TAXATION

Cases of Australian Taxation Laws:

Analysis in IRAC

Cases of Australian Taxation Laws: Analysis in IRAC

Case 1: Capital Allowance Deduction for Australian Employer

The case involving Richard is focusing on allowable deduction of capital. The issue requiring resolution is the calculation of capital allowance deduction in office items during the income year of 2011. It should be assumed that Richard wants to resume utilizing low-value pooling.

Issue

Calculate the capital allowance deduction of Richard for the income year of 2011.

Rule

Income Tax Assessment Act 1997 Section 40-30

Section 40-70

Section 40-440

Application of the Law to the Fact

This case focuses on Richard's deduction for capital allowance. The section states that the deductions that will be found on the items will follow the definition of depreciated assets. The item network laptop cost which is valued at $2875 (more than $1000) does not qualify in the application of the low cost pooling method. The section allows the use of diminishing value for these types of particular items. The office chair and scanner are applicable to the deduction utilizing the low-value pooling technique since their value is found to be $500 (less than $1000). Also the cappuccino machine is found to be just $128 suggesting it can be taken as an instant deduction.

Calculation

Cappuccino machine $ 128

New Networked Laptop $ 835 (2875x212/365x200%/4)

Printer + Office Desk $ 100 (333x18.75%+200x18.75%)

Total$ 1063

Conclusion

Richard can deduct a total amount of $1,063 on the basis of capital allowance for the items listed for the income year of 2011.

Case 2: Vacant Estate in Australia

Jackie wants to calculate the minimal capital gain on her vacant estate in Australia. The value of her estate is $375,000. She is facing the problem of whether to utilize 50% discount method or the frozen indexed cost base method to minimize the gain.

Issue

Calculation of the lower gain between the 50% Discount Method or the Frozen Indexed Cost Method.

Rule

Income Tax Assessment Act 1997 Section 110-25(2), (3), (4)

Application of the Law to the Fact

The Australian Government has stated that any assets acquired prior to September 21, 1999 for more than one year can be admissible to the techniques of indexation method or fifty percent discount method to evaluate the capital gain. There is no individual variable that makes the decision on which method to use but, the better option depends on the kind of assets owned, duration of the ownership, and the inflation rate. The primary focus for an individual is to lower the gain to lower the tax cost.

Calculation

Frozen Indexed Cost Base

Value of Estate = 32,750 x 123.4/107.90= $37,455

Bungalow= 92,755 x 123.4/109.3= $104,721

Paint= 7,250 x 123.4/117.6= $7,608

Rates= 32,000 (no indexation)= $32,000

Interest= 36,000 (no indexation)= $36,000

Stamp Duty= 3,500 (no indexation)= $3,500

Total= $221,284

The frozen indexed cost base technique generated a deduction of $221,284. When this is subtracted from the value of the estate ($375,000 - $221,284), it gives the net value of $153,716.

Fifty Percent Discount Method

= 50% x [$375.000 - (32,750 + 92,755 + 7,250 + 32,000 + 36,000 + 3,500)]

= 50% x $170,745

= $85,372

According to the fifty percent discount method, the value calculated is ...