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Mary Jackson is assumed to be an Australian resident and all her incomes, earned from direct or indirect sources within or outside Australia are assessable under Australian Taxation Act. Mary is an employee under Elite Retail and ordinary source of income is mainly the salary and other allowances, paid by her employee (Anthoine 2013).
Apart from the salary and allowances, her employee provides her other benefits also. Benefits, provided by the employee, are also taxable for the individual taxpayer. However, some of the benefits are not considered as assessable income and she can claim deductions against some of the deductions and allowances (Arthur 2016). The tax consequences of Mary Jackson for the salary, allowances and benefits, received by her, are discussed below:
1) The annual salary of Mary is fully taxable.
2) The expenses for transfer of furniture, paid by her employer, are taxable also. However, she cannot claim any deduction for the actual expenses, incurred for transferring the furniture (Baños-Caballero et al. 2014).
3) Elite Retail has given the laptop and mobile phone to Mary for work purpose. The costs of these items will not be considered as taxable for Sharon.
4) The telephone bill of Mary, paid by her employer, will be considered as fringe benefit for Mary and should be included in her taxable income. She can claim deduction for the 50% of the telephone bill, as 50% of the telephone usage was work related (Bull 2014).
5) The car was provided to Mary for work purpose. Therefore, it will not be considered for taxable income and any deductions will not be entitled to Mary for the car expenses also.
6) The allowance, received by Mary, for covering professional subscription is an assessable income. However, she can claim deduction for the actual payment, made for professional subscription (Burkhauser et al. 2015).
7) The loan, given at lower interest rate by the employer, is a fringe benefit. In this case, Mary has taken loan from her employer at lower rate. Therefore, the difference between the actual interest and interest, payable at benchmark rate, is assessable for taxation of Mary. However, she can claim deduction on the actual interest on the loan, as the loan was used for financing new property (Danis et al. 2014).
Being an employer, Elite Retails can claim deductions for the expenses, incurred for the employees and other benefits, provided to the employees (Headey et al. 2012). However, the expenses should be claim for deductions under different sections as per the nature of the expenses. The details of allowable deductions are discussed below:
1) Salaries & wages, paid by any employer, is deductible as work related expenses for taxation purpose. The company can claim deduction for Mary’s annual salary as work related expense from the taxable income (Taylor and Richardson 2012).
2) The expenses, paid by the company, for transfer of Mary’s Furniture is a living away from home allowance fringe benefit, which is paid to employees for the additional expenses, incurred in case of transfer. The company is entitled to claim this expense as a fringe benefit (Hung et al. 2013).
3) Expenses, incurred for entertainment, is not considered for deductions in case of the companies. However, in some scenarios, the companies can claim deduction for the entertainment expenses, incurred for clients, as entertainment fringe benefits (Tauringana and Adjapong Afrifa 2013). If Mary incurred the entertainment allowance entirely for the clients and fulfilled the conditions, required for entertainment fringe benefits, then, the company can claim deduction for such allowances (Jiang and Junmin 2015).
4) The costs of laptop and mobile phone provided to Mary, can be claimed by the company as work related expenses.
5) The phone bill, paid on behalf of Mary, is an expense payment fringe benefit. The company can claim this benefit fully.
6) The company can claim deduction against the expenses, incurred for the car, provided to the employee for her private or employment purpose. However, the company can claim for the operating or running expenses of the car only (Kiyotaki and Moore 2012). In the case study, no such expenses are mentioned. Hence, in this case, the company will be allowed deduction for the depreciation on the car as car expenses.
7) The allowance, paid to Mary for covering professional subscription, can be claimed as deduction under residual fringe benefit.
8) If the employer provides loan to employer at lower rate in comparison to benchmark interest rate, then it will be considered as loan fringe benefit. In this case, Elite Retail can claim deduction for the loan, provided to Mary also as loan fringe benefit (Taylor and Richardson 2013).
Scott is deemed a resident of Australia who is not involved in real estate trading. For this reason, the land and thee buildings are deemed his personal possession other than the trading stocks. The capital gain or loss generated from sale of Scott’s building, this is computed based on the below mentioned aspects:
The land was purchased before the date of 20 September 1985. For this reason, it can be considered to be a pre CGT asset as well as the land’s sale will remain exempted under the taxation regulations of CGT (Krever and Mellor 2016).
The building was constructed after the date 20 September 1985 and for the reason it must be considered as asset under post CGT asset. This will be computed based on the proportionate price of selling of just the building. Considering this, the building’s price of selling is deemed to be $320000 [$800000 x $60000/($60000+$90000)].
For the reason that the building was constructed before the year 20 September 1999, the building’s cost base might be determined in account to the indexation technique. Conversely, considering Scott as an individual it can be stated that he can be capable to apply discounted technique for computation of net CGT (Rognlie 2016). In this scenario, he must compute CGT under the two methods and chosen technique, this will result in decreased amount of tax.
In consideration to the aforementioned aspects, the net capital loss or gain on the rental property sale that is computed under:
Name of Taxpayer : Scott
Type : Individual
Calculation of Net Capital Gain/Loss
for the period ending on 30th June,2016
a) Sale of Holiday Home :
Less : Cost Base of the Property
Capital Gain on Sale
Less : 50% Exemption on Capital Gain
Taxable Capital Gain (A)
Considering the above table, it is observed that Fred needs to pay decreased tax if he implements discounted technique. For this reason, the net capital gain of Fred’s rental property sales for the recent year s observed to be $130000.
In case Scott decides to sell its property at a decreased price to his daughter, then the consideration of the sales for the purpose of taxation will be realized based on the acquired property’s value within market. Considering that, the property was decided to be sold at an auction, for this reason, the selling price on auction can be observed to remain under the building’s market price (Plummer 2016). In such scenario, the property sale’s net capital profit to his daughter will remain identical as above.
Anthoine, R. ed., 2013. Tax incentives for private investment in developing countries. Springer Science & Business Media.
Arthur, G., 2016. Tax files: Taxation duties of executors. Bulletin (Law Society of South Australia), 38(2), p.28.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.
Bull, R.J., 2014. Accounting in business. Butterworth-Heinemann.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Danis, A., Rettl, D.A. and Whited, T.M., 2014. Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), pp.424-443.
Headey, B., Krause, P., Wagner, G. and Joint, O.E.C.D., 2012. Poverty redefined as low consumption and low wealth, not just low income: psychological consequences in Australia and Germany. Counting the Poor. New Thinking about European Poverty Measures and Lessons for the United States. International Policy Exchange Series. Oxford.[im Erscheinen].
Hung, W.S., Chen, H.C., Chung, Y.C., Li, R.K. and Tsai, C.H., 2013. Application of Profit Level Analysis to Verify Product Mix Impacts on Net Profit Changes. International Journal of Academic Research in Economics and Management Sciences, 2(1), p.224.
JIANG, X. and Junmin, W.U., 2015. Discussion on the Difference Between the Business Model and Profit Model. International Business and Management, 10(2), pp.16-21.
Kiyotaki, N. and Moore, J., 2012. Liquidity, business cycles, and monetary policy (No. w17934). National Bureau of Economic Research.
Krever, R. and Mellor, P., 2016. Australia, GAARs–A Key Element of Tax Systems in the Post-BEPS Tax World. GAARs–A Key Element of Tax Systems in the Post-BEPS Tax World (Amsterdam: IBFD, 2016), pp.45-64.
Plummer, W., 2016. Tax consolidation update: Still grappling with these rules?. Tax Specialist, 19(5), p.209.
Rognlie, M., 2016. Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?. Brookings papers on economic activity, 2015(1), pp.1-69.
Tauringana, V. and Adjapong Afrifa, G., 2013. The relative importance of working capital management and its components to SMEs' profitability.Journal of Small Business and Enterprise Development, 20(3), pp.453-469.
Taylor, G. and Richardson, G., 2012. International corporate tax avoidance practices: evidence from Australian firms. The International Journal of Accounting, 47(4), pp.469-496.
Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.
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