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Taxation Law: Research Assignment Help

Facts:

Jane is a full-time interior design consultant employed by a large interior design firm CreativeCo Ltd. She is an Australian resident for tax purposes. Jane's main duties are to provide advice to clients, and to develop functional and aesthetically- enhancing designs for the interior of buildings. CreativeCo Ltd pays Jane a salary of $100,000 per year.

Jane lives in a rented apartment in North Sydney. Since CreativeCo Ltd has a branch office in Wollongong, Jane has to work 3 days per week (Monday to Wednesday) in the Sydney office, and the remaining 2 days per week (Thursday and Friday) in Wollongong. During the 2018/19 year of income, she incurs travel expenses of $2,000 in travelling from home to the Sydney office and back home again, and $5,000 in travelling from home to Wollongong and back home again.

Jane currently does most of the design work relating to the Wollongong branch from a spare room in her apartment because CreativeCo Ltd does not have suitable space at the Wollongong site. The room takes up about 10% of the floor area of the entire apartment. Jane uses the room exclusively for work-related purposes, including phone calls to clients, but does not use it to meet clients. Client meetings are always held at the Sydney office. Jane incurs expenses of $30,000 rent and $7,000 for lighting and electricity for the entire apartment for the 2018/19 income year. For the 2018/19 year of income, Jane pays $700 membership fees for her membership of the Interior Designers Association of Australia, and $500 for subscriptions to Interior Design journals.

CreativeCo Ltd also provides Jane with a laptop computer to use for her work as she is sometimes required to travel to client premises to provide on-site advice and inspect the interior of buildings. During the 2018/19 year of income, she incurs travel expenses of $4,000 in travelling from the office to client premises and back to the office again. She is required, by her employer, to wear "all black" clothing when meeting with clients. During the 2018/19 year of income, she spends $700 on "all black" skirts, trousers, and tops to wear to client meetings.

Jane is very hardworking and in addition to her full-time job, she also teaches art classes at a community college in Newtown during the week, on Thursday and Friday evenings. On these evenings, she travels from CreativeCo Ltd's Wollongong branch office to the college in Newtown to teach. During the 2018/19 year of income, she incurs travel expenses of $5,000 in travelling from CreativeCo Ltd's Wollongong branch office to the college in Newtown. She receives $10,000 from teaching at the college during the 2018/19 income year.

In July 2018, Jane also commenced a Master of Business Administration (MBA) degree at university, as she hopes to move into a management role (and away from an interior design role) in the future. During the 2018/19 year of income, she incurred $6,000 for course fees and $700 for textbooks in relation to the MBA course.

In her spare time, Jane enjoys sailing. In August 2018 she purchases a yacht (assume cost = $7,000). She goes on a sailing trip with her friends, along the east coast of Australia, however after drinking heavily on one occasion, Jane almost steers the yacht into a reef. A few of her friends nearly fall overboard into shark- infested waters. Jane is ashamed of her behaviour on the trip and she is determined to mend her ways. In December 2018 she sells the yacht for $12,000.

In January 2019, while exploring the new year sales, Jane came across a good bargain and purchased a 120-year old, antique bedroom furniture set (comprising a bed, 2 bedside tables and a chest of drawers) for $1,550 ($450 for the bed, $350 for each bedside table, and $400 for the chest of drawers). She negotiated with the vendor to buy each piece of the set separately. A few weeks later she received an offer of $4,400 for the set. She negotiated with the purchaser to sell each item separately ($2,000 for the bed, $700 for each bedside table, and $1,000 for the chest of drawers).

Required:

Advise Jane regarding the tax implications to her, arising from the above facts, in relation to the 2018/19 year of income. In your answer, make sure you consider the potential assessability for income tax purposes to Jane of any of the above events, and the availability of a tax deduction for any expenses incurred. Also make sure that you apply the HIRAC methodology and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.

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Heading 

Advising Jane with respect to the tax implications that arises from the facts and figures in relation to 2018/19 year of income

Issue

Jane needs information regarding tax implications on the basis of the facts and figures provided for the year 2018/19. It is very much important to estimate the income on which the tax can be estimated. In the given case, Jane is employed by CreativeCo Ltd, a large interior design organization as a full-time interior design consultant. She is a resident of Australia for the tax purposes. The main responsibilities of Jane are to give advice to the clients and developing designs for interior of the buildings. Jane receives a salary from the company and lives in a rented apartment. She has to work for two branches and also incurs travelling expenses. She uses the rooms for the work-related purpose. Apart from this Jane also carries out other activities during the year. The issue arises from the fact is that the benefits or amounts received by Jane should be included in the assessable income and the expenses incurred by Jane is deductible as per ITAA97 (Barkoczy, 2018). The use of relevant tax rules and regulations will assist to reach to a conclusion.

Law

The assessable income of Jane is to determined and examined on the basis of the Income Tax Assessment Act 1997.  According to the Australian Taxation Office, employment income can be paid directly into the bank account; cash in hand or in another way should be included in the tax return. ATO explains that if an individual earns income as an educational professional or a teacher then it should be considered in the tax return (Ato, 2019). If the taxpayer generates profit from the sale of an asset then it would be considered as the capital gain. Capital gain is considered to be the assessable income of the taxpayer. However, some of the capital gains are being exempted as per the taxation law such as main residence, personal use items, collectables, and depreciating assets.         

The Australian Taxation office states that a taxpayer can claim vehicle and other travel expenditures that are being incurred while carrying out the work duties. However, the taxpayer cannot claim money for normal trips between the work and home because it is considered as private travelling. ATO states that if an employee is carrying out work from room or home then he or she can claim a deduction for the expenditures related to that work (Ato, 2019). The expenses can be generally related to electricity, internet, phone, etc. An individual can claim deductions for full payment which is being made for the membership of a business, trade or the professional association. It is to be related directly to the earnings of the individual’s assessable income. Full debits can be claimed that is being charged on the payments. 

ATO explains that an individual can claim deductions for particular expenses which are associated with self-education. However, self-education should be relevant to the earnings of income. The self-education expenditures are considered to be the costs that are incurred while carrying out the study course at a college, school or University (Ato, 2019). If an individual study and work then he or she can incur self-education expenditures and eligible for the tax deductions. The assets that are being purchased are subjected to capital gain tax as per the Income Tax Assessment Act 1997. 

Application 

The Australian Taxation Law assists to estimate the amounts that need to be included in the assessable income of Jane. The law also assists to estimate the expenditures which are to be deductible. Jane receives a salary from the company CreativeCo Ltd which amounted to $100,000 per year. An individual receiving income from his or her job is considered to be assessable income. The assessable income is considered to be the income which can be taxed as per the Income Tax Assessment Act 1997 (Deutsch, 2018). The salary of Jane is considered to be assessable income on which tax should be paid. In a rented apartment, Jane lives in North Sydney. CreativeCo Ltd has the branch office in Sydney and Wollongong. Jane works two days per week in Wollongong and three days per week in Sydney office. She incurs travelling expenses from home to Wollongong and Sydney office and home again. The travelling expense was $2000 from Sydney office to home and home to office and $5000 from Wollongong office to home and home to office. The travelling expenses incurred are associated with the work but it cannot be claimed because it is a normal trip between work and home. Thus, Jane cannot claim deductions on the travelling expenses as it is considered as private travel (Ato, 2019).

Jane carries out most of the design-related work for the Wollongong branch in her apartment from a spare room because the company does not have an appropriate space at Wollongong site. The room exclusively used for work-related purposes such as phone calls to the clients. The room takes 10 percent of the floor area of the whole apartment. The rent expenditure was $30,000 and the expenses for electricity and lighting was $7000.  Jane was working regularly from the room and she can claim deductions for expenditures related to the office work as per ATO (Ato, 2019). However, the room was 10 percent of the whole apartment then she can claim on 10 percent expenditure which consists of rent, phone bills, and lighting. Membership costs of Interior Designers Association of Australia were being paid by Jane that amounted to $700.  She also paid a subscription to the Interior Design journals which amounted to $500. According to ATO, Jane can claim deductions for membership of business, trade or the professional association because it is related directly to the earning of the assessable income. Thus, the deduction can be claimed on the membership fees (Ato, 2019).   

CreativeCo Ltd provided a laptop computer to which she required to travel to the client premises. Travelling expenses were incurred by Jane from the office to the premises of the client and back to the office again. Jane can claim deductions for the travelling expenses which amounted to $4,000 as per the Australian Taxation Office. She also spent on black trousers, tops, and skirts to wear to the client meetings which can also be claimed by her. Jane also teaches art classes in Newtown at the community college (Ato, 2019). She travels to college from the Wollongong branch office and again from college to office. The travelling expenses incurred by her amounted to $5,000 but she cannot claim deductions on it because it is not associated with her job. Jane receives income from teaching which amounted to $10,000 during the 2018/19 income year. Jane has received income from her teaching profession which is considered to be assessable income.   

Jane in July 2018 started a Master of Business Administration degree at an University. She is trying to move into the management role in the company in the future. The course fee incurred by her was $6,000 and cost of textbooks was $700 during the 2018/19 year. It is considered to be self-education for Jane and it is associated with her job. Jane work and study and also incurs self-education expenditures then she is eligible for the tax deductions as per the law (Ato, 2019). As per ATO, the course and current employment having sufficient connection with the self-education expenditure can qualify for the work-related deductions. Jane purchased a yacht which costs $7000 in August 2018for sailing trip with her friends. She sold the yacht in December 2018 which amounted to $12,000. The situation shows Jane is generating capital gain from the sale of the yacht. The capital gain amounted to $5,000 need to be included by Jane into her assessable income on which capital gain tax would be applied (Ato, 2019).    

In January, Jane purchased a 120-year antique and old bedroom furniture set which amounted to $1,550. It consisted of a chest of drawers and 2bedsde tables. The cost of bed was $450, the chest of drawers was $400 and each bedside table was $350. She received an offer after a week for the set which amounted to $4,400 (Ato, 2019). The selling price for bed was $2000, each bedside table was $700 and the chest of drawers was $1,000. She made a capital gain from the sale of the bedroom furniture set. However, the capital gains made by Jane will be exempted as per the taxation law. The bedroom furniture set is considered to be a personal asset which was acquired by Jane.  

Conclusion 

The case shows Jane has earned assessable income on which tax is to be imposed. Jane also incurred expenses on which deductions are available as per the Income Tax Assessment Act 1997. Thus, Jane has to estimate and show its assessable income and can claim deductions on the expenses incurred by her as per the law. 

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