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Case Study requiring preparation of workpapers, calculation of taxable income and income tax payable, preparation of an individual tax return, and a letter of advice.
Work related income
Work related income of the taxpayer include the income that is directly attributable to the work undertaken by the taxpayer. In the given scenario, the following would constitute as work related income:
The gross payment of $130,000 is the work-related income.
This will include the income of the spouse of the taxpayer. In this case, it is:
$60,000- $1200 = $ 58,800
- Superannuation Fund
The Superannuation fund would be included under this head as capital gain as per the provision of the Income Tax Assessment Act, 1997. There are two components of the superannuation fund – tax free and taxable (s307-120 ITAA97). In the given scenario, the taxpayer is paid an amount of $10,000 as superannuation fund by FinForesnsic Pty limited.
4/5 of $10,000 = $8,000
- Personal contributions to Superannuation Fund
The taxpayer's personal contribution of $12,000 towards the Superannuation fund is non-concessional., which means that it is considered to have been paid after payment of tax. This will count towards the taxpayer's non-concessional contribution cap until she has claimed a tax deduction for it. From 1 July 2017 onwards, taxpayers will be allowed to claim for their personal contribution to the Superannuation fund till they turn 75. Hence, in the given case the superannuation amount of $12,000 of Harman Kaur is eligible for deduction from tax payable.
- Investments and Dividends
The profit/loss on the sale of a capital asset such as real estate or shares is referred to the capital gain or loss. Hence, the investments and dividends are treated under the head capital gains.
The MYR shares are sold by the taxpayer on 5 January 2017, then the capital gains which they would incur to the taxpayer will be in the tax year 2016/2017. The sale of MYR shares constitutes a CGT event A1(s104-107) as they were purchased after September 19, 1985.
The BHP shares do not trigger a CGT event since they were acquired before CGT started on 20 September 2015. Hence, the sale of BHP shares would not constitute as capital gain and the taxpayer will have a choice of including the capital gain in the assessable income. The capital gain would result from either indexation or discount method.