the following section 8 1 as listed below is described as the cornerstone if the inc 549436

The following section 8-1 as listed below is described as the cornerstone if the Income Tax Assessment Act (1997).

“
S8-1(
1) you can deduct from your assessable income any loss or outgoing to

The extent
that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of

gaining or producing your assessable income.

S8-1(2) However, you cannot deduct a loss or outgoing under this section to

the extent that:

(a) it is a loss or outgoing of capital or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your exempt income; or

(d) a provision of this Act prevents you from deducting it.

S8-1(3) A loss or outgoing that you can deduct under this section is called a

general deduction.”

REQUIRED:

EXPLAIN and
VALIDATE Section 8-1 of ITAA97 by reference to
Case Law,
Taxation Office Rulings and other sections of the ITAA97 and ITAA36. You are required to address under separate headings the underlined words in the course of your explanation.

PART B 10 MARKS

SALE OF ASSETS INFORMATION

Carole Mc Donald sold the following assets during the year ended 30th June 2014.

Details Date Purchased Cost Date Sold Consideration

$ $

NBA Ltd 1 May 2014 35,000 1 June 2014 20,000

XYZ Ltd shares* 1 Sept 1965 65,000 30 May 2014 160,000

XRO Ltd 1 May 1998 15,000 1 March 2014 35,000

CBD Ltd 1 Jun 2014 $25000 28 June 2014 $50,000

FBU Ltd 15 Nov 1998 30,000 1 July 2013 33,000

Diamond Ring 18 July 1993 501 1 Feb 2014 200

Houseboat 21 Sep 1985 20,000 1 March 2014 25,000

Private Residence** 16 June 1986 300,000 12 March 2014 600,000

Gold Charms 31 March 1986 300*** 13 March 2014 2,500

Caravan 1 January 2010 12,000 15 June 2014 5,000

Motor Cycle 1 July 2012 5,500 15 June 2014 6,300

Sports Car 1 July 2011 6,500 30 June 2014 22,000

*These shares were purchased by the taxpayer’s father on 1st September 1965. They were bequeathed to the taxpayer on 1 January 2009 (date of death of James’ father). The market value of the shares at date of the father’s death was $150,000.

**The private residence was rented for the period from 1 February 1988 to 1 July 2008 while he lived overseas.

***Purchased as a set which cost $600

REQUIRED:

CALCULATE the
minimum amount of net capital gain which is to be included in his assessable income for the year ended 30 June 2014. You must indicate how every item mentioned above is treated for tax purposes. You must refer to the relevant sections of the Income Tax Assessment Act 1997.

PART C 10 MARKS

John Smith is a resident of Australia and a full-time employee for Paladin Ltd. He provides you with the following information for the year ended 30 June 2014.

RECEIPTS

$

Net salary received (PAYGW $18,000) 80,000

Fringe benefits – low interest loan 15,000

Fully franked dividend paid by Exmouth Ltd – reinvested 7,000

Share of income – The Estate of Harry Smith 2,500

Loss on sale of shares 3,600

Gross Profit on sale of Jet ski – purchased 01/01/2001 5,000

PAYMENTS

Motor Vehicle expenses –
see Note 1

Superannuation contribution for John Smith – made by Paladin Ltd 6,000

Superannuation contribution – made by John Smith 3,000

Donation – Royal Children’s Hospital 150

Net rental loss on investment property- No 1 3,500

Loss on capital investment- investment property – No 2 35,000

Education Expenses-
see Note 2 3,500

Membership fees – Master Chefs Association 250

Note 1

MOTOR VEHICLE INFORMATION

John uses his car for work purposes for
9 months of the financial year. He maintained a log book for the whole of the financial year. His private kilometres were 20,000 and his total kilometres were 40,000 for the year. The Motor Vehicle (4200ccs) cost $125,000 on 1/03/2014. It has an effective life of 8 years. Expenses for the year ended 30 June 2014 are as follows:

$

Fuel 3,104

Cost of repairs –accident 9,500

Insurance 855

Repairs 427

Parking fees 22

Registration and 3rd Party 438

Road Tolls 54

Car washes 45

New Motor – purchased 1 March 2014 – not separate asset 10,500

Note 2

John is employed as an IT manager and is a member of the IT Association of Australia, a professional accrediting body providing among other services continuing professional education (CPE) to members.

Members must complete a minimum 20 hours per year of CPE. John attended a four day conference in Hawaii in October 2013 of the International IT Association. John arranged a package that included:

Conference fees 800

Air fares 1,600

Accommodation and meals – 8 days 1,100

John spent an extra 4 days holidaying.

REQUIRED:

CALCULATE the TAXABLE INCOME and TAX PAYABLE of John for the year ended 30 June 2014.

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