RFG Capital Leasing Ltd

Question: Discuss abouit the RFG Capital Leasing Ltd. Answer: Introduction The following report aims to identify the assessability of income and expense transactions for the individual taxpayer, Wayne Hall during the year ended 30 June 2016. Wayne Hall, financial analyst with the RFG Capital Leasing Ltd, commenced employment from August 1 2015. Identification of assessability of Waynes income and expenses has been done with respect to the principles on Australian Taxation System and tax rulings under Income Tax Assessment Act 1997 (ITAA97). In order to provide analysis and assessability on the income derived by Wayne, several case judgments has been considered relevant to the specific transactions. Discussion Employment income of a taxpayer individual is taxable as per the taxation rulings under ITAA 97 that provides regulations on addition of income and deductibility of work related expenses. Accordingly, assessability of Wayne Halls income will be measured based on the employment income regulations as per ITAA 97 and relevant amendments, assuming that Wayne is Australian resident for the year ended 30 June 2016. It is mentioned that the taxpayer was offered a sign- on bonus amounted to $5,000 that was payable after a probation period of three months. According to the legislation provided by Australian Federal Government as per ITAA 97, all incomes as a part of employment will be included in the taxable income that includes salaries and wages, bonuses, allowances, commissions, leave payments and other income. However, individual should receive the income during the reporting taxation year to include the same in the taxable income. Accordingly, bonus amounted to $5,000 will be included in the assessable income since it consists of one- off nature not related to employment performance if it has been actually received during the current taxation year. In view of the regulation of ITAA 97, on taxability of employment income, assessable income includes payment in terms of salaries and bonus. In the given case, Wayne received base salary amounted to $100,000 as a part of employment arrangement for the year ended 30 June 2016, hence it will included in the assessable income. In addition, bonus received by Wayne amounted to $20,000 that was received by him on January 1 2016 will be included in the assessable income. Since, the bonus constitutes a part of employment income on salary and wages as per ITAA 97 whether as a part of work performed during the current taxation year; it will be included in the taxable income. On the contrary, if any amount of bonus received after the end of the current taxation year then, that amount will not be assessable in the current taxation year. The case is similar to the decided case of Dixon v. FC of T 55 (1952) 86 CLR 540, in which court held that the benefit received by the taxpayer during the taxati on year would be assessable. However, if the same has been received after the end of the current tax year, it would be assessable in the subsequent taxation year. Therefore, bonus amount of $15,000 received by Wayne on 12 July 2016 would not be assessable in the taxable income for the year ended 30 June 2016. Contribution to superannuation fund is regulated under section 290 ITAA 97 that is contributed by the employer on behalf of employee is applicable to the employer if the required conditions has been satisfied. An employer is entitled to claim deduction for superannuation fund contribution for the employee while the employee while the same will be taxable in the hands of employee at the rate of 15% during the year ended 30 June 2016. Similar to the case of Roche v FC of T (1991) FCA 606, court held that the contributions in superannuation fund made by employer should be taxable in the hands of employee as per TR 2010/1 ITAA 97 at the rate specified in the legislation. On the contrary, arrangement on salary sacrifice refers to the amount included in the remuneration package as per the employment arrangement between employee and employer. As per the regulations of ITAA 97, sacrificed salary is not assessable during the arrangement period while if the sacrificing salary constitutes fring e benefit then it will be assessed at normal tax rates. Further, salary sacrificed in terms of superannuation contribution does not constitute fringe benefit, hence it would not attract the taxability on fringe benefits. In the present case, Wayne made contribution amounted to $5,000 by way of salary sacrifice that would not constitute a part of fringe benefit. Hence, the same can be claimed as deduction as per the principles of Australian Taxation Office. As per the tax regulations under ITAA 97, amounts received by the employee as a part of allowance, then such receipt will be treated as employment income and will be included in the assessable income. However, if the allowance includes travel allowance or allowance on overtime meal in accordance with the industrial law provisions or under any agreement or award then the same will not be included in the assessable income. In the present situation, Wayne received travel allowance for the purpose of attending a conference in London during May 2016 cost of which amounted to $8,000 as trip cost and conference fees. As the conference was a part of work incentive to recognize the performance Wayne attended the conference and spent $8,000 which will be deductible to assess the taxable income during the year 30 June 2016 since it was a part of Waynes employment. Besides, the amount of travel allowance would be included as assessable income if the same had not been received under the industria l law agreement. Assessability of car expenditure used for wok would be deductible as per two methods cents per kilometer method or logbook method. Under the method of logbook method, it is essential to maintain the record for 12 consecutive weeks and the ownership is must. It is also essential to follow the completion of logbook process once in five years or less. On the contrary, cents per kilometer method is allowed as deduction to the extent 5000 km at the rate 66 cents per km reference to the case of FC of T v. Finn (1961) 106 CLR 60. In the present case, Wayne received an allowance of 80 cents per kilometer and received an allowance amounted to $2,250 for the year ended 30 June 2016. Accordingly, kilometers travelled by Wayne for work purpose equals to $2,250/88 cents i.e. 2,556 km, which is under the threshold limit 5,000 km hence Wayne would be eligible to claim deduction at the rate 66 cents for 2,556 km amounted to $1,686.96. Therefore, total assessable income during the period ended on 30 June 2016, for Wayne under the employment would be presented as follows: Amount $ Base salary 100,000.00 Bonus 20,000.00 Less: Allowable deduction Superannuation contribution 5,000.00 Trip cost and fees 8,000.00 Car expenses 1,686.96 Total assessable Income 105,313.04 Conclusion It can be concluded that the employment income of the individual is taxable on the income received during the taxation year while deductions are allowed if the same is incurred for work purpose. Accordingly, employers contribution to superannuation fund amounted to $13,500 would be taxable at the rate of 15% other than the taxation of assessable income under normal income while the amount of travel allowance will be included in the assessable income. All other incomes related to the current year will taxable as per ITAA 97 and related expenses on using car for work will be deductible including travelling cost and conference fees. Reference List and Bibliograhy 'Australasian Legal Information Institute (Austlii)' (Austlii.edu.au, 2017) https://www.austlii.edu.au/ accessed 8 January 2017 Burkhauser RV, Hahn MH, Wilkins R. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality. 2015 Jun 1;13(2):181-205. Dixon v. FC of T 55 (1952) 86 CLR 540 Earl JK, Gerrans P, Asher A, Woodside J. Financial literacy, financial judgement, and retirement self-efficacy of older trustees of self-managed superannuation funds. 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