Taxation Law Assignment: Preparation Of Tax Return For Julia Jenkins

Part A

The independent statutory officer who is responsible for administering the taxation law is known as the Inspector general of taxation. The responsibility of the official includes reviewing the administration of tax based on the principle of good taxation system. It is the duty of the officer to provide independent advice and recommendation to the government (Apps et al., 2014).

The legislations that govern the power and function of the Inspector general of taxation are:

• Ombudsman Act 1976
• Inspector general of taxation Act 2003

The ombudsman Act 1976 deals with the appointment of the commonwealth ombudsman, postal industry ombudsman, defense force ombudsman and others. The Inspector General of Taxation Act 2003 deals with the appointment of the tax officer inspector general (Apps & Rees, 2015).

The Para 1 of the Taxation Ruling TR 2016/3 states that this ruling deals with the view of the Commissioner regarding the manner in which the expenses incurred for developing, acquiring, modifying or maintaining a website for carrying on a business that includes domain name should be dealt with for the purpose of tax. The ruling provides that expenditure related to websites that is used for purpose of business are allowed as deduction (Mares, I., & Queralt, 2015). It should be noted that deductibility of the expenditure related to commercial website is dependent on the nature of expenditure. If the expenditure is of capital nature then it is not allowed as deduction as per Para 8 of the ruling. The Para 10 of the ruling states that expenditure related to a website is not deductible if it is used for producing non-assessable income exempt income.

The definitions relating to the act is included in the Division 40 and Division 328 of the Income Tax Assessment Act 1936.

The rules relating to the deductibility of gift is included in Division 30 of the Income Tax Assessment Act 1997 and Taxation Ruling of 2005/13. The taxpayer can claim a deduction of gift or donation to the organization that have status of deductible gift recipient. The individual that makes the gift can claim deduction. Four conditions must be fulfilled for an individual to claim deduction for gifts. The first condition is that the taxpayer needs to make the gift to a deductible gift recipient. The second condition is that gift should be that with the true meaning of gift. The voluntary transfer of property and money without any material benefit is regarded as gift. The third condition is that a gift needs to be a property or money. This includes financial assets like shares. The fourth requirements is that the gift should comply with any of the gift conditions mentioned above.

The section 25-45 of the income tax assessment Act 1997 states that loss that the taxpayer has to incur due to theft, stealing, embezzlement or misappropriation by employee is allowed as deduction.

The individual can claim deduction for the membership fee of an association under section 25-55 of the Income Tax Assessment Act and section 8-1 of the Income Tax Assessment Act 1997. If the individual makes payment for the membership fees of the association but fails to satisfy the requirements provided under section 8-1 of the Income Tax Assessment Act 1997 then maximum deduction of $42 is allowed (Graetz & Doud, 2013).

Part B: Case Study

The amount of compensation received for the loss, destruction or acquisition of the capital gain tax asset will result in the capital gain tax event. The compensation received for the loss of trading stock will be treated as capital proceed from the disposal of an asset (Wilkins, 2014).

In case the individual has taxable income of $30,000 during the year 2016-17 then the tax payable for the individual is 19 c for every $1 over 18,200.

The individual tax rate for 2016-17 is different for different category of taxable income. If the taxable income of the individual is less than $18200 then no tax is payable on this income. In case the taxable income of the individual is within $18201 to $3700 then the tax rate of 19% is applicable for income over $18200. If the individual has taxable income within $37001 and $87000 then a tax of $3572 is payable and for income over $37000 a tax rate of 32.5% is applicable. In case the income of the individual is within the taxable slab of $87001 and $180000 then an amount of $19822 of tax is payable. In addition to this amount tax is applied on all income over it $87000 at the rate of 37%. If an individual has income over $180001 then a minimum tax of $54232 is paid. In addition to this 45% is payable tax on all income over $180000.The income year for the purpose of taxation is from 1 July to 30 June of the next year. The assessment year is the year following the income year in the assessment year the income tax for the income year is assessed.

The Income Tax assessment Act 1997 provides that an individual, entity for a company is required to pay tax on the taxable income as per section 4-1. The taxable income is calculated by subtracting allowable deductions from the assessable income as per section 4-15 of the ITAA 1997. The assessable income is classified into ordinary income and statutory income (Richardson & Denniss, 2014). The income according to the ordinary concept is known as ordinary income as per section 6-5 of Income Tax Assessment Act 1997. The income that are not ordinary income is regarded as statutory income as per section 6-10 of the ITAA 1997.  In section 6-5 (2) and section 6-10 (4) of the Income Tax Assessment Act 1997 it is provided that the assessable income should include income from all the sources. Whereas in case of mum resident taxpayer only income from Australian sources should be included in the assessable income. Therefore, it can be seen that ascertaining the residential status of the taxpayer is important for determining the assessable income and calculating the income tax payable (Chapman, 2014).  The Taxation Ruling 98/17 in Para 9 states that residential status should be determined based on fact and it is one of the most important criteria for determining the liability of income tax. The term Australian resident is defined under section 995-1 of the Income Tax Assessment Act 1936 that means a person who is a resident of Australia. The Para 11 of the Taxation Ruling 98/17 provides that the primary test for determining the residential status is to ascertain whether the individual resides in Australia according to the ordinary meaning of the term residence. The Para 15 of the ruling states that the ordinary meaning of the term resides includes an individual that comes to Australia permanently. In this case, Julia Jenkins came to Australia to settle permanently on 7 January 2017. Therefore, it can be concluded that Julia Jenkins is a resident of Australia for the purpose of tax according to the ordinary meaning of the term resides. That means income received from all the sources shall be taxable (Gong et al., 2015).  

Business

The income from fruit picking work from the two-week stay should be included in the assessable income as an ordinary income under section 6-5 of the ITAA 1997. The purchase price of $500000 is paid for various item that are not included in the assessable income, as they does not represent income according to the ordinary or statutory concept (Becker et al., 2015). The section 40-30 of the Income Tax Assessment Act 1997 provides that the assets that have limited effective useful life and is expected to decline in value is known as depreciating asset. The depreciation on these assets can be calculated either by using straight-line method or by diminishing value method. In this case, diminishing value method as per section 40-70 of the Income Tax Assessment Act 1997 is used to calculate depreciation for the purpose of tax. The calculation of depreciation that is allowed as deduction under section 8-1 of The Income Tax Assessment Act 1997 is provided below:

Statement showing Depreciation amount
Assets	Base Value	Days held	Effective life	Depreciation Amount
Office Furniture	$      10,000.00	150	13.33	$                     616.59
Office equipment	$      20,000.00	150	5	$                  3,287.67
Computer System	$      15,000.00	150	4	$                  3,082.19
Shop fitting	$      45,000.00	150	15	$                  2,465.75
Floor covering	$      15,000.00	150	5	$                  2,465.75
Cash register	$      25,000.00	150	5	$                  4,109.59
Refrigerator	$      20,000.00	150	10	$                  1,643.84
Indoor plants	$      25,000.00	150	13.33	$                  1,541.48
Sundry plant and equipment	$      38,500.00	150	13.33	$                  2,373.88
Furniture and Fittings	$      25,000.00	150	13.33	$                  1,541.48
Stove	$        1,500.00	150	20	$                       61.64
Refrigerator	$        1,200.00	150	13.33	$                       73.99
Hot water	$        1,300.00	150	20	$                       53.42
Total				$                23,317.29

Table 1: Depreciation Amount

(Source: Created by Author)

The gross sales is an ordinary income as per section 6-5 of the ITAA 1997 and should be included in the assessable income. The outgoing or expenses incurred for producing the assessable income or carrying out the activities for producing the assessable income is allowed as deduction under section 8-1 of the Income Tax Assessment Act 1997.  The salary and wages are the expenses that are allowed as general deduction.  It is provided in section 25-25 of the Income Tax Assessment Act 1997 that the borrowing expenses can be deducted to the extent the amount is used for producing the assessable income. In this case, borrowing is done for the business purpose so it is allowed as deduction. The expenses related to manager vehicle should be treated as perquisite given to the manager and should be allowed as deduction under section 8-1 of the act. The expenditure related to conference is incurred for producing assessable income so it is allowed as deduction under section 8-1 of ITAA 1997. The section 70 -45 (1) all the Income Tax Assessment Act 1997 provides that stock in hand at the end of the year can be valued at cost, selling value or replacement value (Evans et al., 2015). In this case, the market value or replacement price is not given so the yearend inventory is valued at cost. The expenses that are not incurred for producing assessable income is not allowed as deduction. Therefore, the expenses of the manager’s wife is not allowed as deduction. The amount of loss that is discovered in the current year and the loss is caused by theft or stealing is allowed as deduction under section 25-45 of the ITAA 1997 if the money was included in the assessable income. In this case, the amount of $10000 was not included in the store accounts so it is not included in the assessable income. The section 28-12 of the Income Tax assessment Act 1997 provide that car expenses that is calculated in one of the two method is allowed as deduction. The section 28-90 of the Income Tax assessment Act 1997 provide that car expenses can be calculated using log book method by multiplying the amount of car expenses with the business use percentage. The expenses for car is not provided so in this case the car expenses deduction is calculated using the cents per kilometer method as per section 28-25 of the Income Tax Assessment Act 1997. The section 25-35 of the Income tax assessment Act 1997 provides that a taxpayer can deduct a debt as bad if the amount was earlier included in the assessable income of the current year or previous years. In this case, the amount was included in the assessable income so deduction is allowed.

Julia
Statement showing Taxable income
Particulars	Reference	Amount
Income from fruit picking	Section 6-5 of ITAA 97	$     1,000.00
Gross sales	Section 6-5 of ITAA 97	$ 450,000.00
Assessable Income		$ 451,000.00
Allowable deductions
Managers salary	Section 8-1 of ITAA 97	$   45,000.00
Staff wages	Section 8-1 of ITAA 97	$     8,000.00
Borrowing expenses	Section 25-25 of ITAA 97	$     2,500.00
Operating expense	Section 8-1 of ITAA 97	$     2,000.00
vehicle expenses	Section 8-1 of ITAA 97	$     2,000.00
conference	Section 8-1 of ITAA 97	$     4,000.00
Stock utilized	Section 8-1 of ITAA 97, s70-45 of ITAA 97	$   62,000.00
Air fare	Section 8-1 of ITAA 97	$        933.33
Accommodation	Section 8-1 of ITAA 97	$     1,400.00
Car expenses	section 28-25 of ITAA 97	$     2,640.00
Bad debt	Section 25-35 of the ITAA 97	$     8,000.00
Total deduction		$ 138,473.33
Taxable Income		$ 312,526.67

Table 1: Taxable Income

(Source: Created by Author)

Statement showing Tax Payable
Particulars	Amount
Taxable Income	$                      312,526.67
Medicare Levy	$                          6,250.53
Total tax payable	$                      318,777.20

Table 2:Tax Payable

(Source: created by Author)

References

Apps, P. F., & Rees, R. (2015). Capital Income Taxation and Household Production.

Apps, P., Long, N., & Rees, R. (2014). Optimal piecewise linear income taxation. Journal of Public Economic Theory, 16(4), 523-545.

Becker, J., Reimer, E., & Rust, A. (2015). Klaus Vogel on Double Taxation Conventions. Kluwer Law International.

Chapman, B. (2014). Income contingent loans: Background. In Income Contingent Loans (pp. 12-28). Palgrave Macmillan UK.

Evans, C., Minas, J., & Lim, Y. (2015). Taxing personal capital gains in Australia: an alternative way forward.

Gong, D., Hu, S., & Ligthart, J. E. (2015). Does corporate income taxation affect securitization? Evidence from OECD banks. Journal of Financial Services Research, 48(3), 193-213.

Graetz, M. J., & Doud, R. (2013). Technological innovation, international competition, and the challenges of international income taxation. Columbia Law Review, 347-445.

Mares, I., & Queralt, D. (2015). The Conservative Origin of Income Taxation.

Richardson, D., & Denniss, R. (2014). Income and wealth inequality in Australia.

Wilkins, R. (2014). Evaluating the Evidence on Income Inequality in Australia in the 2000s. Economic Record, 90(288), 63-89.