ACC 3TAX Taxation

Prepare Janet Brown’s statement of taxable income and calculate her total tax liability (including Medicare Levy) for the year ending 30 June 2018. State all calculations and include explanatory notes and supporting schedules, applying legislation and case law.

Prepare a letter of advice on the tax consequences in relation to the legal fees and damages paid by Janet for the year ending 30 June 2018.

Write a short explanatory note to BMA explaining any tax liabilities that may arise in connection with the provision of benefits to Janet Brown. State relevant calculations and applicable legislation.

Refer to the letter from Janet Brown I wish to say that this part of question requires us to calculate tax payable amount as per the requirement set in place by the Tax Law in Australia. Janet Brown tax payable amount is thus calculated by first considering all the revenue income generated in his course of business then subject it to correspondence allowable expenses as solved below.

Statement of Taxable the Income

For Janet Brown

For The Year Ending 30Th June 2018

Gross Income

           Revenue on renting house property (see note 5)                                          $25000                 

           Capital Gain on Telstra Shares Sale (see note 6)                                          $5000

           Gain on sales of dolls (see note 7)                                                               $17100

            Car Fringe Benefit (see note 3)                                                                   $25500    

            Less loss on capital sale of Orica Share                                                        (4000)                

Cumulative Gross Income=                                                                                     $68600

Less Allowable Expenses

Expense incurred on roof repair                                              $22000

 Expense incurred on Installation of new air condition             $4000   

Interest paid on the property loan acquired see note 6               $9000

Court Fees                                                                                 $25000

Damages                                                                                   $10000

Total Allowable Deductions=22000+9000+4000+25000+10000=                          ($70000)

Net Taxable Income Loss or Profit                       =$68600-$70000=                         ($(1400) 

Medicare Care Levy=2%*$68600=$1372

The person's income tax brackets outlined in the Australian Tax Office as shown below is what usable for Janet’s Taxation aspect;

0-$18,200        -     Nil

Janet is seen to make a loss of $1400 a figure that is far below the bracket range of 0-$18200 thus making her income gains not taxable at all because she has made a loss of $1400.                               

This loss made contributes to Janet failure not even being able to pay the expected Medicare levy of $1372 because there is no revenue at all.

As being noticed, I wish to state that Janet’s revenue in place is minimal on the income tax bracket threshold thus why the reason the value is as low as zero hence the only subjection of medical levy that she is entitled. This medical levy claim is according to the information given that she has never adjusted on anything relating to her private medical scheme. Janet is thus enjoying the following equality aspect of tax concept that tends to be fair on the person's income.

Note 1; any earnings or revenue generated must be imposed to tax as per the requirement of Australian Tax expectation. The law requires that all the deductible expenses relating to the revenue should net off the income thus giving a platform for any profit or loss as well as individual income be taxed. Janet case is classified as one of accounting for taxation of an individual income in lieu of respective fringe benefits.

Assessable Tax Income=Gross Earning Less Allowable Deductions.

Note 2; Medical Levy=2% Of Gross Income calculation only expect 2% of the gross income preserved for medical health service, this serves the great need of ensuring that there is partly contribution done by the taxpayer to cater for his or her private health care services. It has a minimum of the threshold of personal income of $27069 in Australia for those deemed young on employment basis and to those termed old in employment service or instead of earning more with the gross figure of $42806.With this cluster, we, therefore, classify Janet to be among the senior who make the total income of $68600.It is good to note that Medicare Levy is given propriety than even the tax liability to the extent that even in cases of persons making loss can forfeit the tax liability but pay Medicare as we see here in this case of Janet.

Note 3; the law allows persons to claim car fringe benefit but only to the extent in which the car used for business purposes. Janet total cost of the car benefit is 30000, but just 500 used for private purpose hence the other portioned, i.e., 30000 less 500 was what was utilized for business purpose thus showing the benefit to be 25500.If the vehicle entirely not used for business purpose, then car fringe benefit enjoyed partially or not at all.

Note 4; Janet Brown is an Australian tax resident citizen who bounded by all the regulation guiding calculation of income tax and liability as well as subjection for the income tax rates.

Note5; The rental revenue calculation is by multiplying monthly rent value of 2500 by the 10months period, i.e., from 1St Sep 2017 to  June 2018 hence total revenue is $25000, this tax, however, should be subjected to the interest loan used to generate revenue consequently,

Interest expense=3%*300000=9000, we are only considering part of the credit that was used to purchase the investment townhouse. The 100000 part portion of interest is not viewed because it has no relation to the rental property.

Note 6; Capital gained or lost on sale of shares at Telstara forms part of revenue;

    Sales proceeds on shares=$10000

    Less cost of the shares     = ($5000)

            Capital Gain or loss    $ 5000

            Capital loss on sale of Orica shares considered to as part of revenue

            Sales proceeds                            6000

            Purchase or cost proceeds      (10000)    

            Capital Loss                              (4000)

Note 7; Profits made on Sale of Russian Babushka Doll;

Cost per each doll =1000/5=$200

Price for three dolls therefore=$200*3=600

Sales proceeds for one doll is $5900

Sale Proceeds For 3dolls =$5900*3=17700

    Profit, therefore,   =17700 sales proceeds.

                                   = (600)    cost of 3dolls

                                    17100      Gain 

Mark, you I wish to state that all the notes above appended and calculation is in compliance with Australian Tax Office regulation and current state acts guiding accounting for income taxes as referred by Atkinson (2007.Pg 40).

Refer to the letter written by Janet Brown on 23rd August 2018 concerning the legal fees and damages paid; I at this moment wish to respond to Janet by saying that the Australian Tax Office ID 2001/27 has outlined when a legitimate expense is deductible and when not. It starts first by defining what a legal cost is incurred if it relates to employment revenue or property revenue or preferably relates to any course of action instead of employment or rental income activities of the taxpayer business. Section 8-1of the ITAA 1997, therefore, allows all the court expenses relating to the taxpayers business activities be considered for legal purposes however of the legal cost incurred by a private or domestic use.

Looking at the nature of the litigation placed against Janet Brown I wish to say that the expense was involving a yard that annexed to the rental property that was used to generate revenue for her. I first want to state that the expenditure incurred was therefore not for neither the domestic purpose nor capital need but rather for the sole purpose of the rental income. Going with the rulings of the case study of Herald and Weekly Times Ltd vs. Federal Commissioner of Taxation. That which ruled that all legal expenses incurred in income-producing activities should be considered for legitimate tax purpose defends Janet Brown’s concern on claiming the court fee of $25000 be net off her income, and this is why in part 1 have considered the litigation fee as part of the expense.

The tax law states that as long as the payment of damages made in piece-meal or lump sum form for tax purposes, the individual consideration made in the context of the suit. Both the defendant and the plaintiff are affected by the damages one as a plus the other a negative but again as stated earlier the case suit matters a lot. Australian Tax Office law says that as long as the damaged to a lawsuit involving physical injury, hence the injured is deemed intentional, and thus no persons are entitled to claim or consideration for revenue purposes, but if the suit involved damages on economic or structural nature, hence contra consideration occurs. The question thus we need to ask ourselves to know whether the damage worth tax consideration is what circumstance was the damage awarded, was it out of malice or ill intention as well as how does it relate to the activities generating income.

Janet Brown damage of 10000 dollars I wish to say it was for economic purpose whereby it is a damage loss paid to the plaintiff on the accusation of the claim that the rental property fence owned by Janet Brown that which has been seen generating $25000 revenue for ten months has harmed the yard. I thus say that Janet needs to claim for this damage mainly because in my thinking that by having the fence restructured it may be lower occupancy level of the rental property thus minimizing the rental revenue Squelch (2010.Pg 14). Either way just as the defendant is to recover the damage as part of his income likewise we expect Janet to claim for deductible allowance for the damage but only during that financial year incurred.

I conclude by informing Janet to proceed and claim for both the legal fees and damage expenses that she incurred in the case litigation of her fence trespassing the neighbors’ compound.

    There exist tax liability relating to the loss incurred in part A whereby Janet is expected to file a tax loss return on this loss and claim future set off when she makes the gain. On this she is therefore not expected to pay any tax liability in this FY June 2018, this thus set to be future deferred tax liability that awaits pre-settlement. The car benefits and interest expense on loan granted as the fringe benefit that is seen less the income applicable for tax purposes. All these together with the legal cost and damages are interest accorded to her to relieve her from the tax liability.

    The Australian Tax Office regulations outline the tax liability benefits that a taxpayer is entitled to and to what extent and going with the above two-part, i.e., part A and part B all the relevant treatment of different items in the context for tax purposes done under the law and typical scenario in the background. I otherwise wish to advise Janet to create provisions for litigation expenses and damages to secure normal operations of the business. Janet Brown is therefore entitled to account for all the benefits accorded to her by first ensuring that precise records of the receipts and invoices are kept as well as ensuring that though she has made a loss, she has file net tax loss or gain the return for compliance purposes.

References

Atkinson, A.B. and Leigh, A., 2007. The distribution of top incomes in Australia. Economic Record, 83(262), pp.247-261.

Squelch J. and Guthrie, R., 2010. The Australian legal framework for workplace bullying. Comp. Lab. L. & Pol'y J., 32, p.15.