When deciding which tax accounting method should be applied, the situation must be evaluate first. There are two methods for accounting receipts which are Cash Basis and Accrual Basis. Cash basis is used mostly buy individuals like salary or wage earners while the accruals basis is generally used in business. Since Mary is the owner and sole proprietor of a shoe shop called “The Glass Slipper” and she does not employ any staff, the right accounting method applied here should be accrual basis.
The similar case is C of T (AS) v Executor Trustee & Agency Co of AS Ltd (Carder’s case) (1983) 63 CLC 108, 5 ADD 98. Therefore, $ is the assessable income under SO-5(1) of OTTAWA. Income From Dividend Assume Mary is an Australian resident, under ASS(1) of OTTAWA, the assessable income of a shareholder in a company includes dividends that are paid to the shareholder by the company out of profits derived by it from any source and all non-share dividends paid to the shareholder by the company.
Since the three companies that Mary owns shares are publicly listed companies, according to SASS-25(1 )(c) of OTTAWA, an entity is a public trading trust for the income year which satisfies the residency requirement can give rise to a franking credit or franking debit. Therefore, the dividends paid to Mary by the three companies are assessable income. Under S 207-20(1) of OTTAWA, if an entity makes a franked distribution to another entity, the assessable income of the receiving entity, for the income year in which the distribution is made, includes the amount of the franking credit on the distribution.
This is in addition to any other amount included in the receiving entity’s assessable income in relation to the distribution ender any other provision of this Act. Therefore, the total assessable income from the dividends are () Interest Income Under ASS-35 of OTTAWA, your assessable income includes interest payable to you under the Taxation(lanterns on Overpayment’s and Early Payments) Act 1983. The interest become assessable when it is paid to you or applied to discharge a liability you have to the Commonwealth.
And according to SO-5 of OTTAWA, ordinary income. The interest Mary received from the bank on both her business and personal account are considered to be ordinary income since they are paid y the bank to Mary on the money she saved in the bank. Therefore, the interest paid $5 to Mary on the business and $3 on personal account are assessable income. The total is $8. Health Insurance According to SO-1 (1 ) of OTTAWA, assessable income consists of ordinary income and statutory income.
And under SO-5 of OTTAWA, income according to ordinary concepts. The health insurance of $3,000 refund due to having eye surgery which is not an ordinary income because it is a refund of the eye surgery instead of an income to Mary. But under ASS-30(b), your assessable income includes an mount you receive by way of insurance or indemnity for the loss of an amount if the amount you receive is not assessable as ordinary income under section 6-5.
Thus, the $3,000 is still assessable. Income Protection Insurance Under S 15-30(a) of OTTAWA, your assessable income includes an amount you receive by way of insurance of indemnity for the loss of an amount if the lost amount would have been included in your assessable income. The insurance refund of $2,500 is due to the eye surgery during which time Mary could not operate her business for two weeks. As a result, the $2,500 is assessable income.