Australian Taxation Law
The $5,000 received after the trading period qualify as income for the period ended 30 June 2010. This is in accordance with accruals accounting method. income is recognized when it is earned. All this is in accordance with and requirements of section 6-5. The trading stock for Philip’s business has to be evaluated according to the general rule of accounting for stock-S70-35(1). The difference between the opening and closing stock is added to assessable income because the closing stock exceeds opening stock-S70-35(2). The allowable deductions (division 8) include the $2,000 which was an expense from the replacement of the air conditioner-S25-10. The amount is minimized to the cost that Phillip incurred since he resold the air conditioning system which generated back income-S6-5. W Thomas co v FCT? bought a building and did not know that the building had damage when they bought it – the courts held that the ATO will treat expenditure that remedies defects, damage or deterioration to property as capital if the defect, damage or deterioration existed at the time of acquisition of the property, and did not arise from the operations of the person who incurs the expenditure. Note – the mere fact that the purchaser did not know that initial repairs were needed at the time of purchase is irrelevant. His interest accrued on a loan that was used in renovating the rental houses resulting in a generation of assessable income-S25-25(1). The $500 he used for replacing the light bulb is also a deductible income since it falls under repairs and replacement-S25-10. Fine paid by Phillip to the local does not qualify as a deduction as per the S26-5 stating that penalties are not deductible amounts. The expenses incurred in the manufacturing of the tennis racquet also, are a part of the deductible allowance as it is an expense incurred in generating an assessable income-S8-1. Under Division 30, donations are deductible allowances as long as they are voluntary and, no collateral claimed. This can be related to the charity donation. However, the gifts he presented to family and the 5 racquets he took for personal use do not qualify as deductible allowance-S26-54. Paper 2 Joan’s total taxable income Joan’s income $ $ Salary 375,000 Home ware magazine 24,000 13,500 537,500 Agreement 230,000 Payment for damages through accident 360,000 590,000 Total assessable income 1,127,500 Allowable deductions $ $ Pain and suffering 10,000 University Union fees 650 Textbooks 750 Photocopying and writing aid 350 Travel 450 2,200 Total allowable deductions 12,200 Joan’s total taxable income Assessable income 1,127,500 Allowable deductions 12,200 Total taxable income 1,115,300 Joan’s total taxable income amounts to $1,000,300.