ACC3TAX Taxation

Question 1 – Answer

Part 1a

The receiving of rent is viewed as an ordinary income under the “sec 6-5 ITAA 1997” because the rent from flows from the investment made in a property. As held in “Adelaide Fruit and Produce Exchange Co Ltd v DFCT (1932)” rent must be viewed as the payment that is made by one party in exchange of using the another person property for the fixed amount of time period. Similarly in the current situation of John the receiving of rent is viewed as an ordinary income under the “sec 6-5 ITAA 1997” and will be included in his taxable income.

Part 1b

Individuals that are involved in gambling are not very likely to be held as doing business unless there is an existence of significant degree of indicators. In “Trautwein v FCT (1936)” the taxpayer was involved in horse racing with the ultimate objective of producing profit. The taxpayer set up farm to breed horses, he also raced his own horses and those that were leased and was also involved in frequent and systematic betting where the taxpayer was found to be wagering large amount of money, used agents to bet and also attended race meetings. The court held that the taxpayer was found to be carrying on the business of gambling and was assessable on the gambling receipts.

As evident in the case of Manali reports receiving gambling winnings as the regular punter. Referring to “Trautwein v FCT (1936)” in the circumstances of Manali, the gambling winnings will be considered as an assessable income because her activities represents regularity and frequently involved in regular betting. The receipts from such gambling winnings is assessable as ordinary income under “sec 6-5 ITAA 1997”.  

Part 1c

Any kind of unanticipated or voluntary payments that is received by an individual as the incidence of employment amounts to an ordinary income under “sec 6-5 ITAA 1997”. As found in the case of “Calvert v Wainwright (1947)” the tips that is received by the taxi driver was held as an ordinary incidence of employment and amounted to ordinary income.

Accordingly, in the current circumstances of Meenuka she reports receiving tips from her employment as waitress. Quoting the judgement given in “Calvert v Wainwright (1947)” in the current situation of Meenuka, the tip received as a waitress will be termed as unanticipated or voluntary payments that is received by Meenuka as the incidence of employment. The tip will be considered assessable as ordinary income within “sec 6-5 ITAA 1997”.

Part 1d

There should be an adequate nexus between the receipts and the provision of service such as the product or reward or as a result of ordinary incident of provision of service. A simple prize winning cannot be treated as an ordinary income but it must be noted that the receipts from prize winnings will be held as an ordinary income when there is an adequate relation with the income earning activities of taxpayer. As noted in “Kelly v FCT (1985)” the professional footballer reported receiving award from the Channel 7 for being the “best and fairest player”. The amount which was received was treated as income because the award was held as incidental to his work and employment by club and was also associated to his exercise of skill.

Carlo reports receiving payment that was made by television station as the professional footballer for being named as best and fairest player in Australian Football League. Quoting the judgement of “Kelly v FCT (1985)” in the current circumstances of Carlo it can be stated that the payment received by him by a television station for being the best and fairest player will be considered assessable as ordinary income under “sec 6-5 ITAA 1997”. This is because the award should be held as incidental to his work and employment by club and was also associated to his exercise of skill.

Part 2a

A franking account tax return must be lodged by the directors of Jumbo Pty Ltd because the company is liable to pay the franking deficit tax since the company has a deficit balance in its franking account by the end of the income year. Jumbo Pty Ltd is also obliged to disclose the significant amount of its variation in its benchmark franking percentage to the ATO that it has not made payment to the shareholders. The company here Jumbo Pty Ltd is required to lodge the franking account tax return by the last day of the month following the end of income year typically by the 31^st July.

Part 2b

Under “sec 205-25” a franking debit is largely recorded in the account if the company pays a franked distribution to its members or it receives the refund of income tax. The debit is equivalent to franking credit that is attached to the distribution or the amount of tax refund. The directors of Juicy Ltd has declared fully franked dividend of $700,000. Therefore, a franking debit entry will be recorded in the account since the company has paid a franked distribution to its members. The debit amount will be equivalent to the franking credit amount attached to the distribution.

 

The company should lodge a franking deficit tax return since the franking account has come to deficit and necessary adjustment should be made by the end of income year.

Part 2c

The main purpose of Benchmark Franking Rules is to make sure that all the shareholders are simply treated in an equal manner. All the distributions made during the franking period must be franked at the benchmark franking percentage. This rule makes sure that the over the time, the benefits of franking credits should be spread more or less evenly across the members in a proportion of their ownership interest. Any breach of benchmark rule would not invalidate the allocation made to distribution but it would lead to imposing of over-franking tax or the imposition of an under-franking debit for the franking entity. If the franking percentage regarding a distribution surpasses the benchmark franking percentage (over-franking), the company is under obligation of paying over-franking tax equal to the excess franking credits. Whereas if the franking percentage for distribution is lower than the benchmark franking percentage (under-franking), the company would incur a franking debit in its franking account which would be equal to the unused franking credits.

In the current situation of Jimminy Ltd a 30% corporate tax rate would be applicable for imputation purpose and the maximum amount of franking credit that Jimminy Ltd can allocate to this distribution is $1,000,000 x 30*70 x 50%) 428,571.43 x 50% = $214285.71. The company can allocate to distribution is $1,000,000 x (1/the corporate tax gross up rate being 2.33333). The benchmark franking percentage rule will apply in this case.

Question 2 – Answer

Part 1

Part 2

Question 3 – Answer

Part 1

 

Part 2

The net income of partnership should be distributed amongst the partners namely Jamal and Juwita on the basis of equal share on partnership profit.

Question 4 – Answer

Part 1

Jeremy can raise an objection to the assessment of ATO. Jeremy can lodge an objection in writing and inside the certain amount of time frame regarding the dispute or objection. By law Jeremy can object to the tax assessments of ATO. Jeremy can submit her objection by using the ATO’s objection form as it would provide her guidance that she wants to include in her objection.

Part 2

The time limits for lodging an objection to ATO for Jeremy is two years from the date of assessment that was given to her. The time starts from the date when Jeremy has received an assessment or notice of decision.

Part 3

If Jeremy is dissatisfied with the objection decision given by the commissioner then he may either make an application to AAT for reviewing that decision or appealing to the federal court against the decision under “sec 14ZZ of ITAA 1997”.

Part 4

Jeremy is recommended to go to AAT or the federal court as he is dissatisfied with the commissioner’s objection decision. The taxpayer here Jeremey will be considered limited to the grounds stated under the objection to which the decision is related unless the AAT or the federal court gives an order otherwise under “paragraphs 14ZZK (a) and 14ZZO (a)” respectively. Jeremy in this circumstances has the burden of proving to AAT or the federal court that the assessment given to him by commissioner is excessive. The decision that would be given by AAT or the federal court will become final when the period of appeal has expired and no appeal is lodged against the decision given.  

Part 5

The commissioner may impose the general interest charge and the shortfall interest charge on the outstanding amounts. As a penalty the shortfall amount may include late payments and unpaid tax debts. The interest charges would be applicable to Jeremy whether or not a penalty is applicable.

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