Taxation Law Assignment PDF

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Taxation Law: Research Assignment Is Megs salary considered as assessable income? Stated within s6-5(1) ITAA97 income derived from personal exertion whereby there must be sufficient connection between amount received and personal exertion. As Meg works full time there is a sufficient nexus found between the $90,000 salary and her personal exertion in her role as an interior design consultant. Are the Briefcase and set of design tools considered a fringe benefit? CreativeCo Ltd gave Meg a leather briefcase valued at $500 and a set of design tools worth $200. Under s136, FBTAA a fringe benefit is a benefit provided during the year of tax from the employer to the employee in respect of employment. The design tools and briefcase do meet this definition however under s5E(3) FBTAA86 excluded fringe benefits include things such as salary, taxi travel and work related items. Since both these items are related to Megs occupation they are excluded fringe benefits. Additionally, under s23L(1A) ITAA36 exempt benefits are exempt income to the employee. Meaning these items are exempt, thus will not be part of Megs assessable income. Can Meg claim a deduction on the expenses incurred as a result of using a home office? CreativeCo Ltd. does not provide Meg with an office space, so has used a spare room as her home office. As stated in Tax Ruling 93/30, where the home office is a place of business, a portion of occupancy and running expenses may be deductable. Additionally, the tax ruling states that if the home office is only being used out of convenience, it may not be deductable. Since Meg was not provided with an office space, her home office is the base of occupation, thus a relevant proportion of expenses may be deducted. This mirrors the Swinford v FCT case, where a self-employed script writer allocated a room in the flat to only writing, hence was entitled to deductions on a portion of the rent. As can be seen below, the portion of expenses that Meg can receive a deduction is $9,600. Deductable Portion: ($30,000 + $3,000) x 20% + $2,000 + $1,000 = $9,600 Can Meg claim a deduction on her subscriptions to Interior Design Journals and her membership to the Interior Design Association? Meg pays a $700 membership fee to the Interior Designers Association of Australia and $500 for a subscription to Interior design Journals. Under s25-55 you can deduct a payment made to become a member of an association, however this is limited to only $42. Alternatively, this expense could be deducted under s8-1, whereby it satisfies the first positive limb, since it incurred in gaining/producing her assessable income. Hence, Meg is able to claim deductions on these expenses. Is Meg able to claim a deduction on the purchase of new equipment for her home office? Meg purchased a new piece of equipment costing $12,000 for her home office. Under s40-30, this item is a depreciating asset or an asset with a limited life and will most likely depreciate over time. Stated in s40-25(1) an entity is able to claim a deduction to the amount that the asset has declined in value throughout the year. Additionally, under s40-25(2) the deduction can only be claimed due to the proportion of value lost solely from the taxable purpose of the asset. Meg uses the design equipment exclusively for her design work hence entitled to a deduction equal to the depreciation. This value can be calculated using the prime cost method detailed in s40-75(1), and can be seen below.

Depreciation: $12,000 x 334/365 x 100%/4 = $2,745.21 Thus Meg is able to claim a deduction equal to the value of $2,745.21. Is Meg able to claim a deduction on the purchase of a lamp for her home office? Meg purchased a lamp for her home office of value $300. As previously discussed Meg does qualify for deductions as she solely uses her home office for her work. As stated in Tax Ruling 93/30, the tax payer is generally entitled to deduction on occupancy and running expenses. Running expenses include things such as computers, printers, furniture and furnishing. For these expenses the taxpayer is able to claim deductions for the full cost of items up to the value of $300. Hence, Meg would be able to claim the full cost of the lamp. Can Meg claim a deduction on her self-education expenses? Under s8-1Megs $6,000 coarse fees and $700 spent on textbooks are not deductable. As stated within the legislation self-education expenses are only deductable when it is used for enhancing the taxpayer’s skills in the occupation they are currently doing. Megs main occupation is an interior designer, and it is stated that she hopes to move into a management role away from interior design with the help of the management coarse. This concept is evident in case of FCT v Studdert, where a flight engineer was permitted by the court to claim deduction on the costs of flight lessons as it would enhance his skills in his current job. Hence Meg will not receive deductions as the self-education is not in the field of her main occupation. Can Meg claim a deduction on the costs of travel to clients houses? Meg incurs $4,000 worth of expenses from travelling from her home to clients premises then returning home. This is similar to the case of FCT v Payne, in which the court denied a taxpayer deduction on the cost of travel between his home where he ran a deer farming business and the airport where he worked as a pilot. The legislative response to this case was in s25-100 ITAA97 which allows for deductions for the cost of travel between two places where income earning activities take place, and neither place can be the taxpayers home. Hence, Meg will not be able to claim any deductions on the cost of travel since her base operation is her home. Can Meg claim a deduction on the costs work clothing when meeting clients? Meg is required to wear black clothing when meeting clients and in turn spends $700 during the year on black clothing. Under s8-1 the costs involved in acquiring ordinary items of clothing are generally not deductable unless they distinctly identify the taxpayer with the employer. As found in the case of Mansfield v FCT, usually ordinary clothing will not be deductable, notwithstanding that the expenditure is a necessity in a particular profession. In the Mansfield case, a flight attendant was allowed to claim deduction on the costs of shoes and stockings which were necessary for her profession. Hence, Meg will not be able to claim any deductions on the costs of clothing since they are not distinctive to her employer. (ATO SOURCE) Is Meg able to claim a rental loss/gain in her tax return? Meg rents out her rental property during the year receiving $25,000 in rent, however she also accumulates $28,550 in expenses. Under s8-1, these rental expenses can be deducted as it satisfies the first positive limb, in that it was incurred in procuring assessable income. Hence allowing for the rental loss/gain to be calculated as seen below.

Rent Received: $25,000 Rental Deductions: $2,000 + $1,550 + $25,000 = $28,550 Rental Loss = ($3,550) Meg is able to claim a rental loss of $3,550 in her tax return for the financial year. If Meg keeps track of other expenses for the rental property, as if she later decides to sell the property, the portion of expenses she is not able to claim a deduction on are taken into account in her capital gain. Can Meg Claim a deduction on the cost or repairs to the pool in her investment property? The pool of Megs investment property is damaged and required repairs, consequently Meg paid $10,000 to her brother to fix the damage. Under s25-10, you are able to deduct expenditure you incur for repairs to the premises that is held or used only for the purpose of producing assessable income. Hence Meg would be able to claim a deduction, however the market rate for the work done is only $3000. This is similar to the case of Ure v FCT (1981) 11 ATR 484, whereby the taxpayer borrowed money at a commercial rate then on lent the money at a much lower rate to his family business. The court determined that the taxpayer would only receive deduction for the portion that he incurred. Hence, Meg would only receive a deduction on the market rate of $3000. Is the sale of the Antique Bed set considered part of Megs taxable income? Meg purchased an antique bed set for $1550, for which the total price was apportioned between each piece. This was in order to obtain the exemption under s118-10(1)(2) whereby the taxpayer can disregard any gain/loss made from collectables purchased for less than $500. However, under s108-10 where items are a set and are not disposed of in a set, the exemption will not apply. Hence, Meg will not be entitled to the exemption and must account for the capital gain of $1,425, as worked out below. Cost Base: $450 + $350 + $350 + $400 = $1550 Capital Gain = Capital Proceeds – Cost Base Capital Gain = $4400 – $1550 = $2850 Apply 50% discount Capital Gain = $2850 x 50% = $1425...