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BLO2206 Taxation Law and Practice Assignment Answers
Income tax is the most important factor for the individual who is earning income from various sources. Tax is the compulsory extortion of income or money that individual earns from business or employment. This report has focus area of inclusion and exclusion incomes in the assessable income of the individual or tax payer. Individual is assessed on the basis of provisions made under the Income Tax Assessment Act 1997 in Australia. This report is based on Raelene and matters related to taxation are discussed in this report. Raelene works in the secondary school as teacher. Ultimate aim of Raelene is to be in Australian team and represent herself in the Olympics in Rio De Janeiro, Brazil in 2016. For this purpose, she needs to qualify many competitions and requires lot of travelling and other activities. For this purpose, she need funds for achieving the same i.e. competitions and other activities. This report is focused on the computation of assessable income of Raelene and whether various incomes that she had earned will be assessable income or not. She had earned income mainly from three activities i.e. from donations, scholarship, winning competition and small trading in meat and selling of theatre tickets. Various provisions of Income tax Assessment Act 1997 have been discussed and decision has been taken.
Provisions of the Income Tax Assessment Act 1997
From the above image it can be said that there are two types of income in nature i.e. revenue nature income and capital nature income that is earned by individual. Under section 6-5 of Income Tax Assessment Act 1997, it deals in ordinary assessable income of the individual. Salaries, wages and other same nature income are included in this section and are included in the assessable income of the individual. Another income nature were dealt under section 15-2 of Income Tax Assessment Act 1997, it deals in assessing income from bonuses, compensations and other income which is not ordinary in nature and are earned by the individual in the ordinary course of activity. Under section 102-5 of Income Tax Assessment Act 1997, capital nature income of individual is assessed. Income not included on the ordinary income or section, all the income is included in this section. Main element of capital nature income is capital gain that is earned by the individual. There is another concept business of assessable income of the individual that is used for the purpose of calculating tax of the tax payer. Assessable income of the individual is the total income of the tax payer and from assessable income tax deduction is allowed. Assessable income less deduction is the taxable income on which tax rate is applied and tax liability is calculated.
Provision: In the first activity of Raelene, she is doing trading in meat and theatre tickets. Trading is the form of business under which one person buys product or commodity at some lower price and then sell same at higher price. This transaction results in profit earned in the business. Business or trading in commodities shall include profit earning motive to it and shall be undertake n in the ordinary course of operations. Business income can of many types like income from profession, income from trading of goods, income from self-employment, income from other activities, etc. But most important concern that shall be is the intension behind the transaction. Therefore for making simple transaction to be business, profit motive is essential. Another concern that shall be undertaken is the misinterpretation of the transaction and motive behind the transactions. Activities undertaken by Raelene can be interpreted as hobby activities of the Raelene that is undertaken for personal satisfaction. Another angle that can be put is of hobby or pastime activity. If it is proved that transactions i.e. buying and selling of meat and theatre ticket is undertaken by the Raelene as her hobby or pastime then these income shall not be included in the assessable income of Raelene. But it can be seen that Raelene is in requirement of funds for fulfilling her objectives i.e. to secure place in Australian team in the Olympics in Rio De Janeiro, Brazil in 2016.
Case: Raelene has purchased meat at lower rate from the wholesaler and supplies or sell to her friend’s barbeque. In this transaction she had earned profit i.e. different between selling price to friend and purchase price of meat from shop. This profit shall be treated as company business plan of the Raelene since she has undertaken this transaction with the motive of earning profit. Another activity is the purchase of theatre tickets in lot i.e. 30 at a time and in this transaction she got discount from the ticket seller. Raelene has sold these tickets to her friends at normal selling price and different become profit in the transaction. Once again motive behind the transaction is to earn profit. Last transaction that she has undertaken is of selling prices that is earned by some other person in the trivia night. This transaction also leads to profit making transaction for Raelene. Therefore it is also termed as profit making and business transaction. Total income received from these transactions shall not be termed as assessable income but expense incurred by Raelene in buying meat or tickets or actuation material shall be reduced from the sales proceeds and remaining amount shall be termed as assessable income of Raelene.
Conclusion: Profit from these activities is termed as assessable income.
Raelene is in receipt of some donations and scholarship from different sources. Raelene receives donation from The Eastern Hawks of $ 5,000 for the purpose of raising funds for her activities and travelling that she is planning to undertake for overcome all the requirements of getting selected in Olympics. There is some scholarship also that is provided to the Raelene by her sports clubs i.e. The Victorian Amateur Athletic Association. In this section it will be analysed whether donation and scholarship will be treated assessable income or not.
Provision: Donation can be defined as the amount received by the perron from some other person without any consideration or without any condition. As per the provision of Income Tax Assessment Act 1997, donations are exempt income for the receiver i.e. not included in the assessable income of the tax payer. These donations shall be received in the nature of any academic or other qualified nature. But there are some donations that are not considered for the deduction and shall be included in the assessable income of the tax payer or individual. Assessable donations are as follows:
Donation to the schools for construction of school building
For fundraising activities
With the agreement between parties to donation transaction that one person will be personally benefited with the amount of donation provided by other person.
Case: Therefore it can be noted that Raelene has received donation from her club for raising funds for fulfilling activities related to her participation in Olympics and fulfil her personal objective. These donations will fall under the ambit of donation for personal benefit and shall not be considered as donation for other activity that is exempt from including in assessable income.
Conclusion: From the above provisions it can be assessed that donation provided by Raelene’s sports club shall be included in the assessable income of her.
Scholarship: It can be define as the payment made to someone for support the activity and some money is provided to someone. Scholarship amount received by any person shall not be regarded as income of person from ordinary sources. But scholarship income shall be included in the assessable income of Raelene in other sources of income. Other sources of income are the income that is statutory income of tax payer or income especially assessable in the Income tax Assessment Act 1997. Raelene has in receipt of scholarship income of $ 6000 per month i.e. whilst she was overseas. Therefore it is treated as assessable income at the time she receives it.
Conclusion: Scholarship income of $ 6000 per month shall be treated as assessable income of Raelene.
Raelene also earned some income from the advertising of socks of a manufacturer of socks. She has earned $ 5,000 from this source. It is considered as an income rose out of personal hobby and interest. Hence, it will not be included in the total taxable income of Raelene. As per the rules for assessment of total taxable income under the Income Tax assessment act 1997, an individual is required to pay tax on any kind of income raised out of any employment services or any work done purposefully for earning an adequate amount of income. An individual is also required to pay tax on the income earned for participating in any sports. These activities can be exempted if activity is performed out of any personal interest or hobby.
For the present activity, it is analysed that it doesn’t fall under the above mentioned criteria. Raelene has done the advertising of socks out of her personal hobby or interest. It is clearly mentioned that she is not a sports girl. She is a normal school teacher. Hence, income of $ 5,000 will not be included in her taxable income and will be treated as an Exempt income and not as assessable income of Raelene.
Raelene also has income from competition that she had entered into. Raelene has won $ 10,000 from the completion. According to the provision of Income Tax Assessment act 1997. Amount received under competition is of personal nature or won with some personal efforts therefore it can be treated as exempt income. There are some tests that need to be fulfilled for the exemption.
Following amount is not taxable for the tax payer:
- Any Amount received on occasion of birthday or marriage
- Lottery amount received by the individual
- Support provided to child shall be regarded as exempt income
- Any income from the price won or amount received in any game or competition.
Therefore on the basis of above provision it can be treated or analysed that income earned or amount received by Raelene from the competition shall be treated as exempt income and shall not be included in the assessable income for the year.
After analysis of this report conclusion can be drawn that there are some income that is to be included on the Raelene’s assessable income or not. In order to make decisions related to computation of assessable Income tax Assessment Act 1997 has been applies and analysed for making such decisions. Raelene has undertaken mainly three activities and analysis of these activities has been made for assessing assessable income of Raelene. First activity of Raelene is related to trading income i.e. buying and selling of meat and tickets and earning profit from the same. Since Raelene has earned this income in the ordinary course of trading i.e. simply buying and selling. Therefore it is assessable income for the Raelene. Second activity of the income generating for Raelene is donation and scholarship that she had received. Both donation and scholarship shall be included in the assessable income of Raelene as they are provided for personal purpose. Raelene has also earned income from advertisement that she has done for one stock manufacturer and it is exempt to be included in the assessable income of Raelene. Reason for the same is that it is hobby income of Raelene. Raelene has earned some amount from various competitions and same will be exempt from the inclusion in assessable income.
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