia. Jane taxable income comprises of the ordinary income that was received by her either from direct or indirect sources. An individual being an Australian resident for taxation purpose is taxed for their worldwide income and the individual is required to declare foreign income while filing income tax return (Barkoczy, 2016). As evident from the case study, that Jane received an interest payment from a bank in United States in which she has deposited money therefore such income for Jane is subjected to taxation since she is considered an Australian for taxation purpose. Considering the tax implication Jane is required to declare the interest income received from bank account deposit in United States at the time of filing tax return. It is further assumed that Jane had not paid tax on her offshore bank account deposit in another country. It is worth mentioning that Jane being an Australian resident for taxation purpose shall be potentially subjected to double taxation for receipt of income from United States (Morgan et al., 2016).

As defined under the income tax assessment act 1997 the receipt of interest income by Jane from her deposit made in United states bank attracts tax liability and it should be included in her assessable income. Furthermore, it is noticed that Jane had rented out her house in Melbourne however, the ownership of the house is still in the name of Jane. As stated under the rule of common Law the responsibility of paying tax falls on Jane for renting out her Melbourne property (Long et al., 2016). As evident from the current case study the nature of income derived by Jane from her deposit in United States Bank is recurring in nature and attracts tax liability following the receipt of interest from the period 1^st July 2014 to September 2015. The system of credit system on overseas income can help Jane in reducing her tax expenditure because as an Australian resident she is required to pay tax in Australia and obtain overseas income tax credit in Australia.  

To overcome such kind of situation Jane can claim a foreign income tax offset in Australia. It is noteworthy to denote that, Australia has system of providing credits and exemptions because it has signed tax treaties with more than forty countries (Woellner et al., 2017). Considering the tax implication of Jane she is advised to claim tax offset for her interest received from bank deposit in United States and avoid the circumstances of double taxation.

As evident from the following scenario, that Jane undertook the decision of renovating her home however being short of fund she decided to sell the vacant block of land, which she acquired during December 1997. Her initial intention was to construct a house on the vacant block of land however, this did not happen. According the Jane estimation selling of vacant block of land could fetch her price according to the current market value of $150,000. Capital gains tax refers to the tax, which in an individual pays on making certain amount of gains.

Part B

A capital gains or capital loss is generally made when a CGT event occurs (Weisbach, 2016). From the following scenario, it is evident that Jane decided to sell the vacant block and believes she could fetch $150,000 from such sales despite purchasing the land for $50,000. As stated under “Section 102-20 of the income tax assessment act 1997” if Jane goes ahead with the intention of selling the vacant block of land this will result in capital gains tax event (Feld et al., 2016). As evident from the case study, Jane original intention was to construct house on the vacant block of which she had acquired however the commissioner will assess Jane for making capital gains tax from the selling of land. It is noteworthy to denote that holding a mere intention of constructing or occupying the land for dwelling as the main residence without actually constructing home on the land is not sufficient to obtain the capital gains tax exemption.

As in the case of Jane, despite holding the intention of constructing home on her vacant block of land and actually doing so cannot be regarded as the sufficient to obtain exemption for Jane. In addition to this, there are no such kind of provision in the law, which allows the commissioner to exercise their discretion in such matter (Jacob, 2016). As understood from the following scenario, that Jane on purchasing the block of land held the original intention of building a new main residence. To this end, the value of the vacant block of land has increased in the value ever since she purchased it. Jane decision to sell the block of land was entirely her decision due to the financial and personal reason of renovating her house.

According to “Section 102-20 of the income tax assessment act 1997” an individual undertaking the decision of selling the vacant block of land and deriving capital gains tax from such event, that person will be liable for capital gains taxation (Lombard, 2017). As understood from the following scenario that Jane decision of selling the vacant block would attract tax liability as according to her believe selling of vacant block of land could fetch her approximately $150,000 which is more than the purchase price of the land of $50,000. Therefore this results in capital gains tax event and the revenue generated from the selling of vacant block of land would held for capital gains tax under section “102-20 of the income tax assessment act 1997” (Jones, 2016).   

In the following case study of Jane, it is found that she incurs GST for being the ultimate recipient. Jane is the sole supplier of goods and service, it is obligatory for her to collect the GST from the consumers. The below listed are the three scenarios where the GST implications for Jane is determined which are as follows;

1. According to the Australian taxation office an individual investing in rental property or renting out the current property is required to keep the records of the property right from the beginning, work out their expenditure that can be claimed as deductions and declaring all the rental related income in their tax return (Morgan et al., 2016). As evident from the case study, that Jane had rental out the Melbourne house and received a rental income of 11,000 together with the gardening maintenance expenditure of $440. It is assumed that Jane had made the profit from renting her property in Melbourne and she is required to make “pay as you go” (PAYG) towards her anticipated tax liability (Braithwaite & Braithwaite, 2016). Furthermore, Jane is required to declare income that is earned by her from renting out the property and claim deductions on garden maintenance expenditure as the related expenses for that period.

Part C

2. As stated by the Australian taxation office some capital gains are exempted and does not forms the part of the assessable income (Robin et al., 2016). As evident from the current scenario, that Jane sold her car for $8000, which was used for private purpose and such selling of assets by Jane, are exempted from capital gains. Jane is not required to include the amount of $8000 received from selling of car in her assessable income. Jane can choose between the two methods “under division 28” to claim deductions for kilometres travelled by car in order to suite the needs of Jane. Jane can claim expenses under cents per kilometre method for the value of the car.

3. As stated under the principle of prudence, Jane should determine her revenue turnover because she is not registered under GST. As evident from the case study that Jane had generated the revenue of $3000, which is however, lower than the threshold limit of $75,000. As defined under the income tax 1997 the value of GST paid by the registered entity if found to be less than the GST of the taxable supply made the organisation is only required to pay the net sum to the ATO (Braithwaite & Braithwaite, 2016). Jane tour gross venture income consisted of $3000 and incurs GST of $300 and it is assumed that this is the only transaction reported by Jane. Furthermore, Jane will only have to pay to ATO the sum of $300 derived from her tour venture.   

Most of the income received in carrying on a business is considered as assessable income (James, 2016). This represents that Jane on receipt of her tour venture income of $3000 is required to be declared for assessment at the time of filing income tax. Tax deductions on the other hand reduce an individual taxable income. Jane had purchased computer, which is a depreciating assets, and she can claim deductions for the same. The purchase of computer and Books forms the part of running her business since they are directly related to the earnings of her assessable income (Weisbach, 2016). The set up cost incurred by Jane represents capital expenditure since it is associated with the establishment therefore Jane can claim tax offsets and rebates for such capital expenses. According to division 900.115 of the ITAA Jane is required to keep written evidence from the supplier for the declining value of the depreciating asset.

Reference

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James, K. (2016). The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), 345-362.

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