Question

Dean is an employee carpenter who has assessable income consisting of wages of $100,000 for the income year ended 30 June 2018. In July 2017, he started a small part-time business making kitchen cupboards. His total assessable income from that business during the 12 months to 30 June 2018 was $14,000. He also incurred expenses of $23,000 in relation to this part-time business. Dean uses a shed at the back of his house to carry on the business. The shed has a value of $20,000 including all the business tools in the shed.

Required

Discuss how Dean’s losses will be treated and what is his likely taxable income for the income year ended 30 June 2018.

Answer 1

Since I have knowledge of tax system in India I will answer the same with perspective of Indian taxation system.

Taxable income of Dean shall be calculated as below-

Wages income $ 100000

Income from business

Total receipt. $14000

Less- total expenses* $23000

Less- depreciation on shed**. $3000

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Net income. ($12000). ($12000)***

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Total taxable income . $88000

* Expenses incurred for business purposes are eligible for deduction from business income.

** Depreciation calculated as 15% of value of assets on WDV basis( rate as per income tax in India) , $20000*0.15= 3000.

*** Business losses are allowed to be set off from wages income( as per income tax in india)