Assessable Income and Capital Gains Tax (CGT)

Problem Solving Research Assignment
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Problem Solving Research Assignment
Issue: What income is assessable to Jill?
Assessable income is made up of ordinary income and statutory income. Ordinary income is made up of the amount from rendering personal services, rent, and income on trading. Statutory income is other income that is not ordinary income and is assessed based on a specific tax law rule. Jill gets a salary of $110,000 paid by ArchitectCo Pty and this is part the total ordinary income. Jill is liable to pay Australian income tax on salary paid to her as salary from her work as an architect and art teacher. [Australian Taxation Office. Table 1: Definitions of the terms used to explain small business entity concessions.]
Issue: Is the drawing equipment a fringe benefit
ArchitectCo Pty Ltd (employer) provided specialized architectural drawing equipment to Jill valued at $3000, and this is a fringe benefit. The Fringe Benefits Tax Assessment Act 1986 Sect 136 highlights fringe benefits are provided to employees in respect to employment. ArchitectCo Pty Ltd would pay fringe benefits tax on the drawing equipment as it is a trade tool.
Issue: are the fees and annual subscriptions deductible.
Jill pays $ 700 membership fees to the Australian Architects Association and annual subscriptions of $130 for a professional architectural journal Membership fees and annual subscriptions for a professional association are deductible. Income Tax Assessment Act 1997 – Section 25.55 highlights that deductibility of payments to a trade, business, or professional association is up to $42 in each association, but when section 8-1 applies, the payment of the $42 deduction does not apply. Generally, subscriptions to professional associations and fees are deductible if the association’s services are linked to deriving the taxpayer’s assessable income. The Australian Architects Association is part of a professional association but not a professional architectural journal under the ITAA97 section 8.1(1) (a).[Australasian Legal Information Institute. INCOME TAX ASSESSMENT ACT 1997 - SECT 25.55] [Income Tax Assessment Act 1997 – Section 8-1]
Issue: Are clothing expenses deductible
Jill is required to wear suits and the Armani suits cost her $ 1,000. The case Mansfield vs. FCT captures the idea that expenditure on ordinary articles of apparel is not deductible even when the apparel is necessary for a maintaining a suitable appearance. However, there are exceptions such as uniforms, compulsory uniforms, protective clothing and occupation specific clothing. Section 8-1 highlights that the costs of acquiring ordinary clothing such as suits are not deductible. The suit is an ordinary article of apparel and not deductible.
Isssue: Is the meal entertainment a deductible fringe benefit
There is meal entertainment” fringe benefits as Jill took a client for lunch at the Four Seasons hotel, and this cost $350 and was charged on ArchitectCo Pty’s credit card.  The 50/50 split method or 12-week register method is used to determine the taxable value of the meal entertainment. In the 50/50 split method...