Taxable Income Computation For Dale Teal And Residency Determination For Amity
Part 1: Computation of Taxable Income for Dale Teal
Computation of Taxable Income
Taxpayer: Dale Teal
For the year ended 2017/18
| Particulars | Amount |
| Profit (Working Note 1) | $109,838.00 |
| Salary | $85,000.00 |
| Interest Income | $2,180.00 |
| Dividend Income Partially franked | $3,325.00 |
| Dividend Income Unfranked | $4,000.00 |
| Net Capital Gains Income (Working Note 2) | $169,245.00 |
| Total Income | $373,588.00 |
| Deduction for Income Insurance | $7,390.00 |
| Taxable Income | $366,198.00 |
Computation of Taxable
IncomeTaxpayer: Dale Tale
| Particulars | Sections | Notes | Amount |
| Cash receipts from sale of trading stock for the year |
Section 6-5 of the ITAA 1997 |
$110,000.00 | |
| Cash receipts from holistic health services |
Section 6-5 of the ITAA 1998 |
$100,000.00 | |
| Invoices issued but not paid |
Section 6-5 of the ITAA 1999 |
$12,000.00 | |
|
Total Revenues |
$222,000.00 | ||
| Cost of goods sold | Section 8-1 of the ITAA 1997 | General Deduction | $7,500.00 |
| Wages paid to part time staff | Section 8-1 of the ITAA 1997 | General Deduction | $56,112.00 |
| Rent expenses paid | Section 8-1 of the ITAA 1997 | General Deduction | $15,600.00 |
| Legal expenses incurred in renewing the lease | Section 8-1 of the ITAA 1997 | General Deduction | $1,750.00 |
|
Superannuation Guarantee paid for all employees |
Subdivision 290-B of the ITAA |
Specific Deduction |
$5,190.00 |
| Tax Agent’s Fees | Section 25-5 of the ITAA 1997 | Specific Deduction | $650.00 |
| Bank/Merchant Fees | Section 8-1 of the ITAA 1997 | General Deduction | $700.00 |
| Business Insurance (continuity insurance) | Section 8-1 of the ITAA 1997 | General Deduction | $2,950.00 |
| Business Phone | Section 8-1 of the ITAA 1997 | General Deduction | $1,780.00 |
| Home phone for business | Section 8-1 of the ITAA 1997 | General Deduction | $660.00 |
| Scented oils etc used up | Section 8-1 of the ITAA 1997 | General Deduction | $11,150.00 |
| Electricity | Section 8-1 of the ITAA 1997 | General Deduction | $4,000.00 |
| Postage, printing & stationery | Section 8-1 of the ITAA 1997 | General Deduction | $1,600.00 |
| Interest on loan | Section 25-25 of the ITAA 1997 | Specific Deduction | $2,520.00 |
|
Total Expenses |
$112,162.00 | ||
| Profit | $109,838.00 |
| Particulars | Amount |
| Capital Gain on rental property | $160,000.00 |
| Capital Gain on Stamp | $24,995.00 |
| Capital Loss on Boat | -$8,500.00 |
| Capital Loss on shares | -$8,000.00 |
| Capital Gain on shares | $750.00 |
| Net Capital Gains | $169,245.00 |
| Particulars | Amount |
| PAYG Withholdings from Salary | $14,200.00 |
| PAYG Installments paid | $34,000.00 |
| Total PAYG Payments | $48,200.00 |
To: Dale Teal
From: XYZ Tax Consultant
Dear Dale,
We would like to draw your kind attention towards the statement of advice by stating that we are preparing the tax return for the financial year ended 2017-18 based on the information that is provided by you from your sole trading business and from the receipt of salary. As evident the total amount of taxable income from business combined with your salary income stands $366,198. We have prepared the following notes after viewing your transactions which is stated below;
- The transaction standing $15,700 that received in advance is considered for taxation purpose based on the assumption that the taxpayer follows the accrual accounting method. It is assumed that the sum of $15,700 has not been earned yet and no liability of taxation arises. The assumption is based on the regardless of the circumstance that cash has be received.
- “Section 8-1 of the ITAA 1997” explains that a taxpayer is allowed to claim for the deductions from their taxable income for the losses or outgoings up to the extent that it is earned in gaining or generating their assessable income (Barkoczy 2014). Alternatively, the expenses are incurred is necessarily occurred in execution of business with the objective of gaining taxable income. The business expenses reported by you is directly associated or incurred in producing the assessable income. Therefore, all the expenses will be allowed for deduction.
- A taxpayer is allowed to claim to deduction for business related expenses that is incurred for home phone bill (Robin 2017). Similarly, you can claim deduction 55% of the home phone bill expenses since it was incurred for business purpose.
- Life insurance premium would not be allowed as deduction however premium paid for business insurance would be quality for allowable deduction.
- The capital gains reported by you is net amount following the deduction of the capital loss and then net amount is included into your taxable income.
We hope that the statement of advice has been able to meet your anticipation and have provided a clear understanding of the amount that would be included and deducted from your taxable income. We look forward to serve you in future again.
Thank You
According to the definition stated under “section 995-1 of the ITAA 1936” the resident of Australia or the Australian residents includes the person apart from company that resides in Australia and includes the person that has the domicile in Australia, except when the commissioner is content that the permanent place of abode is out of Australia (Braithwaite 2017). Additionally, a person is held as Australian resident if the person has actually been present in Australia either on constant basis or in breaks for no less than six months of an income year (Coleman and Sadiq 2013).
The present case study of Amity is based of determining the residential status who was sent to Kiribati to help the government in designing and applying the new system of VAT. The placement was however for two years and that can be extended to three years. The “taxation ruling of IT 2650” the commissioner views that whether the person has the permanent place of abode out of Australia (Grange, Jover-Ledesma and Maydew 2014). According to the “Domicile Test 1982” a person acquires the domicile of his or her origin or by the country of their choice. The court of law in “FCT v Applegate (1979)” held that the permanent does not represent everlasting and the objectivity is assessed every year (James 2013). The domicile test explains that the intended and the actual length of a person’s stay in the overseas nation can be substantial such as the period of 2 years or more.
Part 2: Residency Determination for Amity
The commissioner also views the establishment of home outside Australia or abandonment of any resident that a person has in Australia (Jover-Ledesma 2015). The duration and continuity of a person’s stay in foreign nation contributes in the determination of the Domicile Test. Similarly, in the situation of Amity it explains that she bought a house in Kiribati and affirms that she established a home out of Australia (Kenny 2013). The duration and the continuity of Amity presence in overseas nation is also substantial.
The 183 days’ test explains that person will be treated as the resident of Australia under this test if the person has been present in Australia either on continuous basis or in intermittently for no less than one half of the income year (Krever 2013). An exception to this case is that a person is no held as Australian resident if the person does not intend to take up the residence in Australia or the commissioner is satisfied that the usual place abode is out of Australia.
As evident from the above stated two test Amity during the year 2016 moved to Kiribati for a period of two years. The term of employment mandated her to stay in Kiribati for a period of two years with the exercisable time of another 3 years. Furthermore, she also opened her bank account in Asia-Pacific Bank which required her salary to be paid. Despite the couple went out of Australia to stay in the overseas nation with the original intention of staying for 2 years they had to return following the unforeseen circumstances (Sadiq 2014). The taxpayer formed the original intention of living or residing outside of Australia for an indefinite period without the intention of returning in Australia during the foreseeable future. Referring to the case of “FCT v Applegate (1979)” it is important to determine whether Amity’s intention was to abandoned any of residence of the place of abode that she had in Australia (Woellner 2013).
As understood that Amity went out of Australia to reside for 2 years and stay permanently if things went well. This establishes that she does not has intention of having the permanent place of abode outside Australia (Woellner et al. 2014). Therefore, Amity does not qualify under the Domicile Test and the 183 days’ test to be held as the Australian a resident for year 2017. Hence, Amity will not be considered as the Australian resident for taxation purpose.
Reference List:
Barkoczy, S. 2014. Foundations of taxation law
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Coleman, C. and Sadiq, K. 2013. Principles of taxation law.
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. principles of business taxation.
James, S. 2013. The economics of taxation.
Jover-Ledesma, G. 2015. Principles of business taxation 2015. [Place of publication not identified]: Cch Incorporated.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Robin, H, 2017. Australian taxation law 2017. Oxford University Press.
Sadiq, K. 2014. Principles of taxation law 2014.
Woellner, R. 2013. Australian taxation law select 2013. North Ryde, N.S.W.: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation law select 2014.