Taxation Elite Retail as a Marketing Consultant

Question: Describe about the Taxation for Elite Retail as a Marketing Consultant. Answer: 1: Mary Jackson worked for Elite Retail as a marketing consultant according to the given case. She had to move to Brisbane on 10th February as per the company requirement. She got some certain benefits from the company. Elite Retail and Mary Jackson wants the advice on the tax liability for the year 2016. Calculation of tax liability of Mary for the year 2016: Particulars Furniture Entertainment allowance Laptop Mobile phone Allowance for professional subscription 50% of telephone bill 50% of telephone bill Int.on loan@4% Car Mazda 3 Gross total income Annual salary Up to $18,200 Up to $ 37,000 Up to $80,000 Up to $180,000 Total tax liability Total income Reason Paid by employer Paid by employer for commercial purpose Paid by employer Paid by employer Paid by employer Used for commercial purpose Used for personal purpose Used for property in Brisbane Provided by company $18,201-37,000 $37,001-80,000 $80,001-180,000 Amount 4,000 5,000 2,400 800 1500 165 165 4%*500,000 30,000-5000 120,000 Nil (165,000-18,200=146,800) (146800-{37000-18200}*0.19]) ($143,228-{80,000-37,000}*32.5c+3572]) {($125,681-80,001)*0.37}+17,547 $34,450 {(120,000+45,000)-34,450} Amount Nil Nil Nil Nil Nil Nil Nil 20,000 $25,000 45,000 Nil $3,572 $17,547 $34448.60 (round off to 34450 for calculation purpose) $130,550 As per the case, the car used by Mary Jackson has to be shown as traveling expenses. The reason of doing so is that there is not anything mentioned that whether the car is used for personal purpose or for commercial purpose. Therefore, as per Australian Law it is to be treated as travelling expenses. The law demands of the inclusion of traveling allowances in Marys tax return. Two methods are available to calculate the travelling expense. As per the cent per kilometer method, a maximum of $5,000 as a commercial travelling allowance can be claimed. On the other hand, logbook method demands to maintain proper records for the money spent on fuel and other cost. Thus, Mary is advised to use cent per kilometer method so that she can claim a deduction of $5,000 from the total. Calculation of tax liability of Elite Retail The above-mentioned benefit which is provided by the company to its employee can be claimed under the head of FBT. The company can claim the full amount of $43,865 as per the FBT Act 1986. 2: The profit or loss incurred by the sale of any capital assets is taxable according to the rule of Capital Gain Taxation. It is calculated by deducting the cost base of the assets and other expenses, spent for retaining the ownership of the asset from the sales amount received. In other words Net income of an asset = Cost of sale of an asset - Cost of purchase and other expenses. As per the Australian Taxation Law, the total amount of profit will be chargeable to tax if the owner of the property acquires the asset for less than twelve months. In the case of the owner holds the property more than twelve months, then the assessee can avail a benefit of 50% exemption on the capital gain. Furthermore, if the asset is acquired before 20th September, 1985, then the property is treated as pre-CGT[1] asset and no capital gain or capital loss, can be generated from such property. Hence, it is not chargeable under tax. There is no rule of adjusting those capital losses with other taxable incomes of the individual. However, it can be carried forward to the next year and adjusted only with the capital gains. According to the given case, Scott purchased a plot of land in Brisbane in the year 1980. He made a building on that plot on 1st September 1986. The value of land was $ 90,000 and the cost of construction was $ 60,000. After the completion of construction, he rented out the property. He sold the property for$ 800,000 later on 2016. He bought a painting amount $16,500 in the year of 2005. He did not do any insurance on the painting. The painting was stolen in the year 2015. Scott acquired the property before 1985 and for this reason the assets acquired by him will be treated as per GGT asset. Therefore, there will not be any capital gain and loss and exempted for taxation. The definition of GGT assets is given in the Income Tax Act under section 108(2). In the given case, the land was sold by Scott for $800,000. However, as per the 108(55) of the Income Tax Act 1997, if any building is constructed on or after 20th September 1985 on a land which is obtained by an individual before 20th September 1985, then in such cases the building will be treated as a separate asset other than the land. The market value of the land and the cost of construction were $90,000 and $60,000 respectively. Since the asset was purchased before 1985 and any further investment did not provided by Scott on that asset, therefore the asset is to be treated as pre-CGT asset. Hence, sale value will not be included under the head of capital gain. The method for calculating capital gain or loss for most of the CGT assets is provided in the Income Tax Act 1997 under section 100(45). As per the requirement of the law, an individual needs to deduct the capital amount and the cost base from the sale proceeds of an asset. The individual earns a capital gain if the value of sales exceeds the cost base. Otherwise, there will be a capital loss. Three method are there of the calculation of capital gain or capital loss. Any individual, partnership firms and trusts are allowed to reduce its capital gain by 50% in the discount method. After the analysis of the given case, the total capital gain of Scott is $650,000[800,000-(90000+60000)]. Here, Mr. Scott cannot claim any deduction under GGT assets head. The reason is that he rented out the property instead of sing it. Thus, the total amount is chargeable under tax. In case he sold the property to his daughter, the he could claim exemption on the property. According to Australia Taxation Act, the whole value of gifts provided by a person to his relative or spouse or children due to love and attraction are exempted from his income under the head Gift Tax. Therefore, the whole amount of $200,000 will be exempted from tax. Thus, Scott is advised to transfer the property to his daughter instead of selling it in the market as he can claim exemption on the property. This process contributes to the reduction of burden of tax for Mr. Scott. References and bibliography: Ato.gov.au. (2016).Working out your net capital gain or loss | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/capital-gains-tax/working-out-your-capital-gain-or-loss/working-out-your-net-capital-gain-or-loss/ [Accessed 27 Aug. 2016]. James, S., Wallschutzky, I. and Alley, C., 2013. The Henry Report and the taxation of work related expenses: Principles versus practice