PART A
The following section 8-1 as listed below is described as the cornerstone if the Income Tax Assessment Act (1997).
"S8-1(1) you can deduct from your assessable income any loss or outgoing to The extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your exempt income; or
(d) a provision of this Act prevents you from deducting it.
S8-1(3) A loss or outgoing that you can deduct under this section is called a general deduction."
REQUIRED:
EXPLAIN and VALIDATESection 8-1 of ITAA97 by reference to Case Law, Taxation Office Rulingsand other sections of the ITAA97 and ITAA36. You are required to address under separate headings the underlined words in the course of your explanation.
PART B
SALE OF ASSETS INFORMATION
Carole Mc Donald sold the following assets during the year ended 30th June 2014.
Details Date Purchased Cost Date Sold Consideration
$ $
NBA Ltd 1 May 2014 35,000 1 June 2014 20,000
XYZLtd shares* 1 Sept 1965 65,000 30 May 2014 160,000
XRO Ltd 1 May 1998 15,000 1 March 2014 35,000
CBD Ltd 1 Jun 2014 $25000 28 June 2014 $50,000
FBU Ltd 15 Nov 1998 30,000 1 July 2013 33,000
Diamond Ring 18 July 1993 501 1 Feb 2014 200
Houseboat 21 Sep 1985 20,000 1 March 2014 25,000
Private Residence** 16 June 1986 300,000 12 March 2014 600,000
Gold Charms 31 March 1986 300*** 13 March 2014 2,500
Caravan 1 January 2010 12,000 15 June 2014 5,000
Motor Cycle 1 July 2012 5,500 15 June 2014 6,300
Sports Car 1 July 2011 6,500 30 June 2014 22,000
*These shares were purchased by the taxpayer's father on 1st September 1965. They were bequeathed to the taxpayer on 1 January 2009 (date of death of James' father). The market value of the shares at date of the father's death was $150,000.
**The private residence was rented for the period from 1 February1988 to 1 July 2008 while he lived overseas.
***Purchased as a set which cost $600
REQUIRED:
CALCULATE the minimum amount of net capital gainwhich is to be included in his assessable income for the year ended 30 June 2014. You must indicate how every item mentioned above is treated for tax purposes. You must refer to the relevant sections of the Income Tax Assessment Act 1997.
PART C
John Smith is a resident of Australia and a full-time employee for Paladin Ltd. He provides you with the following information for the year ended 30 June 2014.
RECEIPTS
$
Net salary received (PAYGW $18,000) 80,000
Fringe benefits - low interest loan 15,000
Fully franked dividend paid by Exmouth Ltd - reinvested 7,000
Share of income - The Estate of Harry Smith 2,500
Loss on sale of shares 3,600
Gross Profit on sale of Jet ski - purchased 01/01/2001 5,000
PAYMENTS
Motor Vehicle expenses - see Note 1
Superannuation contribution for John Smith - made by Paladin Ltd 6,000
Superannuation contribution - made by John Smith 3,000
Donation - Royal Children's Hospital 150
Net rental loss on investment property- No 1 3,500
Loss on capital investment- investment property - No 2 35,000
Education Expenses- see Note 2 3,500
Membership fees - Master Chefs Association 250
Note 1
MOTOR VEHICLE INFORMATION
John uses his car for work purposes for 9 months of the financial year. He maintained a log book for the whole of the financial year. His private kilometres were 20,000 and his total kilometres were 40,000 for the year. The Motor Vehicle (4200ccs) cost $125,000 on 1/03/2014. It has an effective life of 8 years. Expenses for the year ended 30 June 2014 are as follows:
$
Fuel 3,104
Cost of repairs -accident 9,500
Insurance 855
Repairs 427
Parking fees 22
Registration and 3rd Party 438
Road Tolls 54
Car washes 45
New Motor -purchased 1 March 2014 - not separate asset 10,500
Note 2
John is employed as an IT manager and is a member of the IT Association of Australia, a professional accrediting body providing among other services continuing professional education (CPE) to members.
Members must complete a minimum 20 hours per year of CPE. John attended a four day conference in Hawaii in October 2013 of the International IT Association. John arranged a package that included:
Conference fees 800
Air fares 1,600
Accommodation and meals - 8 days 1,100
John spent an extra 4 days holidaying.
REQUIRED:
CALCULATE the TAXABLE INCOME and TAX PAYABLE of John for the year ended 30 June 2014.