Assessable
Determining the income and expenses that are assessable income or allowable deductions
|
Assessable |
Particulars |
Legislation, Case law, Rulings, Reasoning |
Item – 2020 Tax Return |
|
No |
Wedding Gift |
A gain that is classified as a normal gift cannot be classified as earnings. In “Hayes v FCT (1956)” the bookkeeper got shares in company that was given to him by his former boss. The shares given to accountant was considered as a gift and not an assessable income (Sadiq 2019). The engagement gift received by Nadine cannot be characterised as income. Citing “FCT v Hayes (1956)” the engagement gift is not related to derivation of assessable earnings and it is not classified as income for Nadine. |
|
|
Yes |
Gross Salary |
Nadine reports receiving salary from her employment. Referring to “Dean v FCT (1997)” the “gross salary” is classified as salary from individual effort and it is chargeable to Nadine as an ordinary earnings within “sec 6-5 ITAA 1997”. |
Item 1 |
|
Yes |
Bonus Received |
Nadine also got bonus from her employment. Citing Brent v FCT (1971) the bonus is an assessable an ordinary earnings within “sec 6-5 ITAA 1997”. |
Item 2 |
|
No |
Winnings from Casino |
A gain which is classified as a windfall gain is not an income. In “Evans v FCT (1989)” the taxpayer placed bets on horses and luckily won (Anderson, Dickfos and Brown 2016). The gambling winnings was not regarded as income by court and the taxpayer was classified as a lucky gambler. The gambling winnings is not an assessable income to Nadine. |
|
|
Yes |
Interest on bank deposits |
Receipt of interest from bank deposit is considered as an assessable income. Accordingly, in “Riches v Westminster Bank Ltd (1947)” an important principle was given that receiving of interest is observed as an ordinary income under “sec 6-5”. Nadine earned interest from bank deposit that amounted to $2,500. Referring to “Riches v Westminster Bank Ltd (1947)” the interest earned by Nadine is included for assessment purpose as an ordinary income within “sec 6-5 ITAA 1997”. |
Item 10 |
|
Yes |
Sale of Painting |
Meanwhile, where a taxpayer derives receipts from normal business proceeds it amounts to some ordinary business earnings under “sec 6-5”. In “GP International Pipecoaters v FCT (1990)” it was stated that receipts from trading transactions are classified as ordinary income within “sec 6-5”. The receipts amounting of $20,000 from selling paintings at local market (Murray et al. 2019). Citing “GP International Pipecoaters v FCT (1990)” the receipts from selling painting is categorized as trading receipts and it is assessable ordinary proceeds within “sec 6-5”. |
Item 15 |
|
Yes |
Receipt of Award |
When a taxpayer gets any prize or award which has satisfactory relation with revenue making actions of taxpayer, those receipts are held as ordinary returns under “sec 6-5 ITAA 1997”. In “Kelly v FCT (1985)” the specialized footballer had got award for best player (Yuen 2022). The law court held the receipt as earnings for the reason that it was connected to his work and use of abilities. Nadine reports receiving award for her contribution to legal profession. Citing “Kelly v FCT (1985)” the receipt of award amounting of $1,000 will be considered as income under ordinary concept and taxable to Nadine within “sec 6-5 ITAA 1997”. |
Item 9 |
|
Yes |
Capital Gain/Loss on Sale of Land |
The capital gains or loss forms the part of an individual’s assessable earnings and it is taxed as statutory earnings within “sec 102-5 of ITAA 1997”. Land, shares in company or trust, rights and options are considered as CGT asset under “sec 108-5 of ITAA 1997”. Nadine reports selling the subdivided land for $300,000 that had market value of $200,000. The disposal of subdivided land contributed to “CGT Event A1” within “sec 104-10 (1) ITAA 1997”. The land is classified as CGT asset within “sec 108-5 of ITAA 1997” and the capital gains derived from selling it amounts to assessable statutory income for Nadine within “sec 102-5 of ITAA 1997”. |
Item 18 |
|
No |
Sale of Sculpture |
While under “sec 108-10 (2)&(3) of ITAA 1997”, collectables refers to assets which is bought largely for personal use and enjoyment purpose (Morgan and Castelyn 2018). Common examples are paintings, sculptures, antiques etc. Meanwhile under “sec 118-10 (1)”, “capital gains or loss” from “collectable” bought for $500 or less needs to be disregarded. Nadine sold a rare sculpture for $10,000 that she bought for $300. The sculpture is classified as collectable within “sec 108-10(2) & (3) of ITAA 1997”. Referring to “sec 118-10 (1)” the capital gains derived by selling it will not be included in the assessable income of Nadine since its cost base is lower than $500. |
|
|
Deductible |
Particulars |
Legislation, Case law, Rulings, Reasoning |
Item – 2020 Tax Return |
|
Yes |
Safety Boots, protective glasses and evening dress |
The taxpayers are allowable to claim deduction for expenditures experienced towards protective clothing and occupation specific clothing under “sec 8-1”. In “Morris & Ors v FCT (2002)” the taxpayer was involved outdoor occupation and he was allowed to claim deduction for cost incurred towards sun protection items such as hats, sunglasses and sunscreens. The safety boots and protective clothing bought by Nadine is classified as protective clothing and citing “Morris & Ors v FCT (2002)” it is an allowable deduction to Nadine under “sec 8-1”. While no deduction is allowable for evening dress because it is a private expense. |
D3 |
|
No |
Reimbursement of Meals and entertainment |
Reimbursement is not salary and wages. As noted in “Roads and Traffic Authority of New South Wales v FCT (1993)”, reimbursement is observed as sum that is made in regard to real expenditures incurred (Robin 2021). She has been reimbursed the cost of meal and entertainment. Citing “Roads and Traffic Authority of New South Wales v FCT (1993)” no deduction is allowed for meals and entertainment expense to Nadine. |
|
|
Yes |
Taxi Fares |
In “FCT v Wiener (1978)” the travel expense that was incurred by taxpayer to travel between five different school and back home was an allowable deduction as it amounted to travel in the course of work. The taxi fares that is incurred for travelling from office to client premises is categorized as travel at the time of work. Quoting “FCT v Weiner (1978)” the travel expenditure is an allowable deduction to Nadine. |
D3 |
|
No |
Taxi Fares from Home to Office |
Travel between home and office is a private travel expenditure. In “FCT v Lunney (1958)” the travel made between home and work place is not permitted for deduction within “sec 8-1”. While the travel expense incurred to travel between home and work place by Nadine is not an allowable deduction since it is a private expense. |
|
|
Yes |
Membership Fees of law society |
As mentioned within “sec 26-55 of ITAA 1997” expenditures that is incurred by taxpayer to trade, occupational or certified association is an allowable deduction. The membership expense of $530 is an allowable deduction to Nadine as it is related to her profession. |
D5 |
|
No |
Membership fees for real estate institute |
While up $42 is allowed as deduction for real estate membership within “sec 26-55” since it is not related with his income earning profession. |
|
|
No |
Rates on Family Home |
The rates and electricity on family home is a personal expense and not allowed for tax deduction under “sec 8-1 (2) of ITAA 1997”. |
|
|
Yes |
Electricity |
Citing “Handley v FCT (1981)”,Nadine can deduct a portion of electricity expense that is attributable to her home office purpose. She can deduct for 4 nights of electricity expenses that she incurs for every week. |
D5 |
|
Yes |
Purchase of Artwork |
Meanwhile under “sec 70-15 of ITAA 1997” expense that is experienced towards buying trading stock is an allowable deduction to business (Payne 2018). The purchase expense incurred towards purchasing materials for her painting is an allowable deduction within “sec 70-15”. |
D15 |
|
Yes |
Excess of Opening Stock over Closing |
Furthermore, under “sec 70-35 (2) of ITAA 1997” when “closing stock” value is greater than “opening stock”, the total sum that is in surplus is an allowable deduction. Under “sec 70-35 (2) of ITAA 1997”, Nadine can also deduct the value of opening stock over its closing stock. |
D15 |
Calculation of Taxable Income and Tax Payable
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Computation of Tax Liability |
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In the books of Nadine |
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For the year ended 30th June 2021 |
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Particulars |
Amount ($) |
Amount ($) |
|
Assessable Income |
||
|
Bonus received |
15000 |
|
|
Gross Salary |
155000 |
|
|
Interest on Bank Deposits |
2500 |
|
|
Sale of Paintings |
20000 |
|
|
Receipt of Award |
1000 |
|
|
Capital Gain/Loss on Sale of Land |
||
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Sales Proceeds |
300000 |
|
|
Cost Base |
200000 |
|
|
Capital Gains on Sale of Land |
100000 |
|
|
50% CGT Discount |
50000 |
50000 |
|
Total Assessable Income |
243500 |
|
|
Allowable Deductions |
||
|
Safety Boots |
250 |
|
|
Protective Glasses |
250 |
|
|
Taxi Fares |
500 |
|
|
Membership Fees of law society |
530 |
|
|
Membership fees for real estate institute |
42 |
|
|
Electricity Expenses |
86 |
|
|
Purchase of Artwork |
7500 |
|
|
Excess of Opening Stock over Closing |
4500 |
|
|
Total Allowable Deductions |
13658 |
|
|
Total Taxable Income |
229842 |
|
|
Tax on Taxable Income |
74095.9 |
|
|
Add: Medicare Levy |
4596.84 |
|
|
Add: Medicare Levy Surcharge |
3447.63 |
|
|
Less: PAYG Withholding |
22000 |
|
|
Total Tax Payable |
60140.37 |
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Is Nadine an Australian resident under “sec 6 (1) of ITAA 1936” if she decides to move to London for a period of three years to take up employment?
1: Resides Test: As per this test, a time span of greater than six months continuously will treat a person as an Australian resident. As noted, the duration, frequency and regularity of a person’s movement is considered important. Furthermore, family, business and employment ties are also important factor (Sadiq et al. 2021). In “Levene v IRC (1928)” the taxpayer sold his home but returned on regular basis to meet relatives. The taxpayer was held as resident.
2: Domicile Test: A person would be treated as an Australian resident if their domicile is situated in Australia, except the taxpayer has fixed home out of Australia. A time span of two years or more will be treated as substantial time for an individual’s stay in foreign nation (Shome 2021). Common factors such as the intention and actual time period of stay in foreign nation, establishment of home in foreign nation and continuity of presence in overseas is important factor. In “FCT v Applegate (1979)” the taxpayer leased a house in foreign and was not held as resident of Australia.
3: The 183-Day Test: A person will be treated as Australian occupant if they are living in Australia for more than six months.
4: Superannuation Test: A person is an Australian resident if they have commonwealth fund membership.
If Nadine decides to accept the employment in London for the period of three years, she will be considered as non-resident of Australia because Nadine has expressed her intention to resident in London till the term of her employment contract. The assertion can be supported by below given residency test.
Citing the case of “FCT v Applegate (1979)”, if Nadine moves to London for three years, she will be considered as non-resident of Australia because for three years, her domicile will be located outside Australia. She should to pay tax on income that is sourced in Australia and no tax is payable on income sourced from out of Australia.
Conclusion:
On a conclusive note, it can be stated that Nadine is not an Australia resident under the “sec 6 (1) of ITAA 1936” because her permanent location of abode is located outside of Australia for the period of three years.
References:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. Insolvency Law Journal, 24(2), pp.127-140.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Morgan, A. and Castelyn, D., 2018. Taxation education in secondary schools. J. Australasian Tax Tchrs. Ass'n, 13, p.307.
Murray, I., Cianfrini, M., Clements, J. and Wilson-Rogers, N., 2019. Taxation, innovation and education: Reflections on a flipped lecture room. J. Australasian Tax Tchrs. Ass'n, 14, p.122.
Payne, K., 2018. Taxation: Fix it up or trade up?. Company Director, 34(6), pp.52-53.
Robin, H., 2021. AUSTRALIAN TAXATION LAW 2021. OXFORD University Press.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.
Sadiq, K., Black, C., Hanegbi, R., Krever, R.E., Jogarajan, S., Obst, W. and Ting, A.K.F., 2021. Principles of Taxation Law 2021 (No. 14th). Thomson Lawbook Co.
Shome, P., 2021. Principles of Taxation. In Taxation History, Theory, Law and Administration (pp. 53-61). Springer, Cham.
Yuen, K., 2022. Australian Taxation Office wins Singtel TP dispute. International Tax Review.
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