Objectives

Answer the following question with reference to the relevant legislative provisions operating in Australia concerning the application of relevant income tax rules and formulas. Do not consider the effects of legislation potentially applicable other than that specifically identified.

Assessment Task

Giving reasons, indicate any amounts that would be included as assessable income of the following resident taxpayers for the 2016/17 tax year:

(a) Nick Addison is employed by Lazarus Holdings Ltd. His net weekly wages totalled $78,000 for the year. Total PAYG tax withheld from Nick's weekly wages from Lazarus and forwarded to the ATO amounted to $19,000.

(b) Additional wages paid to Nick as a Christmas bonus of $6,000 (net of $4,200 PAYG tax withheld).

(c) Reimbursement of out-of-pocket travel costs of $1,200 that Nick incurred during his employment.

(d) A travel allowance totalling $2,800. No PAYG was withheld from this amount.

(e) Lazarus paid health insurance premiums for Nick and his wife to the value of $2,750.

(f) $10,000 superannuation contribution to Lazarus Holdings Superannuation Fund on behalf of Nick.

(g) Chris receives casual wages as a freelance journalist. On 4 July 2016 Chris was seriously injured when he fell down seven flights of stairs whilst jogging one morning. He received $50,000 during the year from his sickness and accident insurance policy for loss of income.

(h) Chris also received $8,000 from his health insurance policy towards various operations and rehabilitation that he required.

(i) Chris received a $70,000 lump sum under a trauma insurance policy for his right foot, which eventually required amputation.

(j) Chris received a cheque for $5,400, which represented long service leave that he had accrued from several years as a part-time copywriter. This amount is net of $1,600 PAYG tax withheld.

(k) Quentin conducts business as a general medical practitioner. During the year, he received $79,000 in fees direct from patients, and $154,000 in receipts from Medicare.

(l) Warren derives business income as a removalist. During the year, due to an error by his mechanic, Warren's truck was off the road for 4 weeks and eventually written off as irreparable. All figures are exclusive of GST where applicable. He received the following amounts from his insurance company:

Reimbursement of deductible truck repairs $ 14,000
Demurrage (compensation for loss of income) 16,000
Proceeds for disposal of Truck (equal to book value) 75,000

(m) Sandy operates a general food store. During the year, his store was subject to two armed robberies. He received the following amounts from his insurance company (exclusive of GST):

Loss of cash sales from robberies $ 21,000
Loss of Trading Stock 7,800
Reimbursement of deductible shop repairs 3,200
Reimbursement of Medical Expenses 2,000

(n) Troy operates an advertising agency. During the year, he has a "contra" transaction with his solicitor to the value of $25,000.

(o) Harrison derives business income as a barrister. He instructs one of his clients to pay his fee of $19,000 direct to Commonwealth Bank with whom his wife has a mortgage.

(p) Karl conducts business as a contract plumber. He completes a subcontract job for a large construction company in return for airfares and accommodation to the value of $8,000 rather than a cash fee.

(q) Rob conducts business as a lawyer. He drafts some changes to a Will for one of his clients and does not charge a fee but receives a $250 pair of cufflinks.

(r) Petros conducts business as a property developer. As a result of extensive travel throughout the year, Petros receives 178,000 frequent flyer points which he is able to redeem in the form of air tickets to the value of $3,280.

(s) Len trades as a carpet retailer. During the year, he receives cash subsidies and incentives from a supplier for selling over 2 kilometres of their carpet. This amounted to $36,000.

(t) Shelley operates a coffee shop. Fiasca, a coffee supplier gives her an espresso machine as an incentive to use their coffee. The machine is worth $12,000. They also provide her with some outdoor umbrellas and furniture with the name of their coffee. These are valued at $8,000 but must be returned to Fiasca if she ceases to buy their coffee.