Question

Word length: 2,500 words/excluding references References: Yes using either APA or AGLC style and include a reference list

Scenario:

James Strong is a managing director of ABC Pty Ltd, a large private Company that specialises in accounting services.

For the current income year, James has the following receipts and expenses:

a) Salary of $500,000

b) Rent from his apartment in London that derives $600 (equivalent) per week

c) An amount of $20,000 received by James for personal injury, $5,000 of this amount was for loss of salary

d) $5,000 incurred by James for undertaking a Graduate Certificate in Accounting.

e) Reimbursement of his telephone bill by ABC Pty Ltd.

f) Dividends of $20,000 received on his Telstra Share portfolio

g) A bottle of wine worth $2,000 he receives from the CEO of ABC Pty Ltd at Easter

Task: Your firm has been approached by James Strong to provide a letter of advice in relation to the tax implications of these amounts. You are to write a letter of advice that addresses these issues citing the relevant cases and legislation. At this time, you are not required to perform any calculations.

Answer 1

Letter of advice for addresing the above issues:

James Strong, the managing director is an Individual in the terms of The Income Tax Act and he will be assesed accordingly.

a) The salary income of $500000 will be assesed under the head 'Income from Salaries'. The Income under this head will be calculated after reducing the allowable dedctions. This income will be considered for tax purpose without deducting any expenditures, only allowable deductions will be adjusted to arrive at net salary income.

b) Rent from appartment will be considered under the Head ' Income from House Property'. The income will be considered for tax purpose after allowing 30% standard deduction from the gross rent received. Any municipal taxes paid will be deducted and net amount will be taxable.

c) Amount received for personal injury is a kind of mediclaim which is not taxable. This will have no tax implications. But the amount received for loss of salary will be treated at par with salary and will be charged under the Head 'Income from Salaries'.

d) Cost incurred to take graduate certificate in accounting is a personal expenditure. This will have no tax implication niether it is deductible from any income.

e) Reimbursement of expense is not an income so it will not have any tax implications.

f) Income by way of dividend will be charged under the Head 'Income from Other Sources'.

g) Wine bottle received from CEO will be considered as a gift and it will have no tax implication as it is a gift in kind. It will be out of the perview of the taxation.

Note: The above answer has been given based on my own logic about the above terminologies.