The Problem Cited by David - A Dentist by Profession

Question: Case Study: The Problem Cited by David, A Dentist by Profession. Answer: I have researched into the problem cited by David, a Dentist by profession and one of my clients of long standing. In my opinion and as per the information that I have been able to gather in context to Davids case study, I have found that Dentists are allowed deductions for the following expenses related to their professional duties Cost of medicines and other profession related medical supplies Cost of computer equipment and software (Depreciation can be claimed if cost is more than $300) Equipment such as Dictaphone or other recording device (Depreciation can be claimed if cost is more than $300) Travel costs between hospital, surgery and patient visits Subscriptions and Fees of Professional Association Charges for Annual Practicing Certificate Costs and maintenance of Professional Library (Depreciation can be claimed if cost is more than $300) Subscriptions for Technical Journals Premiums of Professional Indemnity Insurance Professionals practicing in any segment of the healthcare sector are subjected to the legal regulations and taxation laws as any other taxpayer and on the basis of this assumption[2], I can safely deduce that David will also be considered for taxation matters related to his Assessable Income Sources of Income Deductions as listed above Allowable expenses related to his practice as a professional healthcare specialist. Assessable Income Income as such does not find any description or definition either in the Income Tax Assessment Act of 1936 (ITAA, 1936) nor in the Income Tax Assessment Act of 1997 (ITAA, 1997). It has been left to the Common Law Interpretation to arrive at a realistic conclusion depending on the case to case basis[3]. In Davids case study his Assessable Income, as defined under Section 6-1(1) of the Act, shall consists of his Ordinary Income, as per Section 6-5(1) of the Act and Statutory Income, as per Section 6-10(2) of the Act. Sources of Income It must also be put on record that Ordinary Income of David will be the income derived by him as per ordinary concepts[4] and these include his professional practice as a dentist. On the other hand, David has also given me information that he has certain other sources of income, including his investments, rentals and interest that he derives on a regular basis. These shall be treated as his Statutory Incomes and shall also form part of his total assessable income[5]. Deductions In the Income Tax Assessment Acts, both of 1936 and 1997, deductions for all taxpayers are classified under General Deductions and Specific Deductions. I will refer to ITAA, 1997 where Section 8-1 is used for defining the General Deductions and Section 8-5 which defines the Specific Deductions[6]. I will give salient features of these deductions here and take up in detail their implications on David in the paragraphs below, titled General and Specific Deductions. Broadly, General Deductions are those which are claimed against expenses which David would have incurred for producing income. Specific Deductions are those which include expenses which David would have incurred for maintaining the capital assets which are to be used by him in his professional practice. Allowable Expenses In the paragraph above, I have listed 9 expenses which David can claim as these relate to his profession. Out of these nine listed expenses, there are certain, as noted below, which can be covered under General Deductions and the others can be classified under the Specific Deductions category[7]. These have also been elaborated by me in my explanations given below under the heading General and Specific Deductions. Explanation of General and Specific Deductions I can further explain General Deductions under the following headings Positive Limbs covered under Sub-Section 8-1(1) Deductions which David can claim under this sub-section of the Act will include all those expenses which are incurred by him in producing income[8]. These will obviously be those expenses which are incurred by David when he is pursuing active practice as a dentist. These also include those expenses which are incurred by David while continuing his profession as a dentist. This can be further elaborate to include those periods in which David is not performing as an active, practicing dentist but is still running and maintaining his clinic[9]. This is allowed under this sub-section of the Act, which clearly describes it by using the words Quote Necessarily incurred in carrying on a business for the purpose of gaining or producing income Unquote. Negative Limbs covered under Sub-Section 8-1(2) All the expenses which are incurred by Davis for covering his personal needs will be covered under this limb. Such expenses are not considered for deduction purposes. These expenses do not establish a connection with Davids professional activities as a practicing dentist nor do they have any connection with his running or maintaining his practice or clinic[10]. Conclusion Positive Limb Deductions under Sub-Section 8-1(1) of the Act also specify that allowable deductions will include expenses to the extent that an expense can still be deductible if a portion of it is being used for maintaining or sustaining the business. A dentist is considered to be a self-employed individual[11], who is running a business, broadly termed as practice and the law also states that it is not necessary for a business to be a continuous activity. David is a self-employed individual, running a practice and hence his expenses, whether falling under General or Specific Deductions shall be allowed as deductible as long as they are connected with the running and maintaining of the practice. All the nine expenses listed above, are covered under Positive Limbs segment of deductible expenses and hence David is correct in assuming that he can claim them as deductions from his assessable incomes[12]. Bibliography Bakker, A. and Kloosterhof, S. (ed.), Tax risk management (Amsterdam, IBFD, 2010) Barkoczy, S., Rider, C., Baring, J. and Bellamy, N Australian Tax Casebook. 10th ed (Sydney, NSW: CCH Australia Limited, 2010) Cch, Australian Master Financial Planning Guide (Sydney, NSW: CCH Australia Limited, 2010) Coughlan, L, The Law and You (Glebe, NSW: Pascal Press, 2003) Jorgenson, W. D. and landon, R. (ed.) Tax reform and the cost of capital: an international comparison (Washington, DC: Brookings Institution Press, 1993) Nethercott, L., Richardson, G. A. and Devos, K Australian Taxation Study Manual: Questions and Suggested Solutions (Sydney, NSW: CCH Australia Limited, 2010) Tooma, R. A. (ed.) Legislating against Tax Avoidance (Amsterdam: IBFD, 2008) [1] Cch. Australian Master Financial Planning Guide (Sydney: CCH Australia Limited, 2010), 4. [2] A. Bakker and S. Kloosterhof (ed.). Tax risk management. (Amsterdam: IBFD, 2010), 135. [3] L. Coughlan. The Law and You (Glebe, NSW: Pascal Press, 2003), 42. [4] FCT v Cooke Sherden [5] W. D. Jorgenson R. Landon (ed.). Tax reform and the cost of capital: an international comparison (Washington, DC: Brookings Institution Press, 1993), 59. [6] R. A. Tooma (ed.). Legislating against Tax Avoidance (Amsterdam: IBFD, 2008), 302. [7] L. Nethercott, G. A. Richardson and K. Devos. Australian Taxation Study Manual: Questions and Suggested Solutions (Sydney: CCH Australia Limited, 2010), 215. [8] W. D. Jorgenson R. Landon (ed.). Tax reform and the cost of capital: an international comparison (Washington, DC: Brookings Institution Press, 1993), 63. [9] A. Bakker and S. Kloosterhof (ed.). Tax risk management. (Amsterdam: IBFD, 2010), 143. [10] L. Coughlan. The Law and You (Glebe, NSW: Pascal Press, 2003), 57. [11] L. Nethercott, G. A. Richardson and K. Devos. Australian Taxation Study Manual: Questions and Suggested Solutions (Sydney: CCH Australia Limited, 2010), 235. [12] L. Coughlan. The Law and You (Glebe, NSW: Pascal Press, 2003), 57.