Taxes on income and sales taxes are levied at the federal and the debate between levels of government - central and federal - on the distribution of these revenues and duplication of expenditure functions is a perennial issue in Australian politics. Australian public services are funded largely by general taxation, much of which is achieved through a tax from the income of citizens. However, in recent times, the Australian government has made significant reforms in the tax system, in order to reduce income taxes by increasing the indirect tax base and improving tax fairness (Leow, Murphy & Hooper 2009). In this paper, I compute total and taxable income of James, a truck driver in Australia.
James is a truck driver, aged 35, who is living at home with his parents in Mt Cooke in Western Australia. He wants to start saving for his future so he purchases a house as a rental property on 1 September 1995 for $85 000 with purchase costs of $5 000. In December 1998 James constructs a pergola on the property at a cost of $15 000. The tenants have trouble with the roof leaking in January 2001 and James replaces the roof the existing tiled roof for a new Colourbond roof at a cost of $8 000. James is getting married in 2012 and he wants to sell the property to free up some money to buy a marital home. He puts the house on the market for $350 000 in December 20 11. The market is slow due to the volatility on the world financial markets but he eventually sells the house for $305 000 on 1 March 2012. Agents commission on the sale amounts to $6 000 and legal costs amount to $600.
Total and Taxable Income for James
In computing the taxable income for James, we must first categorize and total his total income for the year 2011-2012. Moreover, we need to ascertain the true value of his property i.e. house from which he has got income from sales. The following table sums up the house value and the gain from property sales.
Totals in $
House Rental Property Price
Purchase Costs (i.e. legal fees, documentation)
Total cost prior to sale
Add: Agent commission from sale
Add: Legal cost for sale
House Cost Total
Gain from House Sales
Net Gain from House Sales
Details of the deprecation amount have been presented in the table below. The depreciation is calculated using the diminishing balance method. This method assumes that the cost is reduced period wise, implying more deprecation in the early years of asset life and lesser depreciation in later years of assets life.
Depreciation for 2011-12
Opening adjustable value
Curtains and drapes
Gas hot water system
The above table sets the depreciation, book value and cost of the added parts of the house. The figures are computed using the diminishing balance method (Gittins ...