Determining The Availability Of Deductions â€Myassignmenthelp.Com

Question: Discuss About The Determining The Availability Of Deductions? Answer: Introducation In the case of FCT V Rowe 1997 the issue that was addressed as to whether the legal expenses that have been incurred in defending the taxpayer in case of disciplinary action is deductible. In determining the availability of deductions, the Federal court referred to the case of Inglis V FCT.In that case; it was provided that the cost of proceeding brought against the public servant by the employer is allowed as deduction (Gitman et al.. 2015). In the current case, the facts are that Mr. Rowe is employed as engineer with the Livingstone Shire Council. He was suspended from the duty and was asked by the council to provide reasons why he should not be dismissed as several complaints were filed against him. In this situation, it can be said that Mr. Rowe has clear and Management threat that he would lose his employment. FCT v Stone (2005) In the case of FCT V Stone 2005, the issue is related to a sportswoman who is successful. The case is related to determination of various amounts received by her should and whether the amount received should be treated as the income received from the course of business activity. It can be seen that although there are certain differences but parallel can be drawn with the person carrying on the business and the sportsperson or artists (Braithwaite, 2017). However, it is important to make a distinction between the people engaged in the artistic or spots activity for pleasure and people engaged in professional activity. The professional persons should be able to make the distinction with the enthusiastic amateurs. The taxpayer enjoying the activity does not preclude the taxpayer from carrying on the business. The distinction is made based on the commercial end of the artist and sportsperson. In this case, it was accepted that the main motivation of the taxpayer was the pursuit of excell ence and the honor for the country (Forsyth et al., 2014). In the case of FCT V Stone 2005, it was decided by the court that the prize money and government grant received should be included as an ordinary income of the taxpayer. In this case, making profit was not the primary motive of the taxpayer but she was aware that success in sports would bring financial reward (Blakelock King 2017). The action of accepting endorsement means that she has turned her talent in sports into an activity for earning money. In this case, the receipt received from sports activity by Joanna Stone should be taxable as the intention was to make profit from the sporting activity. In the case of FCT V Rowe 1997 the ex gratia reimbursement is not included in the ordinary income (Cheshire et al., 2014). In order to determine or to calculate the tax liability it is very much essential to determine the residential status of the individual first. An individual is who liable to pay tax in a country of which he/ she is not a resident. In taxation, the word resident means place of abode of a person in the country for assessing income tax (Richardson et al., 2013). A person who is not a citizen of a country can be held a resident of that country subject to fulfilment of certain provisions. According to subsection 6(1) of the Income Tax Assessment Act 1936, an Australian resident refers to such individuals those who are Migrants, Student who is studying in Australia, Teacher who is teaching academics, working professionals may include pre-arranged contract of employment or may be visitor who came to visit Australia on holidays. In this report it is asked to determine whether Basil will be considered as a resident of Australia for the purpose of taxation or not. Financial process of determination of residential status can be completed in four simple step/ methods. The methods are described below: Primary or Ordinary Test; Domicile Test; Superannuation Test; 183 days Test. In is important to consider each one of the above tests one by one. Primary Test or Ordinary Test If an individual resides in Australia since birth and is not a resident of any abroad country then the individual will be considered as an Australian resident and he/ she will not need to perform any further residency tests. In this case, it is clearly stated that Basils permanent place of abode is in England and he came to Australia for the purpose of employment. Thus, Basil does not satisfy the condition states under ordinary test. Therefore, in order to prove his residential status Basil needs to appear for the other remaining tests. Domicile Test The word Domicile refers to that place where an individual have his/ her permanent place of stay or abode. As per Australian Taxation Office (ATO) an individual can be regarded as an Australian domicile only if his/ her permanent place of abode is in Australia. However if it is spotted by the Commissioner of Taxation in Australia that the individual stays at any foreign country despite of being a resident of Australia then the individual will not be considered as a Australian resident (Kucukvar et al., 2014). It is evident from the fact that Basil came to Australia in August 28, 2015 for employment purpose and prior to this he was staying in England of where he is also a resident. Thus according to the law, Basil cannot be regarded as an Australian resident as far as Domicile test is concerned. Superannuation Test According to ATO, superannuation test confirms that the working employees of the government of Australia who are posted abroad are considered as the resident of Australia. This test is clearly not applicable in case of Basil as he not an employees of Government of Australia and thus he does not qualify the superannuation test. As per guidelines mentioned in the ATO, if any individual remains in Australia for a period of more than or equal to 183 days or half an income year with breaks or without any break then that person will be considered as a resident of Australia since the time of his/ her arrival. It is found in the case that Basil came to Australia for employment purpose on 28th August 2015 to stay for about 3 years. Thus, it is evident that Basil satisfied the conditions required by 183 days test and hence he can be regarded as an Australian resident for taxation purpose since his arrival in Australia. The section 4-1 of the Income Tax Assessment Act 1997 provides that an individual, company or other entity is required to pay tax on their taxable income. The section 4-15 of the Income Tax Assessment 1997 clearly provides that taxable income should be calculated by deduction allowable deductions from the assessable income. The assessable income can be classified into ordinary income and statutory income. The section 6-5 of the Income Tax Assessment Act 1997 provides that income according to the ordinary concept is known as ordinary income and it should be included in the assessable income. The income that is not an ordinary income should be included as a statutory income as per section 6-10 of the Income Tax Assessment Act 1997. The income that should be included in the assessable income is dependent on the residential status of the taxpayer. It is provided that under 6-5 and 6-10 of the Income tax Assessment Act 1997 income received by the resident taxpayer from all the sources sho uld be included in the assessable income. On the other hand, if the taxpayer is not resident then income from Australian sources are only taxable. In this case, as discussed earlier Basil should be treated as resident for the purpose of tax. Therefore income received by Basil should be treated accordingly and it is discussed below: The salary income received should be included in the assessable income. The basic salary of $12000 per month should be included in the included in assessable under section 6-5 of the ITAA 97. The section 15-2 of the Income Tax Assessment Act 1997 states that allowances and benefits provided by the employer to the employee should be included in the assessable income. The rent subsidy received from employer is a fringe benefit and should be included in the assessable income (Lignier et al., 2014). The motor vehicle is provided for the personal benefit so it is a benefit provided by the taxpayer and should be included in the assessable income. This should be included in the assessable income as per section 5-2 of the ITAA 97. The phone account paid by the employer is a benefit and should be included in the assessable income. The holiday trip was received as performance award and should be included as the assessable income. Basil is regarded as a resident of Australia for the tax purpose hence income from any source should be included as the assessable income. The income received from rent of house in England should be included as an assessable income. The dividend income should be included in the assessable income. The gain made on England and Australian shares should be included in the assessable income. The income received from selling antique chair should be included in the assessable income Reference Blakelock, S., King, P. (2017). business law: The advance of ATO data matching.Proctor, The,37(6), 18. Braithwaite, V. (Ed.). (2017).Taxing democracy: Understanding tax avoidance and evasion. Routledge. Cheshire, L., Everingham, J. A., Lawrence, G. (2014). 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