Reference no: EM133756757

Taxation Theory, Practice and Law

Question 1

You are working as a staff member at Pacific Accounting and Tax Services Pty Ltd in Sydney. Your client, Melissa, owns and operates a mechanical centre in Sydney as a sole trader. The business is known as "Melissa's Workshop." Melissa has an ABN, a registered business name, and is also registered for GST. In addition to her business, Melissa has other sources of investment income that she owns individually and works part-time, earning a salary. The following figures are as at the end of the financial year, 30 June 2024, and do not include GST. (Do not make any adjustments for GST)

Receipts
4,500    Interest on Bank deposits
96,700    Sale of car parts
48,500    Rent from her investment property
3,240    Refund from the ATO for the last year's tax return
25,000    Lottery win - Melissa was just very lucky.

Payments
36,000    Rent on her workshop
3,400    Body Corporate fees on income producing property.
85,000    Employee salaries
10,800    Superannuation contribution for employees
1,500    Fees paid to a registered Tax Agent
2,000    Travel to and from work to home

Please advise Melissa on the above-stated transactions with reference to the relevant statutory and common law provisions

Additionally,
Her taxable salary from her part-time work is $109,000 (including tax withheld).
She does not have private health insurance.
She is a resident taxpayer.
Melissa has an outstanding student loan of $57,000 from her studies at Sydney University.
Melissa's employer paid a superannuation guarantee charge of 12% on top of her salary to her nominated fund.

Calculate Melissa's personal tax liability for the year ended 30 June 2024. You should explain your treatment of each item in this question.

Your answer should be in the correct format of Assessable Incomeless Allowable Deductions along the lines of the income tax formula. This gives you Taxable Income and you multiply this by the different marginal tax rates plus Medicare levy, Medicare levy surcharge (if apply) and education loan. This gives you tax payable less any tax offsets.

QUESTION 2

Suresh is a technician working at Melissa's car repair centre. Due to a dangerous workplace accident, Suresh became seriously ill and received compensation of $131,000. The lump sum was divided as follows: $57,000 for loss of earnings, $43,000 for loss of future earning capacity, and $31,000 for pain and suffering. Based on legal provisions and case law, advise Suresh on whether any of these amounts will be considered assessable income.

Furthermore, advise Suresh whether it would be better to accept a lesser sum of $110,000 without any specified allocation between current earnings, future earnings, and pain and suffering.

Advise Suresh, referencing both Statutory Law and relevant Case Law.

You are required to follow the instructions by your lecturer to confirm any relevant information.

The individual assignment will assess students on the following learning outcomes:
Demonstrate an understanding of the Australian income tax system, the concept of FBT, Ordinary Income, general anti-avoidance provisions and income tax administration.
Identify and critically analyse taxation issues.
Interpret the relevant taxation legislations and case law.
Apply taxation principles to real life problems.