Your client Damien comes to see you in December 2016 asking toprepare his income tax return for the year ended 30 June 2016. Heis also seeking your taxation advice in relation to some otherissues. He provides the following information;
Damien inherited a single-storey house valued at $360,000 on 1December 1984 and lived in it as his main residence. On 1 September1989, Damien added a second storey of equal size to the house at acost of $190,000. He moved upstairs, since it had better views, andstarted to rent out the downstairs area to help pay off hismortgage.
Damien wants to sell the house and travel the world. He couldsell it now for $650,000, but he believes he could sell the housefor $720,000, provided he undertakes the following work to thehouse;
Replacing all the old floor coverings with tiles $4,800
Repainting the entire inside of the house $6,500
Building a carport as there is no car accommodation at present$10,400
Damien also received an insurance payout of $12,000 after amotorcycle accident coming home from work one day. He incurred$3,200 in medical costs and $3,000 in legal fees in relation to hisinjuries.
In addition to the above transactions, Damien had the followingincome and expenses for the year ended 30 June 2016;
Income
Salary (occupation â sales representative) $79,000
Entertainment allowance $2,000
Rental income from the house mentioned above $15,400
Franked dividends from Commonwealth Bank shares $2,106
Free flight received from Qantas Frequent Flyer Program$1,300
Expenditure
Meals incurred when entertaining clients in his job as a salesrepresentative for his employer $1,700
Purchase of work clothing and shoes $450
Costs of studying a management degree in order to obtain apromotion within The business he is employed $2,950
Train tickets for travelling to and from work $150
Rates and insurance on the house (this is the full amount)$2,400
Life insurance $180
Tax Agent fees $750
Damienâs PAYG Payment Summary shows PAYG withholdings for the year$18,800
REQUIRED:
Prepare a Letter of Advice to Damien thatoutlines/discusses/explains the following:
The tax implications of the expenditure on the house that hewants to undertake to improve the sale value.
The tax implications of the sale of the house,including anyexemptions available.Calculate the assessable gain, if any,assuming he does undertake the work to improve the sale value.
The tax implications of the insurance payout and medical costsincurred.Calculatethe assessable gain, if any.
The assessability and deductibility of all the other itemslisted in the information as you calculate Damienâs taxable incomefor the year ended 30 June 2016.
The taxpayable/(refundable) for Damien for the year ended 30June 2016, including all additional levies and tax offsets.
Important Note:
Damien is an astute taxpayer and questions every pieceof tax advice given to him. To ensure Damien is satisfied and youradvice will not be questioned in the future, you will need toprovide adequate (but concise) explanations about the income taxtreatment of all these items above.
As such, you will need to support all your discussionand interpretation with reference to legislation, cases or rulings.Referencing the Master Tax Guide will not be appropriate as this isnot the authority, but rather assists your understanding of thelegislation, cases and rulings. Also, copying entire sections oflegislation, cases or rulings will not be appropriate as Damienwants your advice provided in a way he can understand.
It may be necessary to make assumptions in the absenceof specific information that will be provided by Damien later, soyou may need to make a decision that moves in a particulardirection, but provide a brief explanation if another course ofaction is appropriate.
Your advice should be provided formally in aprofessional letter addressed directly to Damien (not an essayabout him), addressing each issue as necessary. Remember, quantitydoes not always equate to quality, so be concise in yourresponse.
Your client Damien comes to see you in December 2016 asking toprepare his income tax return for the year ended 30 June 2016. Heis also seeking your taxation advice in relation to some otherissues. He provides the following information;
Damien inherited a single-storey house valued at $360,000 on 1December 1984 and lived in it as his main residence. On 1 September1989, Damien added a second storey of equal size to the house at acost of $190,000. He moved upstairs, since it had better views, andstarted to rent out the downstairs area to help pay off hismortgage.
Damien wants to sell the house and travel the world. He couldsell it now for $650,000, but he believes he could sell the housefor $720,000, provided he undertakes the following work to thehouse;
Replacing all the old floor coverings with tiles $4,800
Repainting the entire inside of the house $6,500
Building a carport as there is no car accommodation at present$10,400
Damien also received an insurance payout of $12,000 after amotorcycle accident coming home from work one day. He incurred$3,200 in medical costs and $3,000 in legal fees in relation to hisinjuries.
In addition to the above transactions, Damien had the followingincome and expenses for the year ended 30 June 2016;
Income
Salary (occupation â sales representative) $79,000
Entertainment allowance $2,000
Rental income from the house mentioned above $15,400
Franked dividends from Commonwealth Bank shares $2,106
Free flight received from Qantas Frequent Flyer Program$1,300
Expenditure
Meals incurred when entertaining clients in his job as a salesrepresentative for his employer $1,700
Purchase of work clothing and shoes $450
Costs of studying a management degree in order to obtain apromotion within The business he is employed $2,950
Train tickets for travelling to and from work $150
Rates and insurance on the house (this is the full amount)$2,400
Life insurance $180
Tax Agent fees $750
Damienâs PAYG Payment Summary shows PAYG withholdings for the year$18,800
REQUIRED:
Prepare a Letter of Advice to Damien thatoutlines/discusses/explains the following:
The tax implications of the expenditure on the house that hewants to undertake to improve the sale value.
The tax implications of the sale of the house,including anyexemptions available.Calculate the assessable gain, if any,assuming he does undertake the work to improve the sale value.
The tax implications of the insurance payout and medical costsincurred.Calculatethe assessable gain, if any.
The assessability and deductibility of all the other itemslisted in the information as you calculate Damienâs taxable incomefor the year ended 30 June 2016.
The taxpayable/(refundable) for Damien for the year ended 30June 2016, including all additional levies and tax offsets.
Important Note:
Damien is an astute taxpayer and questions every pieceof tax advice given to him. To ensure Damien is satisfied and youradvice will not be questioned in the future, you will need toprovide adequate (but concise) explanations about the income taxtreatment of all these items above.
As such, you will need to support all your discussionand interpretation with reference to legislation, cases or rulings.Referencing the Master Tax Guide will not be appropriate as this isnot the authority, but rather assists your understanding of thelegislation, cases and rulings. Also, copying entire sections oflegislation, cases or rulings will not be appropriate as Damienwants your advice provided in a way he can understand.
It may be necessary to make assumptions in the absenceof specific information that will be provided by Damien later, soyou may need to make a decision that moves in a particulardirection, but provide a brief explanation if another course ofaction is appropriate.
Your advice should be provided formally in aprofessional letter addressed directly to Damien (not an essayabout him), addressing each issue as necessary. Remember, quantitydoes not always equate to quality, so be concise in yourresponse.
