Taxation law is needed in order to determine taxable income of individuals and entities. The basis of taxable income is by determining assessable income less allowable deductions (s. 4-15(1)) that are permitted such as deductions made as a result of negative gearing, expenses of personal service entity (PSE) or personal service income (PSI) and expenses in property development. Although negative gearing, carrying on a business and property development activities are needed to enhance the country's economy, it is necessary to comply with taxation law when certain deductions have to be made against assessable income.
'Negative gearing is the situation when an investment is purchased with the assistance of borrowed funds and the rental or dividend income after the deduction of expenses' is less than the interest commitment during the year. An important criterion with negative gearing is that the income derived from property or share is an assessable income under section 6-1(1).
The first element to consider is income derived by an Australian and non-Australian resident..
Rent from property is an income according to ordinary concept under section 6-5 and is therefore an assessable income under section 6-1(1). In a situation where rent is not an assessable income because it was part of an intra-family arrangement, no deduction is allowable such as the case of FCT v Groser (1982) and therefore this situation is not subject to negative gearing. Rent received from property is an assessable income for both Australian resident and non-resident of Australia under section 6-10 with the exemption of intra-family rental arrangement.
Dividend received by a taxpayer is an assessable income provided it falls under the provision of section 6-1, in which the share is acquired for the purpose of gaining an income. The other requirement is that the source of the dividend is to...