Taxation Law Case Study and Some Calculation

Sophia has incurred following transactions during the year. She wants to know the deductions that are allowed for capital gains and the capital gain consequences over the transaction incurred during the year on sale and disposal of various assets.

Capital Gain

Capital gain occurs when a asset is disposes at price higher than the actual cost of purchase. It is not separate tax and is charged with the assessable income of individual. Tax laws provides detailed  provisions about the capital gain tax consequences . It is covered by the ITAA 1997. Get Assignment Examples.Talk to our Experts!

According to Section 104 of ITAA 1997,  Sale of land by Sophia will be attracting capital gain consequences as the land is sold at rate higher than the cost of acquisition that is $130000. Taxation office has provided that the cost base includes the stamp duty and legal fees. Expenses related to the council rates, insurance and interest will not be forming part of tax as they are incurred before August 1991. She incurred the expenses for removing the pine trees from land, this can be claimed as deductions as they are incurred for selling the land. Also she incurred expense of $25000 for advertisement, agent and legal fees (Capital Gains Tax, 2019). This will be allowed for deductions as they are related to disposal of property. 

She sold the shares purchased in 1983 of ABC at $ 1.5 for $ 32.30. She purchased 2000 shares of the company. The brokerage expense can be claimed as cost for sale for reducing the capital gain incurred on sale of shares as per Subdivision 104 – G- Shares of ITAA, 1997. Tax department states, shares bought before 20^th September 1985 are exempt from capital gain tax.  As shares were purchased in 1983 Sophia is not require to pay any tax on sale of shares. Brokerage is allowed to be used for reducing the profits. Taxation law has stated that full deduction can be claimed by Sophia on shares. Order assignment help from our experts!

Section 10.225 of ITAA, 1997 in  Taxation law provides that the collectables are exempts on satisfying certain specific conditions. The purchase of stamps by Sophia from private collector would account as collectables. Taxation law states collectables purchased for less than $500 are exempt from the capital gain tax. Sophia is not a private dealer of stamps and has purchased the stamps due to personal interests. However she sold the stamps at an auction for $23000 and $300 were related to sale at auction. Stamps were held by Sophia for less than 12 months. The transaction will be resulting in short term capital loss as the sale proceeds are less than the amount incurred for purchase of it (Exemptions and deductions, 2019). Also the capital loss from collectables can be claimed only against capital-gains from collectables and not on other capita gains.

Personal use assets are exempt from the capital gain tax. Personal use assets are specifically provided in the exemptions lists given by the taxation office. It has been given that Sophia  purchased the guitar of Bob Marley. It is incurred for her personal use or entertainment and nor for generating any assessable income. Exemptions are available on satisfying certain specific conditions given. It has been provided under tax laws that only those personal use assets are exempt from capital gain tax that are purchased for less than $10000. In the present case Guitar has been purchased for $70000 above the threshold limits and is sold for $45000. She has incurred loss of $25000 but  is not allowed to be claimed against any other capital gains according to section 108.20 of ITAA, 1997. Therefore  the sale of guitar is taxable CGT event. 

Ava has completed her medical degree and has joined Sunshine hospital for work. She wants to know the assessable income for the year. She had the following outgoings for the year and has approached David for knowing the deductions she could claim. Deductions are allowable or not depends on the nature of transactions. There are two types of expenses one is related to the work and the other is related with the private or domestic purpose.

Tax consequences on the following outgoings incurred during the year.

Travel expenses for the job interview are incurred to have the employment. The expense cannot be said to have incurred for work as by the time of going for interview she was not employed in the hospital. Expenses that are incurred for searching the jobs and all other related expenses are  not related to the work. All theses expenses are considered as the expenses incurred for personal purpose. Section 900.30 of ITAA, 1997 provides that deductions could be claimed for only those expenses that are related to the works and travel expense for reaching the office are not related to the work there fore they are not deductible. 

As Ava is home in Darwin she has to shift in Victoria where the sunshine hospital is situated. She has shifted all the house  holdings and belongings to his place in Sunshine. She has incurred shifting charges of $ 1800 for doing job in Sunshine. Shifting was made because of her employment in Victoria(Braithwaite, 2017). Arguments can be raised that shifting expenses are related to the work as they are made for doing employment. But these arguments cannot be entertained as the expenses were not incurred for generating any assessable income as per Section 118.140 ITAA, 1997. These are not related to the work but for her personal living. Therefore the expenses of $ 1800 are not deductible in the tax return.

Ava paid $200 for uniform that is required to be worn by doctors working in the hospital. Taxation office  provides that deductions can be claimed for cost of buying & cleaning of occupation specific clothings, protective and unique clothing and distinctive uniforms. For claiming the deductions Ava is required to have written evidence for purchase of the uniform or clothing as per Section 900.40 of ITAA, 1997. Deductions can be claimed if amount claimed is greater than $150 and total work related expenses are more than $300. In the present case she has incurred expense of $200 that is more than the threshold and aggregate work related if exceeds $300 than she will  be able to claim deduction for uniform. Most important she is required to present the receipt of purchase for the occupation specific uniform(Tian, 2018).

Tax law provides that the deductions could be claimed for work related expenses. The deductions are not available for the expenditures incurred for upbringing of children. In this taxation office has specifically provided that childcare expenses incurred are not tax deductible. These are considered as private expenses and not related to the work(Barrett, 2018). However tax department  also provides that tax relief is provided for employer paid childcare expenses. So, the childcare expenses of $18200 are not allowed as deduction from the income tax return of individual.

Ava has incurred cost of $ 200 for her telephone bill. The bill is relate to the phone calls made for attending the patients. Phone calls are made from her home phone and the bill is paid by her. She is not reimbursed for the phone calls made for attending patients. Tax law provides that the expenses that are related to their work are allowed for deduction. She is employed as doctor in the hospital and she is required to attend patients on call. This is part of her employment duty and it is not incurred for her personal purpose. The telephone bill of $200 is allowed for deduction to Ava. However if expense is partly related to attending patients and partly for the  personal purpose than expenses that are related with the work are only allowed for deduction.Struggling with your dissertation, get our phd dissertation help at best prices.

Ava during her employment incurred expense of $570 for purchasing the food from cafe bar. Food was purchased for working in the night shifts. Taxation office provides that food purchased during the employments is considered as private expense. This is not related to the work though incurred during the work(Basu, 2016). She purchased the food for her personal living and not for producing any assessable income. Cost of meals during the normal working day are considered as private expenses and no deduction is available for the same. However deduction can be claimed by employer for the meals provided to employees as per Section 900.60 of ITAA 1997. Therefore the food expenses of $ 570 are not tax deductible for the income tax purposes. (Deduction for food. 2019.)

Ava paid fine of $207 for speeding up when she was was running late in an emergency visit at sunshine hospital. The speeding was made for attending the patients. Though she speeded for work related emergency it has been specifically provided by the tax department that deductions cannot be claimed for fines and penalties. Taxation office states that fines and penalties are the punishments imposed by government for maintaining law and order and deductions will affect the governance. Therefore the fine for speeding cannot be claimed as deduction in the tax return.

Travel expense of $330 for from and to work are incurred by Ava. Tax department provides for the expenses incurred for travelling from work to home. Deductions are available in certain situation when travelling between home and the regular workplace as per section 15.70 of ITAA 1997. General tax rule states that deductions are not allowed for travel from workplace to home or vice versa. These are considered as private expense  under the tax laws(van Brederode, 2019). Deductions are allowed for the  travelling expenses between two alternate workplaces. In the present case expense are incurred only for travelling between home and regular workplace (Travelling deductions, 2019).

As per the provisions of ITAA 1936 and 1997 and guidelines provided by the taxation department above deductions can be claimed by Aava in her tax returns.

Conclusion

From  the above research it has been conclude that every individual resident of Australia whose earnings from all the sources are above the threshold limits are required to file income tax returns with taxation department. Tax returns for spouse are to be filed separately as joint filing is not allowed in Australia. Income tax act provides complete provisions in relation to all the income earned by individuals. For simplifying the process taxation office provides guidelines on most of the transactions that are to be reported in the tax returns. Individual should check the capital gain tax on the sale or disposal of assets. They have to be reporting in the tax returns. There is no set-off for capital loss against the capital gains. Sophia in the tax returns will be required to pay the capital gain tax on the transactions incurred during the year. On the other hand tax laws also provide for the deductions that are applicable to the individuals. Deductions helps the individuals in reducing their tax liability. Deductions on earnings are only available for work related expenses it is not available for the domestic or private purposes. Ava will be provided with only those deductions that are incurred related to her work or employment.

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