Taxation Law

Case Study

Introduction

The main tax paid as one works is income tax. Income tax is charged on income a person receives such as investment income, business benefits, wages, and salaries. Therefore, at the end of the income year, June 30, most of the workers need to lodge an annual tax return. The amount of income tax and the tax rate one pays depends on how much a person earns. The greater the income, the greater the rate paid. On top of the gross income one makes and the benefits a person is entitled to, one is eligible for claiming deductions for some of the expenses directly related to the earnings. The allowable deductions are subtracted from the total income to arrive at the taxable income. Therefore, a person pays tax on the taxable income (Woellner et al. 2014, p. 15).

  1. Jason’s Taxation Income

Jason’s taxation income for the tax year 2013/14

Assessable Income                                                          $                                  $

Gross Salary                                                                        95,300

Allowance-travel                                                                  1,800

Fully franked dividend                                                      14,000

Franking Credit                                                                    1,585

(3,700 /70 x 30)                                                                                                       112,685

Deductions

Decline in value – laptop computer                                   312

(990 x 200%/3 x 288/320 x 65%)

Union fees                                                                                480

JB Hi Fi gift vouchers                                                            850

Textbooks for martial art course                                         250

Parking fine while at Brisbane for work                             70

Donation to Red Cross                                                          2,000                            3,962

_________               _________

Taxable Income                                                                  108,723

  1. Jason’s Net Tax Payable/Refund

Jason’s net tax payable/refund for tax year 2013/14

                                                                                                       $

Taxable income                                                                   107,138

Calculation of net tax payable/refund

Tax payable                                                                                   10,627 

(108,723-80000)x37%)

Medicare levy                                                                               1,630

(108,723×1.5%)

Medicare levy surcharge                  Note 1                              1,359

(108,723×1.25%)

PAG withhold                                                                             (10,000)

(23,400+6,300)

Tax Offset

Franking Credit                                                                          (1,585)

_____

Net Tax Payable                                                                   2,031

Note 1: Jason is liable for the Medicare levy surcharge since he does not have the private health insurance. His income for tax purpose is also higher than the threshold value.

Jason’s income for the surcharge income is also the same as the taxable income.

The surcharge rate is 1.25% as Jason’s income lies between the single income threshold of 102,001 and 136,000 (Woellner et al. 2014, p. 18).

An Explanation Statement for the Assessability of the Receipts and Deductibility of the Payments

Jason is accessible for the following in his line of work. First, he receives a gross salary from both the ABC College and the Smart College. On top of the total salary, he gets a travel allowance and fully franked dividends (Woellner et al. 2014, p. 20).

He can claim deductions from the laptop computer, as it is part of the assets used for teaching purposes. An educator who uses an own laptop to carry out professional duties deducts the laptop as an itemized deductions. The teacher can claim the deductions for the work-related portion of the decline in the value of the laptop or the depreciation of the computer, printers, and even the routers. The claim can also cover the cost of repairs of the equipment, the interest of the money borrowed to finance the computer, and the cost of the internet access (Woellner et al. 2014, p. 33).

The deduction cannot be claimed for depreciation or the value of items used in employment but provided by the employer. In occasions where the laptops or the computer or software used cost more than $300, the asset depreciates by the decline in the value process. There are two methods of working out the depreciation of computers and laptops – the prime cost method and the diminishing value method. The depreciation worked out by the prime cost method uses the percentage of the equipment. The one using the diminishing value method focuses on the percentage of the equipment’s cost and the percentage of the written down value (Woellner et al. 2014, p. 26).

As the general rule, the desktop computers depreciate over a period of four years while the laptops depreciate over a period of three years. A claim for the immediate deductions for the full cost of the equipment is only possible if it costs less than $300 (Woellne et al. 2014, p. 26).

Jason can also claim deductions for the union fees. He can claim a deduction for the cost of annual union fees or costs associated with any professional body. If the amount paid is included in the payment summary, it can be used to prove the claim. However, worker entitlement fund as contributions are not deductible (Woellner et al. 2014, p. 27).

Jason pays a donation to Red Cross as a tax deduction. The donations or gifts are made to the organizations with the status of having the deductible gift recipients. The donor, such as Jason, makes a claim for the deductions for gifts or donations made. The gift or donation deduction has to meet the following conditions. First, it must be made to a deductible gift recipient (Woellner et al. 2014, p. 78). Second, the gift has to be truly a gift. It has to be a willing transfer of property or money that a person receives with no material benefit or advantage. Third, the donation has to be covered by one of the gift types. The most common type is money, but other types of donations such as property can be considered. Lastly, the donation or gift has to comply with the relevant contribution conditions. Therefore, the amount of deduction claimed depends on the amount of donations or gifts (Woellner et al. 2014, p. 78)

Deductions for claims over the textbook for the martial art course fall under the equipment used for teaching purposes. Moreover, the parking fine he pays as Jason Parks at the Brisbane acts as the car park fee. The vehicle and travel expenses claimed are those related to work only (Woellner et al. 2014, p. 102).

Eligibility of Jason in Claiming Car Expenses

Jason’s eligibility in claiming for car expenses pegs on the use of the car. The car needs to have an effective and approved for use in purposes that relate to the work that Jason is doing to the organization (Krever 2014, p. 89). The eligibility is further pegged on the agreement that Jason has with his parent organization. Making a claim for cart expenses needs to be under the approval of the finance department of the organization. The eligibility bracket for making claim related to car expenses needs to cut off the costs that Jason incurs while doing his personal errands or assignments that are not directly related to work.

Methods for Claiming Car Expenses

Cents per kilometer method involves seeking for reimbursement of the funds that one uses while travelling. There are restrictions and substantiation for the method. The restrictions of using the method are three. The rates that one uses to make the claim are predetermined by the organization. In the event that on spends more money per kilometer, the extra expense has to be borne by the individual since the cost cannot be transferred to the organization. Second, one has to prove valid evidence that is in written form to affirm that he or she incurred the cost that he or she is claiming (Nethercott, Richardson & Devos 2010, p. 65). The third limitation is that there is an upper cap for the claim. The upper cap that is approved by the Australian legislation is five thousand kilometers. In the event that one covers a distance of more than five thousand kilometers while on official duty, the extra expenditure that he or she incurs is more of a charity to the organization. The only substantiation for the method is that one truly gets all the actual claim since the cents that are reimbursed per kilometer are revised annually, therefore, reflecting the actual market rates (Avi-Yonah, Sartori & Marian 2011, p, 70)

The second method is the twelve percent of the original value of the car. Substantiation for the method is that one receives 12 percent of the value of the car as a claim besides owning the car as well (Tiley 2014, p. 97). In actual terms, the organization will offer the individual a subsidy in financing the car. The limitation is that one can only receive twelve percent of the actual value of the car in event that he or she leased the car. The overall effect is that one can spend from his or her pocket if the leasing value is above twelve percent of the value of the car.

Actual expenses are the third method. There is need to prove the actual distance that has been traveled by the car and any other documentation during the travel. The limitation is that one needs to travel past the lower cap of over five thousand kilometers (Woellner 2012, p. 37). Logbook is the final method. Substantiation of the method involves recording of mileages covered by the car before and after the contract period. The limitation is that requires a logbook to prove ownership.

Claim for Home Expenses

Jason uses his home as the workstation in doing a significant proportion of his work. Part of the work that Jason does while at home is preparing the course materials that he uses for the teaching activities that he has to do. The claim for the home expenses, therefore, requires calculation of the total value for the heating and overall use of personal equipment such as laptop (Basu 2007, p. 118).

Conclusion

In conclusion, there are claims that are valid that one can file to be compensated. The categories for the claims are predetermined by the Australian legislations that guide the taxation legislations that are effected by different organization. The challenge, however, arises in ambiguous expenditure that employees may incur such as the use of personal effects and car use while on official duty. The claims that one has to make require proof to substantiate that the actual expenditure that one incurred is in tandem with the job responsibilities that he or she was to conduct.

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