Cash Received and Accounts Receivable
According to S6-1(1) of the Income Tax Assessment Act 1997, assessable income consists of ordinary income and statutory income. Therefore, for the year ended 30 June 2013, Mary received $150,000 in cash and $10,000 accounts receivable from customers are ordinary income as it is described in S6-5(1) of ITAA97 that assessable income includes income according to ordinary concepts is called ordinary income. The same cases are Tennant v Smith (1892) AC 150; (1892) 3 TC 158; FCT v Dixon (1952) 86 CLR 540 and FCT v Harris 80 ATC 4238; (1980) 43 FLR 3. 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 bu 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 (SA) v Executor Trustee & Agency Co of SA Ltd (Carden’s case) (1983) 63 CLR 108, 5 ATD 98. Therefore, $ 160,000($150,000+$15,000-$5,000) is the assessable income under S6-5(1) of ITAA97. Income From Dividend
Assume Mary is an Australian resident, under S44(1) of ITAA97, 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 S205-25(1)(c) of ITAA97, 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...
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