Tax and Income

Topics: Tax, Taxation in the United States, Taxation Pages: 23 (7630 words) Published: April 6, 2013
Q _ Tran Nam Quan: Blue
Bui Minh Tri
Quy :
Task 1:
Which of the following items are income:

Rent from a residential rental property rented by a young family? yes, ordinary income under sec. 6-5 A birthday gift ? No

A dividend from BP? Yes, Statutory income under sec.44(1) ITAA 1936

Wages and Salaries from your employer? Yes. Ordinary income under sec 6-5

Bank Interest Received? Yes, Ordinary income under sec 6-5(2)

Your boss takes you out to dinner? No

An allowance paid for your car.  
Yes. The payment of the motor vehicle allowance – this allowance is generally made to cover the expected deductible costs associated with the business usage of the employees vehicle. This allowance is effectively assessable income to the employee in their tax return. (sec.15-2)

Task 2:
Mike’s taxable income for the year ended 30 June 2012

Taxable Income = (Assessable Income – Deductions)
Assessable Income
§  Wages RMIT     under sec.6-5 ITAA 1997                                                                            $60,000 §  Interest income         under sec.6-5 ITAA 1997                                                                                                 $2,000 §  Dividends received from Telstra Ltd (unfranked)    under sec.44(1) ITAA 1936                                                             $3,000 Minus

§  Deductions relating to RMIT   (stationery etc)                                                     $2,000 Equal
Taxable Income:  $63,000.
Tax Payment = 4,650 + 30% * (63,000 - 37,000)
wm: a few comments made but good work guys

Task 3:
Kelly, paints a house for John and he charges John $5,000. Kelly tells John to pay the $5,000 to his brother Nathan as he does not want to pay tax on the $5,000. Comment on this strategy.

The legal issue is whether Kelly has to pay tax on the $5,000 received by his brother Nathan?

In the section 6-5(4) of the ITAA (1997), the income is recognised as soon as it is received by any way on your behalf or as you direct.

In this case, Kelly has derived an ordinary income of $5,000 from John for painting his house. Although Kelly did not directly take the money from John, his brother received the payment on Kelly behalf. Therefore, this strategy is not possible since the amount of $5,000 still recorded as an income and Kelly has to pay tax on it. $5000 has been transferred to Nathan on Kelly’s behalf as Kelly directed. wm: good work guys

Q3 Mike is employed by ABC Ltd and receives a yearly bonus each year if the business does well. This year, the bonus is a bottle of expensive wine worth $700. Is this assessable under section 21A ITAA 36?

This is non-cash business benefit but not resulting from  business relationship ( it is a employer-employee relationship) and it can be converted into cash and transfered to any one else. Also, it is more than $300. As a result, Mike does not has to pay tax as his bonus received is not assessable under section 21A ITAA 36.

wm : would you team have anything else to say  here

5) Payments of $500 per week awarded as damages to a person by an insurance company. The monies were paid to him under an income protection policy that he took out several years earlier. Is this income according to ordinary concepts? What would happen if the amount was paid as a lump sum?

LQ: [¶10-180] WORKERS COMPENSATION, Weekly or other periodical workers compensation payments (or periodical payments under other legislation) received as compensation for loss of wages (whole or partial) are fully assessable as ordinary income. (Federal Commissioner of Taxation v. Inkster). Under ATO ID 2002/175, Monthly payments received by the taxpayer under an income protection policy are assessable income under subsection 6-5(2) of the ITAA 1997 (Tinkler v. FC of T)

Applying rule to the fact, $500 is awarded weekly to that person due to damages he suffered in the past. Therefore, it is assessable income in...
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