TAXATION
Referencing and assignment format: Given this assignment is a report style format, there is no requirement to advise the source of any materials
Assessment criteria: Assignments will be assessed against the SILOs for the assessment. In particular, assignments will be assessed based on objective demonstration of the following:
- Engagement of critical thinking and interpretation skills to correctly identify the issues to be analysed in the case study.
- Application of critical thinking, interpretation and analytical skills to develop a meaningful analysis of the issue(s) previously identified, with detailed and analytical application of tax concepts, tax principles, legislation and case law. Mere citation, transcription or repetition of theory, concepts, legislation and case law without proper application will not attract any marks.
- Correct application of tax concepts and case law principles to calculate tax liability (if required). Calculations must be fully stated and supported by applicable legislation and case law (where case law is required).
- Elaboration of a solution to the issues presented in the case study, referring to the elements analysed and concluding the case.
ACC3TAX Assignment
- This assessment specifically focuses on the overall calculation of tax liability (including derivation of income, income tax equation, application of income, deductions and offsets).
- It is designed to simulate a client-advisor real life scenario, where students are required to apply interpretation of tax law, taxation rulings, and case law, critical analysis and numeracy skills to defend your advice to a tax partner in calculating the tax liability of a client. It is not a letter to the client, but the preliminary research report which will support the basis of such a letter.
Case Study and Questions
Jingjing is a 25 year old employee who worked at Junnings as a Manager in Jeelong. She has engaged you for your services to assist her in preparation of her tax return for 2018/19.
On 20 April 2020, Jingjing sent you the following email:
From Jingjing Jyun <j.jyun@junta.com.au>
Sent : 20 April 2020, 9:00:52 AM
To : Tax Accountant
Subject : Tax Return 2018/19 – Jingjing JYUN
Dear Tax Accounting Team,
Sorry I have been putting this off – things have been so hectic and uncertain here in China this year. As discussed at our recent Zoom meeting, here are the following matters that should help you with your preparation of my tax return.
- Earnings from Junnings – I finished up with Junnings on 30 June 2019, but I was a Marketing Manager Graduate appointed from 1 July 2018 and I received net wages ($46,000) and a travel allowance ($10,000). Junnings had deducted PAYG ($20,000). Prior to this position, I worked as a casual in Sales. Oh and don’t forget I also received my unused Annual Leave ($1,000) – HR had made a mistake and overlooked paying me my entitlement, but once I pointed that out they apologised and were very prompt and paid my money owing to me in my bank account on 1 July 2019. The reason I stopped working for Junnings was that my position was made redundant. At the end of the income year, I received a redundancy payment from Junnings for $15,000 because of the sudden and significant market changes and restructuring that had occurred. I had hoped that I might have got some other opportunity to work for Junnings in a different capacity, but it was not meant to be, which in one way was a blessing as I returned unexpectedly and permanently to China at the end of August 2019 to assist my sick parents. (4 marks)
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
| Gross wages | Ordinary income under s 6-5, because they are monies received in exchange for service performed Dean & Anor 1997
(NB PAYG credit of $20,000 is applied in calculating tax payable) |
$66,000 |
| Travel allowance | s15-2 ITAA97, s6-5 ITAA97
|
$10,000 |
- Sale of my residence – Settlement has finally come through on the sale of my home. Hooray. You will recall that my parents helped me purchase my apartment in Melbourne in 2012 at a bargain cost of $400,000 and $25,000 for various expenses such as stamp duty and other fees and I sold it for $500,000 and there was another $15,000 expenses on sale for commission and other expenses.. You might remember I spent a year overseas absent, returning to China for a year (1 July 2014 – 30 June 2015) and during that time I had rented out my property, so I heard I need to pay a share of my CGT Gain as I have used my principal place of residence for business purposes – is that right? (2 marks)
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
| Selling property | Assessable income under s 102-5 because of net capital gain.
When Jingjing sells the house in 2012 for $500,000, (capital proceeds s116-20) there is a CGT Event A1 (s104-10). Therefore, capital gain calculation needs to be done. As it is an individual property partial exemption is also applied (s118-185 ITAA 97).
Capital Proceed 485,000 Less cost base (425,000) 60,000 Less 50%*Discount = 30,000 s 115-15 Capital Gain 30,000 Net Capital Gain: 30,000*(365/2,923) = 3,746.15
|
3,746.15
|
- Various Rental property matters– I sold my investment property located in Beijing for equivalent AU$200,000 and paid commission of $5,000 and received my funds in July 2019. I had a friend who said to me 3 months earlier that it was a good time to sell, as I had only purchased this property in March 2015 for equivalent AU$150,000, with $10,000 costs of purchase. So that’s when I engaged the real estate agent, and I signed the contract for sale on 1 May 2019. I also incurred a legal cost of equivalent AU$5,000 in defending my entitlement to this property, which was in August 2018. I rented out the apartment for 10 months for $1,000 per month. But I don’t have to worry about any of these matters, right? – as I have been a non-resident since my Uni days when I came to Australia in January 2014. (8 marks)
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
| Jing Jing Tax residency test | Only Australian residence taxation apply to all their
income even worldwide taxation s6-5(2) and s6-10(4) ITAA 97
Resides Test Applies to Jing Jing From the statement given Jing Jing lives in Australia since 2012 and under TR98/17, studying or working in Australia will meet the resides test therefore Jing Jing is considered to have passed the resides test.
Australia Domicile Test Applies to Jing Jing The establishment of a home in 2012 shows intention to stay and make Australia Jing Jing’s home
183 days Test Applies to Jing Jing Jing Jing has been working in Australia for 5 years thus, it is clear Jing Jing spent more than 183 days. Therefore, passed 183 days test.
Commonwealth Superannuation Test It is assumed that Jing Jing does not work for the government, since there is no statement of her working, therefore, fails this test.
Conclusion From the statements above, Jing Jing pass 3 tests hence a tax resident of Australia.
|
|
| Selling property in Beijing
|
Capital Proceeds 195,000 Less Cost Base (160,000) 35,000 Less: CGT 50% Discount (17500) Capital Gain 17500 Net Capital Gain: 17500 *(305/1523)= 3504.60 |
|
| Rent | ||
| Defending Entitlement to Property
Issue with negative limb capital in nature |
||
- Insurance compensation and medical expenses – In July 2018 I was injured in a car accident while driving to one of the regional stores and was in hospital for three weeks. Fortunately, my private health insurance policy covered my medical expenses of $3,000. I also received $5,000 compensation from the insurance company for having lost some mobility from the car accident injury, which was promptly paid to me in September 2018. (2 marks)
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
| Private Health insurance Cover on Personal injury | FC of T v Dixon (1952) 86 CLR 540
Similar to medical doctor injured and received amount to personal disability insurance policy court held it was income in nature hence Jing Jing health insurance cover act also as income |
$3,000 |
| Compensation for personal injury | Similar to Whitaker v FC of T 98 ATC 4285, compensation payments
for Jing Jing is treated as being capital in nature.
As form S 6-5 ITAA97, payment to replace lost earning for period of disability is fully assessable as it was not Jing Jing limb its assessable Golden rule- Principal of replacement |
$5,000 |
- Work expenses – As a marketing manager, you would appreciate that image is everything when you do the job. I needed to spend a lot of money looking professional as I didn’t wear a uniform like I used to when I was a casual. My Regional Manager encouraged me to improve my image and was very impressed with my deportment. Over the financial year, my grooming expenses totalled $3,000 for hair styling and cutting (very good really as I was a regular customer every week at my hairdresser), make-up of $1000, and the additional clothing I had to buy as I wore clothes that were not cheap – another $5,000, which my Regional Manager commented was exactly the image Junnings needed. Of course, I needed to clean my clothes professionally and had them Dry Cleaned and I got a good deal of only $20 per week, so my claim is $960. (3 marks)
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
| Grooming and make-up expenses | Even though well-groomed is required for Jing Jing, Federal Court of Australia in Mansfield v. FC of T 96 ATC 4001; (1995) 31 ATR 367 clearly stated that grooming and make up are private expenses in nature therefore not deductible. | $4,000 (taxed) |
| Clothing expenses | Unfortunately for Jing Jing, the clothing in question do not have property of protective in nature or logo of company to identify it as a deductible by div 34 ITAA 1997 thus a deduction is not allowed. | $5,000 (taxed) |
| Dry Cleaning expenses | As the clothes do not meet div 34 ITAA 1997, cleaning expenses
cannot be claimed for it is non-compulsory (Div 34-14 ITAA 97). |
$960 (taxed)
|
- Car expenses – In addition to my regional flight travel, I had to do a lot of metropolitan car travel going to all of the various metropolitan stores. The running costs on my car as advised by my local petrol station amounted to $15,000 for the year, but these were paid for by Junnings, even though I only used the car 50% for business use. I bought my new car at the start of the year costing $20,000 and I would like to claim the entire amount as a deduction, as I heard I can claim an ‘instant write off’. I had a slight accident during the year, and I was at fault, which caused me out of pocket expenses of $2,000 to repair the vehicle, as the insurance company would not pay up any contribution. (5 marks)
That’s all I can think of for the moment – let me know if you need more information.
But can you please tell me how much tax I owe?
| Issue | Law that applies, including Reasons (& Common Law/Taxation Ruling) | Amount ($)
Effect on taxable income |
Thanking you in advance. Stay at home and stay safe
Kind Regards
Jingjing J
Required
- Prepare a report to put into Jingjing’s file which you can use as background in discussion with the Partner, and subsequently when you need to provide further advice to Jingjing.
Format of your report. You must:
- address the issues as raised using the same numbering system / headings listed above in Jingjing’s email.
- adopt a report style approach using 3 headings like
| Issue | Law that applies, including Reasons (& Common Law) | Amount ($)
Effect on taxable income |
| Eg.
Issue 1 |
Statutory Income under s xx-x because ……..
Law Because Reason Common law / tax ruling
|
+ $xxxxxx
|
In your discussion make sure you state,
- the relevant legislative authority and/or case law authority,
- the reasons the law applies to the facts, and
- the final effect on taxable income/tax liability under the Amount heading.
For each of the major points address the sub-issues – for example there are four issues to discuss in Item 1 – Earnings from Junnings. Accordingly, follow the template below by
- using the following correct HEADER
- addressing the various sub-issues raised in separate boxes
- giving them a label so they are immediately understood by yourself and thepartner.
- Then address the law AND the reasons – insert BECAUSE, and
- then using an amount, state the impact on taxable income (Part 1), or impact on taxable liability (Part 2)
(20 marks)
- Based on your report, prepare Jingjing’s statement of taxable income and calculate her final tax refund/liability including Medicare Levy for the year ending 30 June 2019, stating the applicable legislation and case law (note: calculation of the private health insurance is not required). (6 marks)
