Australian Taxation Law

Australian Taxation Law

Question One

  1. Income to the owner of a corner store is classified as Personal income under the Australia tax law. This is because it came to the tax payer, and cheque is convertible to money. $200 gain made by the shopkeeper after accepting to cash a cheque from Paul made out for $2,000 and post-dated for 6 months for $1800, will be imposed on the Shopkeeper’s personal income on a progressive basis. Given that the shopkeeper is the sole owner of the corner store, the amount will be added to his other incomes to get the income level that qualifies him to be taxed at a particular rate as it is dictated by the taxation table and therefore it is an income in the tax payers hand as held in Federal Coke v FTC 1997.
  2. The sub-division and later sell of land, which give peter more returns on the bought old the Strand. The gain made by selling the land will be subject to capital gain tax. In this regard the gains made on the sale of the land will be treated as taxable income under the taxation laws in the tax year that the asset will be sold. Given that Peter has held the property for more than one year (since 2005) any gain that will be made will be discounted by 50% given that this is individual tax payer. If Peter short sells the asset it will be considered under the ordinary (assessable) income as opposed to capital gain
  3. By withdrawing the agency from Bruce service station, Wynns deprives Peter the right to compensation and gaining from the agency business. As such, the $10000 paid to Peter will be considered under capital gain. In this case the capital gain will be the difference between the total amounts compensated ($10000) and the incidental cost. Medical expenses reimbursement by the insurance company are not assessable for tax poses under the Australian tax law. Howver, the compensation Peter got from the insurance company relating to the 6 weeks he was unable to work, will be assessable under the income tax. As such the assessable taxable amount for peter are the compensation he received from the Wynns agency stoppage and the compensation for 6 weeks that he did not work by the Insurance.

Question Two

  1. She cannot claim deduction given that the guiding principle is that tax deduction claim can only be made from loan interest if the loan was used to purchase an income generating investment or asset. In this case, the interest rates to Jane’s secretarial business which she sold at a loss. If the proceeds from the sale of the business go on a holiday rather than pay off the loan, would make the amount to compensate for her uses rather than that of business and as such she cannot claim deduction on the interest paid to the amount of money equal to the sale of the business. Refinancing the loan, would make the lower interest tax deduction and not the former.
  2. The company should adopt the real value of the stock ($3 million) closing valuation. In this regard the contribution to taxable income in the first case would be 7 million give as:
(‘000000 $’) (‘000000 $’)
Sales 12
Less
purchases 6
Beginning inventory 2
Ending inventory -3 5
Gross Income   7

 

While the contribution to taxable income in the second valuation technique would be 9 million given as:

(‘000000 $’) (‘000000 $’)
Sales 12
Less
purchases 6
Beginning inventory 2
Ending inventory -5 3
Gross Income   9

 

Negative gearing refers to a price where an individual or entity borrows fund to purchase an income generating investment property but expects the gross income from the investment, for the short run, to be less compared to the total cost of managing and owning the investment including interest charged on loan and the depreciation but excluding the capital repayment. The practice allows the company that borrows finance to acquire an investment asset in order to offset excess of the interest they pay in the borrowings over the income produced

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