1. The tax implications of the sale of his first house and purchase of new house, including anyexemptions available and noting any additional information you may require from Jacob.Calculate the assessable gain, if any.
2. The tax implications of the expenditure on his house.
3. The tax implications of receiving the apple watch and bravery medal.
4. The assessability and deductibility of all the other items listed in the information as youcalculate Jacob’s taxable income for the year ended 30 June 2016.
5. The tax payable/ (refundable) for Jacob f or the year ended 30 June 2016, including alladditional levies and tax offsets.
As per the personal information provided and monetary plans put forward by you we have prepared a letter of advice so that we can provide you with the guidance and advice which will be based on your tax consequences. The report presented to you will be helpful in determining the appropriate tax benefit under the ITAA 1997. The act lays down that each of the Australian resident shall be accountable to pay tax depending upon the sources of income earned (Barkoczy 2016). These sources may consist of income generated from Australian sources or from overseas sources. On performing a detailed assessment of the documents submitted by you it is understood by us that you satisfy all the criteria to be called as an Australian resident.
You have purchased the old house property on October 31st 1987 and this does not constitute a pre-CGT asset. Since the date of acquisition of the house property is before 20th September 1999, the cost base of such asset will be assessed under the indexation method. Furthermore, it is discovered that you have held the asset for a period of more than two years and being an individual taxpayer you can avail the facilities of indexation method or take into the consideration the method of 50% exemption as per your suitability (Butler 2013).
From the details provided by you it is found that you intend to dispose off your house property in the existing assessment year which forms the CGT asset as stated under “Section 108-5 (1) of ITAA 1997”. The status of the CGT asset is dependent upon the date of acquisition (Freebairn 2012). We would further like to put forward that the date of acquisition forms an important constituent in determining the capital gains tax. This states that whether the assets is acquired on or before 21 September 1985 will be assumed as pre-CGT asset and revenues earned from such assets shall be liable to tax exemptions. Cost of the assets acquired or held after 21st September 1985 but before 20 September 1999 is computed under the indexation method at the time of computation of tax. Following such situations, a taxpayer shall not be eligible for 50 per cent exemption if an asset falls under the index cost base.
Cost base of any property constitutes the purchase cost of the asset acquired. As per the details mentioned by you it is found that during the time of acquisition, you incurred the expense on legal cost and stamp duty relating to the purchase of the house property. As stated under “section 110-25” expenses incurred at the time of procurement of property is included in the total cost base (Gilders 2012). As per the indexation method, index values associated with the expenses incurred at the time of procurement must be included in the purchase price of the property. Upon analysis we noticed that a supplementary expenses were incurred by you to make the property disposable. Under the indexation method and 50% exemption method, supplementary expenses incurred must be included with the original value while computing the cost base of the property.
Any capital gains derived from the sale of residential property is exempted from tax. Upon analysing your document, we found that you have used house as a main residence barring the phase from 31st October 2006 to 31st December 2014. We would like to put forward that you are not eligible to avail full exemption, as the property used for resident by you was unused and remained vacant for eight consecutive years (Jones 2016). Thus, you can claim for exemption for the rest of the period and you are only advised to pay capital gains for a period of eight years.
A detail calculationis conducted on the disposal of property and capital gains for both indexation method and 50 per cent exemption method (Kenny 2013). The calculation is done keeping mind the rules and assumptions as discussed above;
From the above stated calculation of capital gains it is noticed that the under the 50 per cent reduction method capital gains will be lower than that of the indexation method. Sum generated from the capital gains under the 50 per cent reduction must be taken into the consideration as your statutory income.
Assessable incomes are usually classified under two heads, which is either under the ordinary income or as statutory income. According to“Division 15, ITAA 1997 Ordinary Income”consists of those income which is generated from the normal course of business activities. On the other hand, statutory income consists of those incomes, whichis derived from the unusual or accidental activities (Minas and Lim 2013). The status of you earnings is listed below;
Income earned from salaries: From the analysis, it is found that you are teacher by profession and earn salary by imparting teachings to your employees. According to “section, 15-3 of ITAA 1997” such earnings are considered in the form of payment received on return to work which is assessable as ordinary income (Nel 2016).
Franked dividend: According to the documents, it is also noticed that you must state the full amount in the assessment of tax at the time of filling return. Apart from this, you shall be avail the facilities of subtracting the franking sum of credit from the gross amount of tax.
Holiday earned on opening of bank account: It is found that you have received a cash amount from bank because of holiday for opening up the bank account, which will be included in the assessable income. According to “under section 21A”,holiday represents non-cash benefits which is capable of being expressed in monetary value not forming the part of employment is taken into the consideration as ordinary income while assessing tax (Wallace 2015).
Family tax benefit: As per the analysis perform based on the documents received, it is found that you receive family benefit tax. We would like to put forward that you must show these expenses in your assessable income and can avail the facility of offsetting the same at the time of computation of total tax (Wallis 2013). We would like to like inform you that family tax benefit for a depended child up the age of 21 years is excluded from the assessable income.
Watch received as gift: Upon assessment, it is noticed that you have received gift for being the lifesaver and the gifts received by you was completely unintentional. Thus, it should be noted that gifts does not forms the part of assessable income while computing tax.
Any expenses incurred for regular livings are not considered as the part of assessable income. However, any such expenses occurred at the time of generating income from any source then such expenses are considered for deductions under the assessable income (Colemanet al. 2013). Deductions can be claimed under the following expenses;
Purchase of work clothes and shoes: As per the documents submitted by you it is found from the employer that official uniform is accepted by the concerned authority and you are eligible to claim deductions from your assessable income (Minas and Lim 2013). According to “Under division 34 of ITAA 1997”youcan also make an application for such expenses being occurred on procurement of clothes and shoes after accepting it under the “register of approved occupational clothing”.
Work related car expenses: As stated under the “Division 900 ITAA 1997”any form of expense is incurred for deriving incomes being associated with work and employment shall be available for deductions. Upon assessment and documents provided it is found that depreciation on car is not charged by you. It is noteworthy to denote that not all car expenses are entitled for deductions (Woellneret al. 2016). Depreciation is a part of car expenses and it should be calculated under the “Division 900 ITAA 1997”. On evaluation, it is found that the car ran 25,000kms and 5600 alone was used for occupational related activities. Therefore, from the total car expenses incurred a part of such sum is available for deductions at the time of assessing the assessable income associated with work. Below listed is the computation of your deductible car expenses;
Cost incurred for studying: Upon assessment, it is noticed that you have continued you studies so that you can gain promotions. According to “section 8-1”,you can avail deductions on expenses incurred for your personal educations. However, you cannot avail the facility of claiming deductions for expenses occurred at the time of purchasing laptop, as it is capital in nature (Wood, Ong and Winter 2012).
Superannuation contribution: We would like to put forward that your employment sums up more than 10% of the total income. Thus, you are not eligible to claim any sort of deductions for your superannuation contribution.
Fees for tax agent: Fees incurred towards certified tax agent at the time of filing return will not be taken into consideration in the form of deductible expenses;
Net amount of taxable return is laid down for the year 2015-16 as per the stated discussions and assumptions made;
As per the information derived it is understood that the taxable income stands as $1,10,580 and you will be considered for assessment under the income slab of $80,001 to $180,000. You are also required to pay $17,547 and 37% of the additional income for having an earnings of more than the prescribe slab of $80,000. You are also required to pay 2% of the Medicare charge upon the amount of net tax (Yingeret al. 2016). However, it is found that you already have a dependent child so you shall be exempted from paying Medicare levy surcharge. Along with this, we are also providing you advise on areas where to claim for offsets;
Franking credit: It is important to denote that the franking credit derived from the dividend can be put forward for deductions from the total amount of tax payable;
Family tax benefit: Family tax benefit is exempted at the time of computation of tax. In addition to this, the information put forward by you in the assessable income qualifies for deductions from the total amount of tax (Krantz et al. 2012).
From the above stated discussions and assumptions the total amount of tax payable for the period of 2015-16 is calculated below;
Upon assessment, it is found that you intend to sell the house property and buy a new house. However, after going through the documents provided by you it is advisable that you can also sublet the house on rent and then opt for purchase. This will allow you to pre-pay your amount of interest on the investment property and make yourself eligible for claiming deductions. Despite the house being positively or negatively geared, this will help you in putting forward the claims upon the rental property upon being the principle owner of the property.
We would like to further advice you that you can also put forward you claim for offset on the work related expenses such as telephone cost and subscription cost. Along with this, you can also make yourself eligible for claiming educational offset for your family by up to 50% of the items such as educational software, home computers, textbooks and cost of stationeries. Hence, we expect that the above stated discussions and recommendations have been helpful in addressing your tax related queries and have offered you complete satisfactions.
Reference:
Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue
Butler, D. 2013, “Superanuation: Excess contributions tax”, Taxation in Australia, vol. 47, no. 7, pp. 450-452.
Coleman, C., Hart, G.E., Bondfield, B., McKerchar, M.A., McLaren, J., Sadiq, K. & Ting, A. 2013, Australian tax analysis: cases, commentary, commercial applications and questions, 9th edn, Thomson Reuters (Professional) Australia Limited, Pyrmont, N.S.W.
Freebairn, J. 2012, “Personal Income Taxation”, Economic Papers: A journal of applied economics and policy, vol. 31, no. 1, pp. 18-23.
Gilders, F.M. 2012, Understanding taxation law 2012, [6th], 2012. edn, LexisNexis Butterworths, Chatswood, N.S.W.
Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2), p.67.
Kenny, P. 2013, Australian tax 2013, 10th edn, LexisNexis Butterworths, Chatswood, N.S.W.
Krantz, D.P., Weaver, R.D. and Alter, T.R., 2012. Residential property tax capitalization: consistent estimates using micro-level data. Land Economics, 58(4), pp.488-496.
Minas, J. and Lim, Y. 2013, “Taxing capital gains – views from Australia, Canada and the United States”, eJournal of Tax Research, vol. 11, no. 2, pp. 191.
Nel, P., 2016. Primary residences, rental income, and tax: income tax. Tax Breaks Newsletter, 2016(366), pp.2-3.
Wallace, S., 2015. Property Taxation in a Global Economy: Is a Capital Gains Tax on Real Property a Good Idea. In Prepared for the Lincoln Institute of Land Policy-Land Policy Institute of Taiwan, Conference on ‘Toward A (pp. 24-25).
Wallis, C. 2013, “When is giving advice about tax laws legal?”, Taxation in Australia, vol. 48, no. 1, pp. 36-38.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. Oxford University Press
Wood, G., Ong, R. andWinter, I. 2012, “Stamp duties, land tax and housing affordability: The case for reform”, Australian Tax Forum, vol. 27, no. 2, pp. 331-349.
Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. Elsevier.
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