ACC3TAX Taxation
Assessment criteria: Assignments will be assessed against the SILOs for the assessment. In particular, assignments will be assessed based on objective demonstration of the following:
1) Acting as a team, engagement of critical thinking and interpretation skills to correctly identify the issues to be analysed in the case study.
2) Application of critical thinking, interpretation and analytical skills to develop a meaningful analysis of the issue(s) previously identified, with detailed and analytical application of tax concepts, tax principles, legislation and case law. Mere citation, transcription or repetition of theory, concepts, legislation and case law without proper application will not attract any marks.
3) Correct application of tax concepts and case law principles to calculate tax liability (if required). Calculations must be fully stated and supported by applicable legislation and case law (where case law is required).
4) Elaboration of a solution to the issues presented in the case study, referring to the elements analysed and concluding the case. Applying the relevant legislation, identify and discuss the tax implications related to the sale of Brent Wilson’s house, and calculate any net capital gain which may arise thereof.
2) Applying legislation and case law, advise Brent Wilson on whether he could claim a deduction in relation to the legal fees incurred in May 2019.
3) Considering the information provided by Brent Wilson as well as your answer to items 1 and 2 above, prepare Brent Wilson’s statement of taxable income and calculate his final tax liability including Medicare Levy for the year ending 30 June 2019, stating the applicable legislation and case law (note: calculation of private health insurance rebate not required).
Answer:
Answer to question 1:
As defined under the “section 108-5 of the ITAA 1997” the CGT asset can be defined as any kind of property or the lawful equitable rights that cannot be characterised as the property. The land and buildings are also regarded as the CGT assets under “section 108-5 of the ITAA 1997”. According to the “section 104-10 (1) of the ITAA 1997” a CGT event A1 happens when there is a disposal of the CGT asset. It is necessary that the time of the CGT asset event such as when an individual taxpayer enters into the transaction for disposing the asset.
As defined by the Australian taxation office an individual’s house is usually exempted from the capital gains tax. However, the taxpayer obtains the entire main residence exemption if the taxpayer uses any part of the dwelling for generating the income such as renting out the room or running the business (Jover-Ledesma, 2014). For a taxpayer to determine the capital gains they need to know the market value of the house when the used is used for generating income.
The main residence exemption is usually applied to the taxpayer when the dwelling qualifies as the main residence. If the taxpayer owns two or more dwellings it becomes obligatory to ascertain whether the dwelling is the main residence for the taxpayer and hence eligible for the main residence. Whether the dwelling forms the main residence of the taxpayer it is necessary to determine the matter of fact.
According to the Australian taxation office to determine the proportion of the capital gains or loss which is taxable as the amount that reasonably having the regard up to the extent to which the owner have been using the land to deduct the amount of money borrowed to purchase the property. If the taxpayer began using the main residence for generating the income the taxpayer is generally taken to have acquired the asset till the time when the home is first used to generate income.
The Australian taxation office defines that the capital gains or loss which is taxable represents the amount that reasonably have the regard up to the extent to which the taxpayer has been able to deduct the interest on the money that is borrowed to purchase the house (Woellner, 2013). In majority of the cases the proportion of the area of floor or the home is set aside for generating the taxable income and period the taxpayer has used the home to generate income.
Wilson used 10 square metres out of his 200 square meters’ house for running his private consultancy. Therefore, the proportion of house that was used by Brent for generating the taxable income stands 5% of the total floor area. Therefore, the capital gains is calculated below;
|
Calculations of Net Capital Gains | ||
|
In the books of Brent Wilson | ||
|
For the year ended 2019 | ||
|
Particulars |
Amount ($) |
Amount ($) |
|
Proceeds |
1000000 | |
|
Cost Base |
400000 | |
|
Add: Stamp Duty |
20000 | |
|
Add: Conveyance fees |
8000 | |
|
Total Cost Base |
428000 | |
|
Net Capital gains |
572000 | |
|
Assessable Portion (572000 x 5%) |
28600 | |
|
(Capital gains x percentage of floor area) = Assessable Portion | ||
|
50% CGT Discount |
14300 | |
Answer to question 3:
|
Calculations of Taxable Income | ||
|
In the books of Brent Wilson | ||
|
For the year ended 2019 | ||
|
Particulars |
Amount ($) |
Amount ($) |
|
Assessable Income | ||
|
Gross Payment |
1,20,000 | |
|
Add: Total Allowances |
3000 | |
|
Receipt from patient fees |
12000 | |
|
Total Assessable Income | ||
|
Net capital gain on disposal of property | ||
|
Proceeds |
1000000 | |
|
Cost Base |
400000 | |
|
Add: Stamp Duty |
20000 | |
|
Add: Conveyance fees |
8000 | |
|
Total Cost Base |
428000 | |
|
Gross Capital gains |
572000 | |
|
Assessable Portion (572000 x 5%) |
28600 | |
|
(Capital gains x percentage of floor area) = Assessable Portion | ||
|
50% CGT Discount |
14300 | |
|
Total Assessable Income |
1,49,300 | |
|
Allowable Deductions | ||
|
Subscriptions costs |
1500 | |
|
Cleaning cost |
400 | |
|
Total Allowable deductions |
1900 | |
|
Total Taxable Income |
1,47,400 | |
|
Medicare Levy |
2948 | |
|
Tax on taxable income |
42170 | |
|
Total tax payable |
45118 | |
References:
Jover-Ledesma, G. (2014). 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.
Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
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