H & R Block Basic Course Chapter 5

 

HINTS

 

·          Item D7 is for deductions against interest and dividend income only. Deductions against trust income go at item 12.

·          The UPP is simply the money which the taxpayer has contributed towards their pension or annuity. When the pension becomes payable as an income stream then that money must be tax free – it’s like putting money into the bank and then withdrawing it. That’s why the UPP is a deduction, the annual deductible amount being calculated according to life expectancy or the term of the annuity.

·          Trauma insurance pays a tax-free lump sum in the case of permanent injury, and the premiums are not deductible because the payout is tax-free. Sickness and accident insurance replaces the taxpayer’s normal income stream. The payments are taxable, and therefore the premiums are deductible.

·          PRIOR YEAR LOSSES

1] In the year incurred – cannot be created or increased by donations or super contributions.

2] In the year applied – must be applied to exempt income first.

 
 

 

 

 

 

 

 

 

 

 

 

 

 


NOTE: There has been a correction to Chapter 4 question 1.

 

Question 1

 

  1. He can claim the ongoing fees provided that the income associated with the advice is assessable income. He cannot claim the initial fee, which is a capital expense.

 

  1. She can claim that part that refers to the shares:

 

(1680+180) x 6000/24000 = 465 at item D7. Note that the borrowing expense relating to the shares is $45. If borrowing expenses exceed $100 they must be claimed over five years, or over the term of the loan if it is less than five years.

 

Question 2

 

  1. The UPP represents the taxpayer’s own after-tax contributions coming back to them. It is like putting money in the bank and then withdrawing it. For that reason it is free of tax.

 

  1. If the pension is non-contributory then he has not put any of his own money towards it. Therefore, there cannot possibly be a UPP. The figure would be written at label 19L, and P written in the code box.

 

  1. He can claim (952+897)/2  x  90% = 924 x 90% = 832. Because the Italian financial year is January 1 to December 31 the reported UPPs of the last two years are averaged, and 90% of this figure is claimed. Only 90% is claimed because some of the taxpayer’s own contributions go to administration fees.

 

Question 3

 

1.      Before lodging his return he must notify the super fund that he will make a claim, and how much he intends claiming. Once he has received confirmation from the fund he can lodge his tax return. This allows the fund to keep track of his undeducted contributions (which will go towards his UPP) versus his deducted contributions.

 

2.      He can claim 5000 + 75% (excess) = 5000 + (2800 x 75%) = $7100.

 

3.      $42,385 is the maximum deduction allowed for a taxpayer aged 35-49y. The maximum contribution to give rise to this deduction is $54,847.

 

5000 + (49,847 x 75%) = $42,385.

 

Question 4

 

  1. If the policy pays a lump sum in the case of permanent injury or disability then the lump sum is not assessable, and consequently the premiums are not deductible. However if the policy pays an income stream as a replacement for wages during a period of sickness or injury, then the income is assessable, and consequently the premiums are deductible.

 

Sickness and accident insurance policies where the payments will commence once Workcover payments are no longer made are available.

 

  1. In 2007 her T.I. before applying prior year losses is 37,946 + 93 + 47 – 698 – 150 = 37,238.

 

The carry-forward loss must first be applied to exempt income. 4759 – 639 = 4120.

 

Applying the c/f loss: 37,238 – 4120 = $33,128 taxable income in 2007.