The material fact means scenario or option that is essential or important to a Francis in deciding
whether to engage in a transaction of replacing the whole commercial kitchen at a cost of
$23,000 or repairing the kitchen appliances at a cost of $4,900.Francis decided to engage in a
transaction of replacing the commercial kitchen with brand new modern appliances as new
modern appliances in the market have better features and are durable.
Identification and Analysis
In addition to this Francis ignored the transaction of repairing the kitchen appliances because
some parts of appliances may not be available in the market since the appliances are too old and
outdated (Hilliard, 2012). The amount Francis will use to transact in replacement of commercial
kitchen that is $23,000.00 is subjected to tax and this is advisable to be the best choice instead of
repairing appliance at $4,900.00, which could have been a lot of expenses of taxation in keeping
on replacing non-durable kitchen appliances.
Investors in an Australian Early Stage Innovation Company (broadly, a company that is at an
early stage of an establishment to develop new or significantly improved innovations with the
purpose of commercialization to generate an economic return) are provided with a non-
refundable carryforward tax offset equal to 20% of the amount paid for the investment, subject to
an annual offset cap of AUD 200,000 (Woellner, 2013).
In calculation 1 AUD is equivalent to $0.67
Therefore $23000 is equal to AUD 34,498.28
Taxable income equals assessable income less allowable deductions. Assessable income includes
ordinary income under common law and statutory income but does not include specifically
exempt or non- assessable income (Parsons, 2011).
Generally, to be deductible, losses and outgoings must relate to the gaining or producing of
assessable income. Some items are specifically non-deductible, such as penalties and fines
(Murdock, 2013.). Capital expenses are generally non-deductible but may be deducted over time
as a capital allowance or included in the capital gains tax cost base. Expenses incurred in
producing exempt income are also non-deductible. It is possible to claim a portion of expense
items that have dual purposes.
Equipment like kitchen appliances which are depreciable is written off over their effective life.
There are alternative rules for small business taxpayers with an average turnover of less than
AUD $2 million (Wallschutzky, 1990). Taxpayers may self-determine the effective life of a plant
to calculate the tax depreciation rate or instead may rely on tax rates published by the
Commissioner of Taxation.
Either the straight-line or diminishing-value methods of depreciation can be used for each item
of plant and is determined as follows:
1. Straight-line method: 100% ÷ Asset’s effective life.
2. Diminishing-value method: 150% ÷ Asset’s effective life if acquired before 10 May 2006 or
200% if acquired on or after 10 May 2006.
Thorough yet succinct application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts
in Francis’s deductibility of the commercial kitchen scenario. The ITAA 1997 includes the
capital gains tax rules, as gains are assessable income the payment of goods and services tax the
law states that supply of goods is connected with the in directed tax zone if the good are
delivered, or made available, in the indirect tax zone to the recipient of the supply.
We get that general deduction is a loss that is deductible under the general principles of
deductibility. Broadly, this requires the loss or outgoing to have the relevant connection with
assessable income or the carrying on of a business provided that it does not have a capital,
private or domestic nature
Taxable income refers to Tom’s business compensation that is utilized to determine tax liability.
The total income amount or gross income is used to calculate how much tax Tom owes the
government for the specific tax period.
Tom’s business income is achieved by considering sales of musical instruments of $ 2,500 plus
sales of April of the current year worth $ 3,200 and the amount not paid. This gives;
The current actual income sale of a musical instrument is a total amount of $220,000 minus
unpaid $3,200. The assumption is made that $2,500 is included in the $220,00
Salary income is $53,000 plus the amount of $4,200 to be paid for leave this sum to;
Income due to bank interest on the deposit is equal to interest plus is the interest rate (5%) of
invested amount ($1,000).
There is another extra interest we get when added to $ 20,000 to get $ 22,050 and that makes a
total interest of
A Franked Dividend
A franked dividend has been paid with a tax credit attached its aim or work is to eliminate the
issue of double taxation of dividends (Náñez Alonso, S., 2019). It seeks to reduce a dividend-
receiving investor's tax burden. In this case, investors are likely to be school directors or
executive members owning the school. Fully Franked dividends are $5,143. This $12, 000 is
included in taxable income.
As per the case, Dividends are paid by the school management to employees or teachers usually
on a quarterly basis, out of profits. This entails that these dividends have already been taxed at
the corporate level. Now teachers or employees receiving the dividend or bonus should not be
responsible for the tax on that dividend when it comes to paying their personal income taxes, as
this would constitute double taxation.
Franked dividends eliminate this double taxation by giving school owners a tax credit,
commonly known as franking credit, for the amount of tax the school paid on that dividend
(Pearson, 2009). The teacher “Tom” submits the dividend income plus the franking credit as
income but will end up being taxed only on the dividend portion. Franked dividends given here
If the company pays unfranked dividends then the employee or shareholder will have to pay tax
on those dividends. Unlikely shareholders or employees will not need to receive any money to
cover this tax because his dividend has been reinvested in more shares (Fullarton, 2008). As Tom
is receiving an unfranked dividend shows that school was not able to give Tom any imputation
credits on the money Tom is receiving. The School has not already paid tax on the money Tom is
Unfranked dividends given as captured in Tom’s receipt means that Sydney Guitar School does
not pay much tax since they a lot of tax deduction available to them, having the money they are
able to pay their director so they do not pay tax Sydney Guitar School does not pay the tax they
are not able to give Tom a credit for tax they have already paid. This results in any profits Tom
receives being Unfranked dividends which are $4,000, must be included in taxable income
Total taxable income: For taxable income, we sum up the following:
Income sale of musical instrument=$
Income due to bank interest=
A franked dividend=12,000
Net tax payable=Taxable income ($292,050) minus franked dividends ($5,143)
. Net tax payable is $286,907.
Hilliard, F., 2012. Law of Taxation … [Place of publication not identified]: Nabu Press.
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Murdock, M., 2013. Tax Insight. [Place of publication not identified]: A press.
Solomons, D., 1997. Guidelines for Financial Reporting Standards. New York: Garland Pub.
Parsons, R., 2011. Income Taxation in Australia. Sydney, NSW: Thomson Reuters.
Náñez Alonso, S., 2019. Activities and Operations with Cryptocurrencies and Their Taxation
Implications: The Spanish Case. Laws, 8(3), p.16.
Pearson, G., 2009. Financial Services Law and Compliance In Australia. Port Melbourne, Vic.:
Cambridge University Press.
Fullarton, A., 2008. Tax Evasion, Tax Avoidance and Tax Planning in Australia: The
Participation in Mass-Marketed Tax Avoidance Schemes in the Pilbara Region of Western
Australia in the 1990s. SSRN Electronic Journal,
Wallschutzky, I., 1990. Australian Income Tax Questions. Sydney: Butterworths.