LAW 6001 Taxation Law Online Tutoring

1. INTRODUCTION

This report supplements the enclosed 2019 Individual Tax Return, the summarized the calculations of assessable income, allowable deductions and taxable income made therein, as well as discusses the tax implications of the various issues identified in the income tax return and that are applicable for tax year 18/19.

According to section 6.5 of the Income Tax Assessment Act 1997 (“ITAA97”), being an Australian resident, your assessable income includes incomes earned by your good self, directly or indirectly from all ordinary sources, whether in or outside Australia during the income year.

During the year you have derived income from employment exercised, business conducted, rental income from property as well as interest income from joint term deposit account at ANZ. All of these are a part of Ordinary Income which is assessable under section 6.5 of the ITAA97.

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2. SALARY INCOME FROM EMPLOYMENT EXERCISED IN AUSTRALIA

2.1 Rules relating to taxation of salary income

Salary earned during the income year is a part of a person’s ordinary income which is included in the assessable income subject to income tax. Salary is taxed on cash basis i.e. when it is received during the year (Blank).

The amount withheld by the Blue Marlin Pty Ltd under the Pay As You Go (PAYG) system are “eligible PAYG payment” within the meaning of section 202A of the Income Tax Assessment Act 1936 (ITAA36). These payments made to the tax authorities are required to be reported by the employer, and the employee in return are entitled to claim a credit against actual tax liability for the year upon the final assessment of tax (i.e. when filing the return of income).

Under section 8.1 of ITAA97, a taxpayer is entitled to deduct from assessable income any loss or outgoing that is incurred in gaining or producing assessable income. Resultantly, all expenses incurred in earning the salary income are considered as general deductions unless, they are loss or outgoing of a capital / private nature or is not allowed to be deducted under any other provision of the law.

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2.2 Computation of salary income subject to tax

The computation of salary income subject to tax is one as follows:

Description	Reason for inclusion / claim of deduction	Amount in $

Gross wages for the 12-month period	nominal monthly pay is a part of salaries and wages subject to taxation	7,800

Add: Allowances and other recoupments
Shift allowance	separately identifiable payment made by the employer included in salary	2,000
Reimbursement for work-related software fee	These represent payments made by the employer for the recoupment of expenses already incurred by the employee. Assumed that this is not subject to fringe benefits tax (FBT) and therefore, a deduction can be claimed there against (ATO, 2020)	800
		2,800
Less: Work related allowable deductions
Telephone and stationery	Expense solely incurred for the fulfilment of employment duties claimable	(300)
Software fees	Solely for employment purposes and reimbursed by the employer, offered above.	(800)
		(1,100)

Taxable salary income		9,500

2.3 Benefits subject to fringe benefits tax

Eric is also provided with a company-maintained car which is a reportable fringe benefit. The taxable value of car totals $60,000. This value needs to be grossed up with the factor 1.8868 (which is the relevant rate for 2019). Although not taxable, this amount will be reported in payments and affects the amounts calculated for Medicare levy (ATO, 2020). The grossed-up amount is calculated as follows:

Total taxable value × 1.8868

= $60,000 × 1.8868

= $113,208

3. INCOME FROM BUSINESS OPERATED IN AUSTRALIA

3.1 Selling of imported foods items is Eric’s business which he undertakes on commercial terms to make a profit (Ferguson v FCT, 1979). Income from business along with explanation of various items considered or not considered is as follows:

Description	Reason for inclusion / claim of deduction	Amount in $



Closing account receivables		19,800
Add: Payments received during the year		85,000
Less: Opening account receivables		(17,600)
Credit sales during the year		87,200

Closing account payables		5,830
Add: Payments made during the year		43,000
Less: Opening account payables		(5,280)
Purchases made during the year		43,550

Opening stock of goods		7,100
Add: Purchases during the year (as computed above)		43,550
Less: Closing stock of goods (at cost)		(8,400)
Less: Personal drawings by the owner		(2,500)
Cost of goods sold during the year		39,750