Assessment 2 Weight: 20% Due date: Week 11 Word length: 2,500 words/excluding refences References: Yes using either APA or AGLC style and include a reference list Scenario James Strong is a managing...

Letter of Advice
Income tax is calculated on Taxable Income. Taxable income shall be calculated as the difference between Assessable Income and Deductions. To calculate tax liability of an individual in an income year, an individual shall first identify eligible assessable income and deductions allowable under section 8-1 of ITAA 1997. After that tax is calculated on taxable income and any tax offset or credit for franking or withholding tax shall be deducted from the tax liability. The tax liability after adjusting withholding tax, credits, tax offsets shall be the final tax payable or refundable.
Assessable income shall include income all the sources which includes salary income, business income, House property income, income from sale of assets, income received as share from the trust and any other income as may have received or accrued. There are two methods of including the income in assessable value. The income shall be included as per receipt method or accrual method. This method shall not be applicable in special cases like dividend income.
Salary of $5,00,000 –
Assessable income as per the provisions of The Income Tax Act 1997 shall mean any income earned by an individual which is an ordinary income and shall be considered as statutory income for the purpose of taxation. Assessable income excludes non-taxable and exempt income of an individual. As per Section 6-5(2) of the Income tax Act 1997 Ordinary income is the income that is earned from the all the sources whether within Australia or from abroad for all Australian residents. As per Sec 6-5(3) of the Income Tax Act 1997 Ordinary Income is the income that is earned from Australian sources for foreign citizens. Some of the income that is not ordinary in nature but can also be assessable income are governed under provisions of Sec 6-10.
As per the Ruling of TR 98/1, assessable income shall include gross income derived and the definition of gross income derived shall be discussed in this ruling. Gross income derived shall include the income earned and income received. The issue arises when the income is earned in one year and received in another year. There are various factors in determining the year in which such income is included in assessable income.
The individual subject to taxation shall include the method of accounting for taxation either receipt or accrual method. Receipt method is also known as cash method or cash basis of accounting. If an individual selects cash method, then the income shall form part of assessable income in the year of receipt and not when income is earned. If the individual selects accrual method, then the income shall form part of assessable income in the year of income earned and not in the year of receipt of such amount. This ruling shall not apply to specific provisions of dividend assessable under subsection 44(1) of ITAA 1936, securities assessable under Division 16E of ITAA 1936 or financial arrangements as per division 230 of ITAA 1997.         
Salary Income is not an exempt income or non-taxable income and shall not form part of exclusions to assessable income. Salary of $5,00,000 shall be included in assessable income as it is an income that is an ordinary income and shall be considered as income for statutory and tax purpose.
Rent from Apartment in London that derives $600 (equivalent) per week
Assuming James strong is a resident        
As per the rules of taxation for resident, an individual shall have to include in the assessable income all the income derived in Australia or from abroad. The agreement of DTA makes the taxation process simple as compared if there is an agreement between Australia and the country from which income will be derived. There is a system introduced in 2008 called FITO to avoid double taxation in case of foreign income and to also ensure that taxation in Australia is also not lost.            
James strong being an Australian resident shall include the Rental income from Property in London in the assessable income and shall be liable to claim deductions for interest paid on property loan or any other deductions that are directly allowable or are related to the rental income. As per the provisions of the act any foreign interest and other fees related to deduction of debt shall be allowed as deduction as Item D15 of the act.
Any tax paid in the foreign country shall be allowed as tax offset in the Australian tax return in the country which has a treaty of Double taxation Avoidance with Australia.
In the case law of ATO ID 2009/93 when an income of rental received from real property located in United Kingdom, the income shall be included in the assessable income under subsection 6-5(2) of the Income tax assessment 1997. The reasons behind such decision was as per provisions of sub section 6-5(2) of the ITAA 1997 a resident individual shall include...