Treatment of Different Transactions Undertaken by Wennie (Essay Sample)

UNSW
THE UNIVERSITY OF NEW SOUTH WALES
UNSW BUSINESS SCHOOL
SCHOOL OF ACCOUNTING, AUDITING & TAXATION
TABL 5551 - TAXATION LAW
1.0: INTRODUCTION
Taxation and the laws under which it applies classifies different incomes and expenses. The activities may be included as assessable incomes for tax purposes or could be exempted from tax. Some may qualify for tax purposes under the tax provisions and some may be deductibles. Thus depends with the income or expense being dealt with.
2.0: TREATMENT OF DIFFERENT TRANSACTIONS UNDERTAKEN BY WINNIE
2.1: employment income
A general rule of thumb in tax is that one’s salary is a taxable income. Under the provisions of the law, salary of the employee will be the take home amount including all benefits given by the employer. The employees earned income within the allocated time, and any extra hours worked
For the case of Winnie, having worked with 8.00 to 5.00 pm is within the normal working hours. The salary of $85,000 is part of the assessable income for tax purposes as it forms income received by Winnie for service provided as an assistant manager. It is also comprised in the definition of taxable income as it is well described as income for servise1.
2.2: gymnasium and fitness expenses
She pays a gymnasium membership fee of $1,200. Cost of fitness magazine is $240. The two are expenses that would help her achieve her objective of becoming a trainer as well as be able to get the fitness industry qualifications. Thus the expenses are of similar nature and should be treated the same for tax purposes.
Both expenses do not qualify as expenses of an income thus fail to meet the qualifications of section 40-800 since they are expenses to a planned income generating activity. The two are expenses that would help Winnie get the industry fitness qualification thus become a trainer. Only when she becomes a trainer would she earn income and her fitness expense as well as magazine expense become expense from income generating activities and thus be covered under the act. However currently, they cannot be deductible for tax purposes since the activities are not directed to a business2.
The fact that Winnie has investment shares and residential property. As well as being described as one looking out for investment does not amount to doing business, thus the activities under section 40-800 does not amount to a business hence does not qualify for deductions.
2.3: flying expense to Brisbane ($640), $140 for a taxi
The purchase cost of property at Brisbane is effected at a cost of $420,000. The expense including flying expense and taxi is not part of the cost of property, thus cannot be included as a deductible expense for tax income. Under section 40-800, the expense are incurred for the purpose of ending up making an investment that will generate income but do form part of the investment cost. Flying, accommodation and taxi expense are not direct expenses to purchase of the property thus do not amount to business2. The expenses, cannot be included in the property cost base as they are not part of installation cost. Thus are not taxable expenses as they do not amount to business
2.4.: transportation from airport to motel and accommodation
Winnie agent pays for the accommodation at the motel and drives her from the airport to the motel. This is a benefit in kind to Winnie towards enactment of the purchase. Winnie saves on the transport cost as well as the accommodation expense. However under the fridge benefit provisions, this saving does not amount to a fridge benefit on Winnie since there is no employment relation between the two. There is also no guarantee that Winnie likes the property and purchases it. Although she ends up making a purchase, this is still not a fridge benefit as it does not meet the qualifications for the definition of fridge benefit3. It is also not income to Winnie since the saving does not satisfy the provision of income and she cannot get money from the saving4.
2.5: acquisition of property
The purchase cost of property at Brisbane is effected at a cost of $420,000. This is a direct expense to acquiring a capital asset that will generate income to Winnie. Besides it’s a fixed long-term asset, thus will be treated as a capital asset. Therefore will not qualify for deductible. It will be a first element in the cost base for purposes of CGT assets5.
2.6: insurance policy with Property Insurers Ltd
The total cost of insurance on property was $1,260. Insurance on property is a direct safeguard of income generated from the property. The insurance covered lack of tenancy in a year. Winnie makes claim for the vacancy rentals and receives income of $9,520. Under the rental income act, Winnie has received income directly related to rental thus treated as income of Winnie for tax purposes. Thus it is a taxable income.
2.7: installation of the lamp
2.7.1: installation expense
The installation of the lamp is a capital investment to Winnie. It improves rental income as it makes the dark apartment have light. The tenant are able to enjoy their stay. Thus, the investment satisfy the provisions of rental property. The provision of section 8-1 are satisfied to what amounts to installation, and in the property improvement as the lamp is installed on the property from which she generates her income. Thus, the installation cost of, $4,400 is used to increase the structural assets of Winnie under the rental property provisions.
However, the installation does not satisfy the provisions of section 8 with regard to repair and maintenance of property. In this provision, repairs are done on already installed assets to return to initial state. However, there is no sign of damage or repair undertaken. Even though the stairs are steep and generally dark for the aged, they are not damaged.
2.7.2: capital allowance
The lamp that is installed on the property is likely to fall for depreciation. The asset is used to improve property purchased in 2014, and there has been lighting complains by tenants. Thus, the light improves the rental property. Under section 30-40(2) it satisfies the provision of fixtures and fitting for property. It also satisfies the provision of section 43-20(2) since it is a capital structural improvement6
Under the capital allowance provisions, the lamp is not a plant nor a machinery. But since it qualifies under section 40 for depreciation and section 43 under capital work. The provisions under section 43 prevails. Since the property was acquired in 2014, it will qualify for CGT assets, and on the current year, the cost of the lamp will be included since it is installed with an aim of improving the value of Botany property or at least to maintain its value as it makes life of the tenants better.
2.8: real estate management expense
Winnie incurs a cost of $1820 for the year. This is an expense to management of property and realisation of Winnie rental income. The expense saving on botany rental where she collected income does not amount to income for Winnie as it cannot be converted to cash. The expense to the agent for management of the property is