Ayb 219 Taxation Law-Taxpayer Compliance Assessment Answers

Case Study

Michael Knight is an Australian resident. He works full-time as a political journalist with The Brisbane Telegraph newspaper based in Herston.Michael lives in a four-bedroom house in Clayfield with his wife of fifteen years, Ashleigh, and their two children, Matthew, aged eleven and Bianca, aged seven. Michael and Ashleigh purchased this property in joint names in June 2011 and regard it as their main residence.

Michael has various investments, including shares in listed Australian companies and a rental property which was bought during the current income year.Last year, Michael utilised the services of a local tax agent in Hendra. However, he was dissatisfied with their service and has approached your group to assist him in preparing his 2016 income tax return using Sage Handisoft’s HandiTax software program.Michael has supplied your group with the following information relating to his personal income tax affairs for the year ended 30 June 2016.

Answer:

• 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).

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.

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