Solution
Ketan S answered on
Aug 29 2021
Ketan Jain (Chartered Accountant)
Advise on Taxability of Income and Deductibility of Expenses
Case Study 1 – Computation of Total Income / Receipts
Receipts
Anna Thomson need to declare all below Income as a part of taxability requirement regardless of whether received in Bank or Cash so Following Income are included in Tax Return
Receipts / Income
Reference
Amount ($$)
Amount ($$)
Wages from Law Firm
160,000
Less: Pay G With held
47,000
113,000
Consulting Fees – Overseas client
3,500
Advising on Legal Matter
500
Total Income from Wages and Consulting - A
117,000
Other Income part of Tax Return
Franked Dividend
4,200
Less:30% Tax Rate
1,260
Net Dividend
2,940
Dividend from AMP
Franked
1,400
Unfranked
700
Total Dividend Income - B
5,040
Winning Price for Article Written in News Paper
5,000
Less: Tax @30%
1,500
3,500
Net Income from winning -C
3,500
Bank Interest Earned – 50% of Joint Account -D
1,400
Net Rental Income (Note Below) -E
993
Total Income (A+B+C+D+E)
127,933
Case Study 2– Computation of Anna’s Net Taxable Rental Income
Working on Taxability and Rental Income Calculations as below –
Rental Income
Amount ($$)
Amount ($$)
Amount ($$)
Income from Rent
28,500
Less: Allowable Expenses
Stamp Duty (Note Below)
38,690
Solicitor Fees
1,500
Loan Processing Fees
750
Total (Note Below)
40,940
Eligible Allowable Expenses Cu
ent FY- Refer Case 2 below
5575
Air condition Repairing -900 /5
180
Oven -3600/12 =300 /12*8 Months
200
Interest on Loan (4.5%)- (See Case 1 below– Rental Income)
18,342
Bank Charges on Home loan
96
Other Expenses – Refer Case 3 below
1119
Commission – 7%
1995
Total Allowable Expenses
27507
Net Income from Rental
993
Working of all above Income and Receipts
Wages from Law Firm- Â
All Professional Commitment and payment received is part of Total Income to be shown in Income tax Return, only if Taxes if not withheld or deducted then those payments will be shown as ‘Other income' on her tax return.
Dividend Income-
All Dividend Income if declared as Franked then it is eligible for franking tax offset. Hence in Given case here where dividend paid to Anna is Franked one and hence, she is entitled to Offset this Franking Tax
Income from rendering personal services
Any Income Anna receive in Foreign and in local country for rendering personal services outside of employment in a non-business capacity will be part of her assessable income, In the given scenario where Anna received 1st price for Article written in local newspaper is part of her assessable income for FY 2019-20. The income is eligible for a in the year she receives them.
Rental Income
Rental Income received is part of her tax return filing, so any payment received relating to rent entitled to be added in her tax return. Here Rental income earned for 30 weeks for cu
ent Financial Year so total income earned from rental is 950 X 30 = 28500, Out of which following are allowable Expenses and deductible while calculating net rental income
Investment Property
Contract Signed - 1st Sept 2019
Settlement Occu
ed -15th October 2019
Loan Sanctioned - $ 1,000,000
Period of Loan – 20 Years
Interest Rate – 4.5% for 4 Years
Property Valued at - $960,000
Car Purchased cost - $40,000
Expenses that need to Capitalize are
Stamp Duty - $38,690
Solicitor Fees - $1,500
Loan Processing Fees -$ 750
Other Expenses incu
ed are
Air Conditioner Repaired - $900
New Oven Purchased and Replaced on 1/11/2018 for $3,600
Depreciation – 12 Years
Building Construction Cost - $400,000 on 30th June 2012
Rental Agreement
Rental Income - $950 Per Week for 30 Weeks
Commission Charged by Real Estate Agent – 7%
Other Expenses incu
ed are –
Council Rate 1,376
Strata 3,298
Repairs due to Tenant Damage (March 2019) 1,670
Strata Manager Charges $4000 for Intercom in Jan 2019 which was operational from 1st April 2019 onwards
Based on above details Following are Calculated
Interest on loans
Interest on Loan...