1. Advise your client on how the following items will be treated for tax purposes under Australian tax law:
i. Webjet frequent flyer points received by a business analyst employed by a large business consultancy firm in relation to work related travel paid for by the firm.
ii. amounts received by a crane hire company from its customers for a damaged crane
iii. a free overseas holiday received by a nightclub manager from an alcohol supplier
iv. the return to its members of excess funds raised by a canoe club for the purchase of additional canoes
v. a payment made by a television station to an Australian footballer for being named the best and fairest in the AFL
vi. Expenses relating to a building qualification for a building apprentice
vii. Expenses relating to a short course in art management in the hope of becoming an art director
viii. Expenses relating to work make-up and work dresses
ix. Expenses relating to travel between home and office
x. Expenses relating to travel between one employer and another employer
2. Manpreet is an international student studying an accounting degree at CQU, Sydney. She commenced her studies in term 1, 2016. In the 2016/2017 financial year she worked part time as an office assistant at an Accountant's office to gain work experience in her chosen career and made $45,000 from that job. Manpreet also received $20,000 from her parents to assist her with her living expenses, and a $10,000 distribution from a trust account set up in India by her grandmother of which she paid $1,000 in foreign tax. She spent $18,500 on her studies, $2,000 on a computer and printer for educational purposes, and $500 on a new mobile which was required for work purposes.
Calculate Manpreet's net tax payable for the 2016/2017 financial year, making reference to the taxation formula, the reasons for including or excluding specific items, your calculations, and the applicable tax law (sections of legislation and/or case law).
1i. The trustworthy client of airline is rewarded with Flight Point and Reward by aviation corporations that is necessarily covered under the directives stipulated under the Taxation Ruling of TR 1999/6. In essence, taxation ruling as mentioned under TR 1999/6 states that points or incentives that are received by diverse clients from corporations operating in the airline industry are generally not considered under taxation as type of income (Braithwaite, 2017). Nevertheless, fringe benefits might possibly be executed on specific points and incentives in case if the following situations occur:-
- There is a specific association between the employer and the workers. Again, the points or incentive from the flight are in actual fact accepted by employees taking into consideration employment provision.
- The flight points otherwise rewards are offered to the worker for a certain specific deal (McGuire et al., 2014).
The firm Web jet’s recurrent flier compensation received by the employee for work associated travel shall be taxed neither as the Fringe Benefits nor as taxable earning.
ii. The individual from among the customer gets a payment for damage caused to the capital asset during the period of delivering service to the customer. Then in that case, the amount received as compensation for different damages caused cannot be evaluated under taxation. However, this is taxable under the recipient (McGuire et al., 2014). The significant points that can be taken into account include the following:
- The assets/resources can be treated as a capital need to be vigorously used in the business process of the recipient.
- The resources also need to be an asset that is essentially depreciable and anticipated depreciation can be examined for the resources presented in the records (Dowling, 2014).
- The compensation amount accepted can be used for refurbishing parts of the resources that are damaged
A certain amount of money is accepted for the caused damage by the Crane Hire Company from the clientele. In essence, this is not to be regarded under cases of taxation that is essentially not a taxable earning of the corporation provided that the above mentioned conditions are satisfied (Austin & Wilson, 2015).
iii. According to the Australian Taxation Office, gifts received in kind else wise in cash can be accepted by a particular individual but cannot be treated as an element of earning. This particular element of earning accepted is neither a part of non-exempted earning nor non-assessable earning. Essentially, small gift can be considered to be a certain category of a gift that is eliminated during the period of enumeration of income tax of the individual (Austin & Wilson, 2015). Nevertheless, in case of receipt of huge quantity of gifts that can transform into money, then that particular sum can be taken into account in the process of analysis by the recipient.
In this case, the supplier of alcohol has delivered the package of overseas holiday for free and that is received by the executive of the night club. However, this can be taken into account in the process of enumeration of income tax of the executive of the night club.
iv. The amount of money acquired by the Canoe Club for purchasing supplementary canoes was discovered to be an additional fund raised. However, this was necessarily returned to all the members of the Canoe Club. However, the additional fund that was acquired cannot be taken into account at the time of enumeration of the income tax. As such, this cannot be considered whilst recording of earnings. This is because this finance cannot be necessarily reflected as the earning in the alternative additional fund that is delivered by different members (Guenther et al., 2016).
v. Gains that are accepted by different sports individuals can be covered Taxation Stipulations TR 1999/17. However, according to the directives mentioned under this rule, any kind of gains or else sums accepted by sports individuals can be considered as an earning that is subject to taxation. Again, receipts cumulatively also becomes a part of total earnings (Guenther et al., 2016). However, in the present situation, the total amount accepted by the Australian football player from the television selling company can be considered as an income that is taxable according to the general notion.
vi. Fundamentally, reimbursement as well as allowance for construction employees can be mentioned under the Taxation directives as mentioned under TR 95/22 (Badertscher et al., 2013). According to the Taxation ruling mentioned under TR 95/22, employees working for the construction along with building business are necessarily composed of the below mentioned factors:
- Labours who are employed for building development
- Project Manager is engaged for the purpose of construction and development of building in addition to many other things
- Apprentice, carpenter as well as trainee (Armstrong et al., 2016).
- place such as construction sites where different supervisors operate
The expenditure is incurred with respect to aptitude for building of the workers is clearly illustrated as the compensation of the construction as well as building labourers along with different allowance (Bauer, 2016).
Vii. During the period of enumeration of income tax, consequential expenditure incurred for short time period considered from the context of an artiste can be sanctioned with deductions such as:-
Education of modules as well as software
Course fee for the particular term that is necessarily of short term period for the arts subject
Recommended meals for a specific expense amount
Cost of travelling that is drawn in for the specific course (Braithwaite, 2017).
However, the expenses specified above can be considered for deductions. However, this can be allowed in case if the expends are associated to the course of art administration and that too necessarily for a short period of time. Again, expends that occur but does not associate proportionately to the art management cannot be permitted for deduction for taxation (McGuire et al., 2014). Therefore, expends in the present state of affairs can be set for the deductions taking into consideration art management course that is a short term period course and expends carried out remains within the above specified range (Dowling, 2014).
viii. According to the laws of taxation, expenditure for dresses offered by the employer is not considered under the system of taxation. According to the Taxation Office of Australia art execution by artists can be considered as permissible deduction under the laws of the taxation (Austin & Wilson, 2015). As per the directives of taxation and grant permissible by particularly Taxation Office of Australia, performing artists are the ones as mentioned below:-
Performing artist refers to musicians
Performing artist refers to an actor
Performing artist refers to a singer
Performing artist refers to many other categories of artists
Performing artists also refers to performers at circus as well as dancers (Bauer, 2016).
However, in the present circumstances, expends can be related to dresses and make up of different performing artists. Then that particular expends can be permitted as a deduction in shaping the earnings that are taxable for performing artist (Armstrong et al., 2016).
ix. In general, travelling between home and place of work can be considered as travel for private causes. Nevertheless, there are particular provisions for deductions and the ones that are permissible assert for travelling expends. Again, in case if travelling is carried out only for official purpose and in case of partly for private and partly for official reasons, then expenditure components can be considered as travel only for official purpose. In this case, deductions that are permissible can be properly mentioned. However, in the present condition, it might better be comprehended that the travelling was carried out only for work purpose (Badertscher et al., 2013). Again, the expenditure that was incurred can be mentioned for deductions of tax determination.
x. In essence expends related to travelling between yet another employer and the particular employer. Nonetheless, in the current state of affairs, costs borne for the purpose of travelling between the two different employers can be taken into account else wise considered as permissible deduction (McGuire et al., 2014). However, this is mainly because claims for deductions cannot be claimed for travelling between diverse employers.
2. In a bid to verify the liability of tax of a specific individual, it is essential to settle on whether the specific individual is a resident or else a foreign resident for taxation purpose. Essentially, the provision of the law mentions that a particular overseas student who has enrolled in Australia for a period of over and above six months can be regarded as a resident for taxation purpose. Particularly, in the present scenario, it can be observed that Manpreet can be considered as an Australian resident for taxation purpose since the student is registered for a particular course in excess of six months in any Australian University. Additionally, this individual also operates in a specific office on a part time basis and receives a compensation of around $45000. This individual also had to acquire expenses for educational purpose and this is necessarily not permissible as deduction. Again, expends for self-education that is around $18000 cannot be permitted as deduction. Particularly, the law mentions that a particular individual can claim expends associated to self-education only in case if the study is associated to work otherwise if the individual has accepted scholarship of bond that is taxable as per law (Gallemore & Labro, 2015). Essentially, the course adopted for the purpose of self education need to have favourable interest with the present employment. In this case, it can be mentioned that the course need to satisfy the following conditions:-
- Enhance the requisite skills that is required by a specific individual in the present place of work
- The course can assist in the process of augmenting the overall earnings from the present employment (Dowling, 2014).
Thus, it can be hereby mentioned that a particular individual need not claim for different expends associated to self-education that does not have any association with present state of employment.
As per the section 8-1 mentioned particularly under Income Tax Assessment presents that an expenditure is permitted as deduction in case if there is ample association between expends and income generating actions. Again, expends that are private or domestic in nature is not permitted as deduction. Furthermore, a case presented on Ronpibon Tin NL v. FC of T (1949) backs the specific standpoint. This necessarily mentions that a particular outgoing can only be permitted as deduction of tax in case if the outgoing results in producing taxable earning (Braithwaite, 2017). However, there expends that are incurred for the purpose of self-education and cannot be permitted as a deduction.
In essence, there are also expends that are sustained by Manpreet on particularly computers as well as printers. Again, there are expends that are incurred for mobile phones that are in turn utilized for work associated purposes. Expends are normally deductible in case if there is adequate nexus between expends and income earning capability (McGuire et al., 2014). Again, obligatory character of expend is that it need not be associated to work but for domestic purposes. Again, the expenditure also can be incidental or else pertinent for generation of earnings. In addition to this, case of FC of T v. M I Roberts 92 ATC 4787 asserts that the court has permitted nine managers to subtract expends associated to MBA according to the standard mentioned in (Maddlena Braithwaite, 2017). Thus, it can be said that he can aver permissible deduction for principally the mobile phone. The enumeration is hereby mentioned below:
Armstrong, C., Glaeser, S., & Kepler, J. D. (2016). Strategic reactions in corporate tax avoidance.
Austin, C. R., & Wilson, R. J. (2015). Are Reputational Costs a Determinant of Tax Avoidance?.
Badertscher, B. A., Katz, S. P., & Rego, S. O. (2013). The separation of ownership and control and corporate tax avoidance. Journal of Accounting and Economics, 56(2), 228-250.
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Gallemore, J., & Labro, E. (2015). The importance of the internal information environment for tax avoidance. Journal of Accounting and Economics, 60(1), 149-167.
Guenther, D. A., Matsunaga, S. R., & Williams, B. M. (2016). Is tax avoidance related to firm risk?. The Accounting Review, 92(1), 115-136.
McGuire, S. T., Wang, D., & Wilson, R. J. (2014). Dual class ownership and tax avoidance. The Accounting Review, 89(4), 1487-1516.