Overview of the Case Study
The contemporary issue that is laid down in this case is determination of the net tax payable or refundable from the relevant income and expenditure derived by Jordan and Cameron. In the current context, the taxable income is computed by deducting and including the relevant expenditure occurred by each of the taxpayers.
- Lodge v FC of T (1972)
- Jayatilake v FC of T (1991)
- Section 6-5 of the Income Tax Assessment Act 1997
- subsection 51 (1) of the ITAA 1936
An explanation put forward under Section 6-5 of the ITAA 1997 describes that a person will be held liable to pay tax for the ordinary income derived by him or her (Pinto 2013). In the current situation salary derived by Jordan and Cameron will be considered for assessment under Section 6-5 of the ITAA 1997. On the other hand, it Jordan reported a fringe benefit sum of $4000 that is paid by his employer for medical insurance and private use of the car. Therefore, such amount will be considered for assessment.
Evidence bought forward under the taxation ruling of TR 95/6 states that deductions will be either allowable or will excluded under subsection 51 (1) of the ITAA 1936 (Cao et al. 2015). The taxation ruling of TR 95/6 states an individual taxpayer is disallowed from claiming allowable deductions relating to traveling to and from home. The expenses incurred by Jordan and Cameron on travelling from and to home are private expenditure and they are disallowed from claiming allowable deductions. Subsection 51 (1) of the ITAA 1936 defines that an employee shall be able entitled to allowable deductions incurred on work related expenditure (Saad 2014). The judgement stated in the case of Lodge v FC of T (1972) explains, to qualify an expenditure as allowable deductions it must have an association in the production of taxable income (Woellner et al. 2016). Similarly expenses incurred by Jordan and Cameron will be entitled for claiming an allowable deductions because such expenses forms the nexus with the assessable income of the taxpayer.
The case study puts forward that Jordan incurs a childcare expenditure of $6,000. As stated under the Taxation ruling of TD 92/154 an individual taxpayer is disallowed from claiming allowable deductions on the childcare expenses since this expense is regarded as the private expense (Barkoczy 2016). Citing the reference of Jayatilake v Federal Commissioner of Taxation (1991) the expenses incurred on childcare is observed as private expense and will not be treated as the allowable deductions (Faccio and Xu 2015). Similarly, childcare expense incurred by Jordan is disallowed from being regarded as allowable deductions.
Taxation of the Income and Expenditures of Jordan and Cameron
Jordan and Cameron reported a personal living expense of $18000 each and as per the Subsection 51 (1) of the ITAA 1997, Jordan and Cameron is not allowed to claim allowable deductions (Robin 2017). As bought forward by Jordan and Cameron, it is observed that they occurred an expense in the form of interest on investment property, holiday home and mortgage home. In accordance with the definition of the section 8-1 of the ITAA 1997 expenses incurred in producing assessable revenue of the taxpayer are allowed for deductions (Barkoczy et al. 2016). Therefore, interest paid on investment property, holiday home and mortgage home can be claimed as an allowable deduction since they are occurred in producing taxable income. Additionally, it has been noticed that expenses have incurred related to investment property and holiday home. Similarly, with reference to section 8-1 of the ITAA 1997 these expenses can be claimed as allowable deductions (Berg and Davidson 2016).
Another instance bought forward by Cameron stated that she incurred a loss of $7,000 from the share portfolio that was acquired by her in the year 2002. According to the Australian Taxation Office, an individual is not allowed to offset capital loss unless a profit has been reported from share portfolio. Similarly, there was no instances of capital gains reported by Cameron from the share of share portfolio and as a result of this, she will not be able to offset the loss bought forward from share portfolio.
As stated under section 8-1 of the ITAA 1997, expenditure incurred on credit card is disallowed from being considered as allowable deductions (Fry 2017). The credit card interest expense incurred is a private expense and such expenses cannot be claimed as permissible deductions.
Conclusion:
The taxable income of Jordan and Cameron is arrived by determining the above stated discussion. Relevant case laws and legislations have referred in present context to determine the taxable income of the respective taxpayers.
The issue is evidently focused on ascertainment of liability of tax for Cate along with the determination of the reduction in the taxable income of Jordan from the minor administrative work executed by his daughter.
The laws that have been considered in the above defined issue is the Income Tax ruling of IT 2489 that determines the taxable position of the income received by a minor engaged in the part time administrative work (Tran-Nam and Walpole 2016). Other income tax rulings of Division 6AA of the part III of the ITAA 1997 has also been referred in determining the tax liability of minor that have not completed the age of 18.
Tax Liabilities of Minor Child – Cate
An evidence has been stated in the Income Tax Ruling of IT 2489 that places emphasis on the person that have not completed the age of 18 or regarded as minor and have worked on full time basis will be treated for taxation purpose which will be higher than the tax rate that charged to adult. Moreover, Division 6AA of the part III of the ITAA 1997, places focus on the chargeability of tax for individual that are minor (James 2016). Similarly, Cate, will be assessed for income derived from the part time administrative work.
As laid, down under the income tax ruling of 93/30 an individual will be entitled for home-office expenses. Therefore, as bought forward from the situation of Jordan it is understood that Jordan incurs expenses for home-office purpose. Therefore, Jordan can claim allowable deductions for it. Additionally, the amount paid to Cate by Jordan for administrative work purpose qualifies as allowable deductions under section 8-1 of the ITAA 1997. Jordan can claim allowable expenses for the same and this will help in reduction of his tax liability.
Conclusion:
On arriving at the conclusion, it can be concluded that the income received by Cate shall be assessable under Division 6AA of the part III of the ITAA 1997, and Jordan can claim an allowable deductions for the expenses incurred on administrative expenses.
References
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax Pack 3 2016. Oxford University Press Australia & New Zealand.
Berg, C. and Davidson, S., 2016. Submission to the House of Representatives Standing Committee on Tax and Revenue Inquiry into the External Scrutiny of the Australian Taxation Office.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(3), pp.277-300.
Fry, M., 2017. Australian taxation of offshore hubs: an examination of the law on the ability of Australia to tax economic activity in offshore hubs and the position of the Australian Taxation Office. The APPEA Journal, 57(1), pp.49-63.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Pinto, D., 2013. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia Limited.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Tran-Nam, B. and Walpole, M., 2016. Tax disputes, litigation costs and access to tax justice. eJournal of Tax Research, 14(2), p.319.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.
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