Final Tax Liability and Legislation Case Study

Final Tax Liability and Legislation Case Study Order Instructions: I just want the treatment of the nine points mentioned in the first section of case study and related section numbers in of the tax legislation.

Final Tax Liability and Legislation Case Study
Final Tax Liability and Legislation Case Study

please try to provide an answer in the best possible way especially for this section as I have done the other sections. and aslo, please provide the final tax liability

Final Tax Liability and Legislation Case Study Sample Answer


The income tax in Australia is payable annually on all the personal income received by a person living in Australia whether he is a resident or non-resident as long as the income was derived or earned in Australia. The profits earned from a business operating partly in or out Australia are taken to have been earned totally from Australia. All the income earned from investments or the sales of personal property in Australia are subject to taxation. (Renton, 2005) The sale of properties or assets will attract GST and the tax credits will have to be deducted from the sales earnings to get the taxable income. Some allowable expenses can also be deducted like the cost of the materials and labor used. The expenses or the costs that have been incurred in the repair work, renovations or construction process can be deducted to arrive at the taxable income of the whole project. The net losses from a previous year can be offset against other capital gains when carried forward but they cannot be offset against the net earnings (ATO, 2005)

  1. The rental income he receives from the sublease is subject to taxation provided that he received the payments from the sub lease. The personal contract between the lessor and the lessee are not significant when it comes to the payments received. The total amount of lease payment that totaled to 10800 does not include the 3000 received as the rent for the sublease.

The other item that may not be allowable as an expense is the provision for settlement amounting to 10,000. That amount will have to be added back to the trading profit to arrive at the total taxable profit of 72550.

  1. The refunded amount of 500 is allowable and it’s deducted from the gross profit to arrive at the taxable income. This amount represents a loss on the part of the seller.


Profit and loss A/c
For the financial year 2013/2014
Sales receipts 220,000
Sublease 3000
refunds -500
Purchases 95,000
Tender costs 750
License fees 6500
Vendors licences 1200
Lease payments 10800
Cooking materials 3700
wages 32000
provision for settlement 10,000
Total Expenses 159,950
Trading Profit 62,550


Purchases 95,000
Sales 78,500
Returns Outwards 10200
Net Purchases 84,800
staff consumption 1800
Peters consumption 4500

The returns outwards amounting to 10200 are not an allowable deduction and they have to be added back to the taxable income. The staff consumption is also a benefit to the staff and they will also be subjected to the income tax on their salaries. The amount taken as consumption by peter amounting to 4500 is also part of his drawings and it will either be paid as income on his salary or it can be added back to the trading profit of the company to be part of the taxable income.

  1. The tender costs which include the accounting fees and other costs are allowable and they can be treated as part of the company’s expenses.
  2. The annual levy is an allowable expense.
  3. The various licences requirements for the government are also allowable expenses.
  4. The total amount payable for the financial period is 10800 and the amount owing will be reflected as a liability in the next financial period. Its payment will however not be reflected in that financial period as it refers to the current financial period.
  5. The total amount is allowable but the employees will be individually liable to declare all their earnings and be subjected to income tax on all their benefits including the bonus payments.
  6. These amounts refer to a provision that peter may be contemplating to reserve for the court case but it’s not allowable. It will however be allowed ones it’s paid to the lawyer in the next accounting or financial period.

Final Tax Liability and Legislation Case Study Other Questions

  1. Capital gains taxation system was first introduced in Australia in 1985 September as one of the major reforms in the taxation laws of the government. It only applies to assets that were later acquired after the introduction of the tax. Capital gains tax referred to as the CGT is applied to all the capital gains that have been earned when the assets are disposed of except where it refers to the family house. The capital gains tax treats all the profits or the net gains taxable income. If the gains or profits are earned as a result of the assets having been in existence for a year or more then the profits or gains are discounted by 50 percent for individual taxes or by 33.3 percent for amounts that are superannuation. (ATO, 2005)
  2. Peter will be expected to pay taxes on all the profits he made from the sale of his house less the expenses he incurred on the stamp duties and legal fees. These will amount to $800,000 less $408,500. The taxable income or gain will be $391500. He will also pay all the taxes on his rental income from the property. These will include all the rental income earned from 1st July 2011 to 31st December 2013 then from 1st February to 31st March 2014.
2. Albany
Purchased a house 150,000
Stamp duty 10,000
Loan application 1000
Interests 50,000
Pergola 6,000
Legal fees 3,000
Total 220,000
Other Expenses
Agents fees 5,000
Stamp duty 2,000
Advertising 500
valuation 300
Search fees 200
Mortgage discharge 600
Total 8,600
Grand total expenses 228,600
Sale of house 950,000
Total profit 721,400
2.Taxable income 721,400
The total amount will be discounted by 50% and be subjected
to taxation


Purchased Sold Profit
Shares in A ltd 5000 6000 1000
Shares in B ltd 5000 7000 2000
Shares in C ltd 5000 4000 -1000
Taxable income 2000

The taxable income is 2000 but all the dividends received within the period when he had the shares may also have been subjected to taxation. (ATO, 2005)

  1. Rhodesia Running profit is equal to 5000 less 450. The taxable income is equal to 4550.
  2. The net losses from a previous year can be offset against other capital gains when carried forward but they cannot be offset against the net earnings. The use of other assets that are personal such as collectables are classified in different categories while the losses incurred or registered on them are quarantined i.e. the trader or taxpayer can is allowed to offset them against other future gains or profits which are strictly limited to the same category. This is one method of discouraging the taxpayers from using their investment income to subsidize their earnings from other investments. (ATO, 2005)

Final Tax Liability and Legislation Case Study Reference

ATO (2005) Carrying on a business of share trading – Fact Sheet, Australian Taxation Office

ATO (2005) Guide to Capital Gains Tax Concessions for Small Business, Australian Taxation Office, publication NAT 8384-06.2005

ATO (2005) Guide to Capital Gains Tax, Australian Taxation Office, publication NAT 4151-6.2005

Renton, N.E. (2005) Income Tax and Investment, 2nd edition, 2005, ISBN 0-7314-0221-9

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