Australian Taxation Law: 524726

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Case study 1: Special Professionals

(a) John’s taxable professional income for the year ended 30 June 2015
Particulars Amount $
Gross wages from St George as a rugby league player 200,000
(PAYG included in the wages)
Player of the match awards 4,500
Total income from the profession of rugby 204,500
Less: Deductible expenses 26,000
Taxable professional income 178,500

(b) John’s other taxable income for the year ended 30 June 2015
Particulars Amount $
Gross wages for coaching his son’s rugby league team 3,500
Gross wages for casual referring 2,000
Other taxable income 5,500


As per the regulations of ITAA 97 under Australian Taxation Office, John Strong is a special professional since the taxation year 2011/ 2012. As per the regulations for measuring the assessable income from profession, rewards and prizes should be included whereas income from coaching and casual referring would be considered as other taxable income ( 2017). In addition, income from wages from St. George excludes the amount withheld as PAYG, hence the same would be added back while calculating taxable professional income.

Further, John is entitled to opt for income averaging since; the taxable income from special profession in the year 1 2011/12 exceeds $2,500 that is income amounted to $40,000.

Case study 2: Superannuation Funds

(a) Taxable income of the Falcon Superannuation fund for the year ended 30 June 2015
Assessable income
Concessional contributions:
Employee Contributions 800,000
Employer contributions 600,000
Investment income:
Unfranked dividends 27,450
Partly franked dividends 82,300
Add: franking credits 15,600 97,900
Term deposit interest (90,000-78,600) 11,400
Capital gain income:
Acquisition of asset in 2011 341,000
Less: Sale of investment property in 2015 440,000
Profit on sale of property 99,000
Application of discount on capital gain (1/3) 33,000
Net assessable amount of capital gain 66,330
Total assessable income 1,681,680
Less: Allowable deductions:
Accountancy fees (4,200)
Wages (20,000)
Benefits paid to the members (330,000)
Member’s death cover insurance (4,150)
Other operating expenses (3,800)
Total taxable income of the fund 1,244,750


(b) Calculation of net tax payable for the year ended 30 June 2015
Tax on concessional contributions at the rate 30%: Assuming the taxable income of members exceeds the threshold $300,000 1,400,000 420,000
Penalty tax @47% on the unfranked dividends from private company 27,450 12,902
Tax on other taxable income at the rate 15%
Total taxable income 1,244,750
Less: unfranked dividends from private company (27,450)
Less: concessional contribution (1,400,000)
Other taxable income (127,800)
Since, the net amount appears in negative balance, tax payable at the rate of 15% is not applicable
Total tax payable 420,000
Add: Penalty tax on unfranked dividends 12,902
Less: Franking credits on dividends (15,600)
Net amount of tax payable by the fund for the year ended 30 June 2015 417,302


As per the regulations of ITAA 97 under Australian Taxation System, superannuation fund is entitled to claim capital gain deduction @33% if the asset or investment property is held for more than 12 months ( 2017). Therefore, Falcon is entitled to claim deduction since the property acquired in 2011 and sold in 2015. Further, payments in terms of investment in term deposits and PAYG installments are not allowable deductions under the regulations of ITAA 97, for determining taxable income.

For the purpose of computing net tax payable, superannuation fund is required to pay flat 15% tax on total taxable income while the income from concessional contribution is taxable at the rate of 30%. Therefore, concessional contribution including employer’s and employee’s contribution will be taxed @30% whereas the balance income will not be taxed since, the income reflected negative balance. In addition, the Falcon Superannuation Fund is entitled to claim tax credit on franked credits for dividend from the total tax payable.

Case study 3: Partnerships

(a) Net income or loss from the partnership for the year ended 30 June 2015
Particulars Amount $ Amount $
Sales 1,780,000
Interest on advance 5,000
Proceeds from sale of delivery van 20,000
Less: Adjustable value (12,000)
Total income of partnership business 1,793,000
Less: Allowable deductions
Interest on bank overdraft (15,000)
Operating expenses (1,420,000)
Interest on loan taken from TED (35,000)
Net income from the business 323,000

Capital Gain:
Proceeds from sale of shares 11,000
Less:  acquisition cost of shares (5,000)
Net capital gain 16,000




(b) Allocation of income between the partners

Salary income 90,000
Interest on Ted’s capital 55,000
Distribution of income: 89,000
Total distribution of income 234,000
Distribution of income 89,000
Total distribution of income 89,000
(c) Calculation of Mary’s taxable income for the year ended 30 June 2015
Income from partnership business 89,000
Distribution of capital gain 8,000
Less: Allowable deduction for interest on advance (5,000)
Taxable income of Mary 92,000



According to the regulations of Taxation Ruling 2005/7, ITAA 97 partner’s salary as well as interest on capital is not assessable in the income of partnership business; however, it is included in the allocation income of the individual partners ( 2017). Sale of delivery van includes adjustable value $12,000, which is to be added back to the sales proceeds in accordance with the regulations of Australian Taxation System. In addition, capital gain on long- term shares is not entitled to capital gain deduction for the partnership business firm as per ITAA 97.

Case study 4: Income of Minors

Computation of excepted taxable income under Div 6AA
Particulars Amount $ Amount $
Gross interest received on term deposit 10,000
Total interest income 10,000
Distribution of income from family trust 4,000
Add: Tax paid by the trustees 1,880 5,880
Income distributed from the estate of late uncle 9,000
Fully franked dividend income 1,400
Interest received on savings account 200
Total excepted taxable income 26,480
Computation of eligible taxable income under Div 6AA
Gross wages from part- time job at Kmart 5,000
Income received from mowing lawns for neighbors during the year 6,000
Total eligible income 11,000
Computation of tax payable by Susan for the year ended 30 June 2015
Tax on excepted income:
At normal rates
$0- $18,200 Nil
$18,201 – $31,180 @19% 8,279 1,573
Tax on eligible income:
At higher rates
$0- $416 Nil
$417- $1,307 @68% 890 605
$1,308 – $12,000 @47% 10,692 5,025
Total tax payable 7,203

Add: Medicare levy @2% on taxable income (26,480 + 11,000) 750
Less: Low income tax rebate as the income is less than $37,000 -445
Total tax payable 7,508


As per the regulations of Div 6AA under Australian excepted income earned by the minors are taxed at normal rates while the eligible income is taxed at higher rates if the minor is not involved as full- time worker.

Case study 5: Foreign source income of entities

(a) Computation of taxable income of John Pty Ltd for the year ended 30 June 2015
Particulars Amount $ Amount $
Gross interest from Italy 30,000
Fully franked dividend 14,000
Add: franked credits 6,000 20,000
20% partly franked dividend 2,100
Partly franked credit 900 3,000
Partly unfranked credit 12,000
Unfranked dividends 15,000
Interest 5,300
Add: TFN tax 4,700 10,000
Total taxable income 90,000


(b) Calculation of net tax payable for the year ended 30 June 2015

Total taxable income 90,000
Tax payable at the rate of 30% 27,000
Less: foreign tax paid (4,700)
Less: TFN tax 6,630
Net tax payable 15,670


            Foreign income for business entities includes income from investment, foreign business, capital gains or interest from investments hence, the amount will be included in the total taxable income. However, as per the regulations of ITAA 97, business entities are entitled to claim tax offset if an amount of tax has been paid in the foreign country.

Case Study 6: Trusts

(a) Schedule nominating the following:

Distribution statement Bill Jane Mary Local Club George Trust
Beneficiary Family member Family member Family member      
Present entitlement Presently entitled Not presently entitled Presently entitled      
Legal disability Legal disability      
Applicable sections for assessable income section 102 AG section 98 section 102 AG section 102 AG section 102 AG Section 99 A
Assessment of amount 8,000 15,000 166,000
Distribution of income 22,000 5,000 40,000 8,000   15,000



  • Beneficiary

As per the regulations of Australian Trust Law on “family trust”, beneficiaries can only be the members within the “family group”. Accordingly following members can be nominated as beneficiary.

Bill 19 year old son
Jane 17 year old daughter
Mary Harry’s wife

  • Present entitlement of beneficiary

According to the regulations of Australian Taxation System, present entitlement of beneficiaries requires absolute assigned interest in the trust income that cannot be defeated by other member of the trust. Present entitlement also requires the right to make demand for immediate income payment which is restricted in case of minor members. Therefore, Mary, the wife of Harry and Bill as a nominated beneficiaries are presently entitled since Jane is minor member and cannot claim the income until she attain maturity.

  • Legal disability of the beneficiaries

Regulations of TD 92/159, ITAA 97/36, a beneficiary is referred under legal disability if the beneficiary is minor that is age below 18 years or if the member is mentally incapacitated. In the present case, Jane is minor since her age is 17 therefore, she would be referred under legal disability.

  • Applicable sections of the assessable income

In order to make the income assessable, regulations of section 102 AG under ITAA 1936 is applicable that incorporates income from employment, order of court for will, income from investment of the trust or other direct income for beneficiary’s benefit.

  • Assessable taxpayer on each amount
Net income of the trust $99,000 Trustee of the trust that is Harry
Distribution of income to Bill $22,000 Harry, trustee of the family trust
Distribution of income to Jane $5,000 Harry, trustee of the family trust
Distribution of income to Mary $40,000 Harry, trustee of the family trust
Local Under 10 Soccer Club $8,000 Soccer club
Income undistributed to George $15,000 Harry, trustee of the family trust
Income from part- time job by Jane Jane is assessed under the regulation of income of minors
Income from grandmother’s estate Trustee of the estate is assessed as Jane is minor
Unfranked dividend Jane is assessed

  • Amount distributed or retained
Amount distributed:
Distributed to Bill 22,000
Distributed to Jane 5,000
Distributed to Mary 40,000
Distributed to Local Soccer Club 8,000
Amount retained:
Distribution for George 15,000

(b) Computation of tax payable by the trustee for the year ended 30 June 2015

Particulars Amount $ Amount $
Total distributed income 75,000
Income distributed as presently entitled
Bill 22,000
Jane 40,000
Tax on above income at normal rates
$0- $18,200 Nil
$18,201 – $37,000 @19% 18,799 3,572
$37001 – $40,000 @32.5% 2,999 975
Income distributed to beneficiary under legal disability
Tax at higher rates @45% 5,000 2,250
Tax on undistributed income at higher rate @45% 15,000 6,750
Total tax payable 13,546



Case study 7: Primary Producers

Calculation of taxable income of Fred for the year ended 30 June 2015
Particulars Amount $
Income from sale of bananas 160,000
Insurance received for loss of bananas in flood 60,000
Agistment income 10,000
Profit from sale of sheep 2013/2014 80,000
Profit from sale of second wool clip 2013/2014 11,000
Insurance recovery installment received during the year 2010/2011
Total income 329,000
Less: Allowable deductions
Wages (84,000)
New telephone lines (assumed the internet connection used for business of primary produce) (8,000)
New fence (purchase cost) (12,000)
Accelerated depreciation for new fence ($12,000/30) (400)
New pipes: 1/3 of the cost incurred (5,000)
Deduction on general small business pool balance: 30% of the opening balance (45,000)
Total taxable income 182,600

            As per the regulations under ITAA 97/36, primary producers incorporate abnormal income that arises from trading in sheep from forced disposal or livestock death ( 2017). In the given situation, Fred elected to spread the profit earned during 2013/2014 amounted to $80,000 from forced disposal. However, Fred can elect to defer the amount of profit against the cost of livestock replacement for the period of five years.

            Further profit earned from second wool clip during the year 2013/ 2014 can be used to defer the profit income over the period of five years, therefore, profit of $11,000 can be used as deferred profit to reduce the tax liability. In addition, amount received as insurance recovery for loss of livestock during the fire amounted to $40,000 would be included in total receipts calculated as one- fifth over the period of five years.


According to the taxation system of Australia for primary producers, deduction of cost with respect to the purchase of fence before 12 May 2015 is entitled to get deduction on decline of value up to the useful life of 30 years. In addition, installation of new pipes on July 2014 with the effective life of 50 years would be allowed as deduction by considering one- third amount since it purchased before 12 May 2015.

Case study 8: Company Reconciliation

In the books of Click Pty Limited
(a) Statement showing reconciliation of accounting net profit to taxable income for the year ended 30 June 2015
Amount $
A. Net Profit as per the accounting income statement 360,351
B. Income reconciliation adjustments:
C. Expenses reconciliation adjustments:
Long service leave provision- unpaid ($5,960 – $5,320) 640
Traffic fines 800
Franking credit (4,980 * 30/100) 1,494
Doubtful debts provision ($3,350 – $2,800) 550
Directors’ fees in excess of ATO’s consideration ($135,000- $104,000) 31,000
Total taxable income 394,835
(b) Tax payable by the company for the year ended 30 June 2015
Total taxable income 394,835
30% tax on taxable income 118,451

Less: Tax offset for franking credit                                                                                        (1,494)

Net tax payable 116,957


According to the regulations of Australian Taxation System amount recognized as expenses under provision is not an allowable deduction under section 4-15 ITAA 97. Therefore, unpaid amount of long service leave provision has been added back together with the balance amount of doubtful debts provision.

Case study 9: Company franking accounts

(a) Franking Account for the year ended 30 June 2015
Russel Pty Ltd
  Date Particulars (Debit) Credit Franking account balance  
  6/30/2014 Opening balance -549   -549 debit  
  7/30/2014 PAYG installment paid 12,500 11,951 credit  
  7/31/2014 Paid franking deficit tax 549 12,500 credit  
  03/09/2014 Dividend received from Dutchy Ltd. (60% of $7,000) -4200   8,300 credit  
  10/1/2014 Received unfranked dividend 8,300 credit  
  10/29/2014 PAYG installment paid 13,000 21,300 credit  
  10/30/2014 Paid 60% franked dividend 6,000 27,300 credit  
  2/4/2015 Received partly franked dividend 1,281 28,581 credit  
  2/28/2015 PAYG installment paid 12,500 41,081 credit  
  4/28/2015 PAYG installment paid 12,900 53,981 credit  
  6/16/2015 Paid 60% franked dividend 107,143 161,124 credit  
    Total balance     161,124 credit  



            Receipt of unfranked dividend from the company, Bronko Ltd does not apply franking credits hence, not to be included in the statement of franking accounts. Similarly, paid balance of company tax for the year 2013/2014 $6,951 will not be included in the franking account since it is a part of regular tax payments.

(b) Calculation of additional taxes payable  
30-06-2015 No additional tax since the account does not have deficit balance 161,124 credit

According to the taxation regulation on franking account, a company or entity is liable to pay franking deficit tax if the balance of franking account appears deficit at the end of the financial year. In the above case, Russel Pty Ltd does not have any deficit balance on 30 June 2015 hence the company is not entitled to pay franking deficit tax.

(c) Effect of additional taxes payable by the company that is franking deficit tax involves tax offset for the future taxation assessment if the company is Australian resident as per ITAA 97 regulations. In addition, the additional tax will be used to offset the excess amount against the tax liability amount determined in the previous year if the balance $161,124 would have reflected credit or deficit balance.

Reference List and Bibliography

Alstadsæter, A. and Jacob, M., 2016. Dividend taxes and income shifting. The Scandinavian Journal of Economics, 118(4), pp.693-717. 2017. Home page. [online] Available at: [Accessed 1 Feb. 2017]. 2017. Australasian Legal Information Institute (AustLII). [online] Available at: [Accessed 1 Feb. 2017].

Seabrooke, L. and Wigan, D., 2016. Powering ideas through expertise: professionals in global tax battles. Journal of European Public Policy, 23(3), pp.357-374