Ayb 219 Taxation Law-Taxpayer Compliance Assessment Answers

Case Study

Answer:

The taxpayer is allowed to claim cost of accommodation as deduction if the following general conditions are satisfied:

• The travel allowance is received by the taxpayer should be declared in the tax return.
• The taxpayer has to visit away from home as a part of employment.
• The tenure for staying away from home is only for a short period.
• The taxpayer should have a permanent resident in another place.
• The taxpayer has paid the expenses that have been incurred for the accommodation. The expenses are not reimbursed to the taxpayer (Saad, 2014).

The Taxation Ruling 2004/6 explains the manner in which the travel and overtime meal allowances can be claimed. The key points that is highlighted in the ruling for claiming deductions are:

• The expenses should have been incurred and it should be an allowable deduction.
• The expenses that is claimed as deduction should not exceed the actual amount incurred.
• The expenses incurred should be related to work and should be available for deduction under the Income Tax assessment act (Birt et al., 2014).

The taxation ruling provides that if the amount claimed is more than the reasonable amount then the taxpayer be required to provide evidence for substantiating amount. The Tax Determination 2016/13 provides the reasonable amount that is allowed as deduction for the accommodation at daily rates, expenses that are incidental to travelling and expenses related to meals. The Tax Determination state that the accommodation rates are applicable only for short durations (James et al., 2015). The accommodation expenses includes the expenses related to hotels, motels etc. This tax determination does not apply if any other accommodation is used than that is mentioned above. The reasonable amount that is allowed as accommodation expenses is dependent on the level of salary and the destination. The table provided in the tax determination shows the accommodation rate that is considered as reasonable amount for different cities. In addition to this, the tax determination provides reasonable accommodation at different level of salary (Tran-Nam et al., 2014).

In this case, the gross salary of the taxpayer is $127,700. The taxpayer has visited Melbourne for work related purpose and has incurred accommodation expenses. The issue here is to determine the amount that is allowed as deduction as expenses related to business. It is to be noted that for the purpose of calculation it is assumed that the gross salary includes travel allowances. On analyzing the table provided in the tax, determination 2016/13 it can be said that the reasonable amount that is allowed as accommodation expenses per day is $228. However, in this case an amount of $650 that was incurred for accommodation is upgraded to a room costing $824. As it can be seen that the amount claimed is more than the reasonable amount so the taxpayer need to provide substantial receipt in evidence for claiming the expenses. In this case, the expenses that is necessary for work related purposes should be allowed as deduction. The expenses incurred for deluxe accommodation is not a necessary expenses for work related purpose. Therefore, it can be said that the amount of $650 are allowed as accommodation provided written documents substantiating the expenses are available (Evans et al., 2015).

The section 8-1 of the Income Tax Assessment Act 1997 provides that the taxpayer is allowed to deduct from the assessable income any loss or outgoing expenses that is incurred for producing the assessable income. In this case, the expenses incurred for medicines is not incurred for producing assessable income. Therefore it can be said that the expenses or not allowed as deduction.

The computers that are used for work are partly for work can be claimed as deduction for the purpose of tax. If the computer is partly used for personal and business purposes then the expenses should be adjusted for the business use for claiming the expenditure. The cost associated with the computer is allowed as deduction as depreciation over the useful life of the assets. The ATO provides that the effective life of the computer is 4 years and the effective life of the laptop is 3 years. In case of computers, the amount of depreciation is calculated in diminishing value method by applying a rate of 50% per annum. In prime cost method, the amount of depreciation is calculated by applying a rate of 25% on the cost of the computer (Taylor & Richardson, 2013).

The cost of the computer can be claimed by the employees to the extent it is used in employment for earning income. The law provides that the non-business taxpayer is allowed to claim full deduction for the cost of the computer and related software if it is not more than $300. It is further provided that if the cost of the computer is more than $ 300 then the formula for depreciation should be used for calculating the allowable tax deduction amount. In order to calculate the amount of depreciation it is necessary to determine the cost of the assets. The cost of the assets excludes the amount that is not been incurred. In this case, the cost of the asset is $2600. Therefore, the amount of depreciation that the taxpayer can claim by following the diminishing value method is $801.37. The amount of depreciation that is allowed as expenses under Prime cost method is $650. The calculations are provided below:

Therefore, in this case it can be said that the taxpayer can claim any of the above amount as deduction depending upon the type of depreciation method followed.

Reference

Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J., & Janson, P. (2014). Accounting: Business Reporting for Decision Making 5e.

Evans, C., Minas, J., & Lim, Y. (2015). Taxing personal capital gains in Australia: an alternative way forward.

James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), 280.

Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.

Taylor, G., & Richardson, G. (2013). The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), 12-25.

Tran-Nam, B., Evans, C., & Lignier, P. (2014). Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, 137.