Taxation Law: Deductible Expenditures And Input Tax Credit Evaluation

Part 1: Deductibility of Moving Machinery Cost

Issue Arised:

Issue that arises here in this case is uncertainty with cost that can be incorporated in moving machinery to a new site will be treated as acceptable deduction in regard to under law section section 8-1 of the ITAA 1997.

Law used:

1. Section 8-1 of the Income Tax Assessment Act 1997
2. British Insulated & Helsby Cables

Application of the above law used: 

Cost incurred while locating machinery to the new site represents asset in nature and no acceptable deduction is allowed in this matter of 1 of the Income Tax Assessment Act 1997. Moving machinery to new site during depreciation has incurred cost of asset. Cost occurrence due to moving the machinery considers a cost that is incurred due to small changes and should be allowed as acceptable deductions under section 8-1 of the Income Tax Assessment Act 1997. Reason behind incorporating the expenditure for acceptable deductions is the cost incurred is part of business expenses of business operations.

British Insulated & Helsby Cables verdict shows that cost that is implicated in transportation represents constant benefit on the business-related premises by shifting the depreciable assets. In agreement with Taxation Ruling of TD 93/126 that is on the setting up of the machinery and evolution business activities the incidence of cost to bring the machine in operation will be treated as revenue.

Conclusion Drawn:

Conclusion drawn in this case is, cost incorporated while moving the machine to new site represents movement of assets from one place to another will be taken as capital expenditure. Here no form of acceptable deductions will be legalized under section 8-1 of the Income Tax Assessment Act 1997.

Issue Arised:

The situation that crop up here is regarding the revaluation of assets that affect the cover of insurance will be viewed as acceptable deductions under section 8-1 of the Income Tax Assessment Act 1997.

Law used:

1. Section 8-1 of the Income Tax Assessment Act 1997

Application:

Here the scenario shows that spending have link with the fixed asset, thus in evaluating the deduction it is important to find whether expenses that is incurred while revaluating revenue production capacity holds or incurred while protecting the asset. Now while protecting the assets provides benefit then it will be considered as acceptable deduction under section 8-1 of the Income Tax Assessment Act 1997. Present state that cost incurred in revaluating the asset to effect insurance cover will be allowed as acceptable deductions under section 8-1 .

Conclusion Drawn:

Conclusion drawn from here shows that cost that leads to insurance cover is treated as acceptable deductions because this cost will recur and thus allowed as acceptable deductions under section 8-1 of the ITAA 1997.

Part 2: Deductibility of Revaluation of Assets for Insurance Cover

Issue arised:

Here this case shows whether the legal expenses company incurred in against the petition for winding up would be considered as for deductions under section 8-1 of the ITAA 1997.

Law used: 

1. Section 8-1 of the Income Tax Assessment Act 1997
2. FC of T v Snowden and Wilson Pty Ltd (1958) 99 CLR 431)

Application: 

Law section under 8-1 of the Income Tax Assessment Act 1997, shows that cost that is incurred while winding up business generally considered as business operations and thus it is not accepted as acceptable deductions.

The taxation ruling of ID 2004/367 represents that officially authorized cost will be measured for deductions if the cost is incurred while carrying out the business operation.

Case of FC of T v Snowden and Wilson Pty Ltd (1958) shows that costs that are unusual then it is mandatory that taxpayer should start taking legal actions because no situation can prevent the cost to be eligible as deductible expenditure.

The incidence of legal expenditure for inconsistent in winding up the petition will not be authorized as deductions because they represents the features of capital in nature and these expenditure are related to business operations.

Conclusion Drawn:

Conclusion here is the cost that is incurred in opposing the petition of winding up will be treated as not accepatable deductions under section 8-1 of the ITAA 1997.

Issue Arised:

Issue here shows that whether or not the legal expenditure that is incurred  due to services of legal representative in regard to several business operations of the clients will be allowed as acceptable deductions under section 8-1 of the ITAA 1997 

Law used:

1. Section 8-1 of the Income Tax Assessment Act 1997

Application:

Law under section 8-1 of the Income Tax Assessment Act 1997 shows when a legal expense is incurred in business operations to generate revenue it will be treated as acceptable deductions. Though, some exceptions is present in this respect of legal expenses, which shows that expenses incurred recognized as capital, domestic and private in character if the same is principally incurred in producing the exempt and non-chargeable non-exempt proceeds.

Conclusion Drawn:

Thus  legal expenditure incurred in respect to the business operations to produce the taxable income should be treated as accepatable deductions in reference to section 8-1 of the ITAA 1997.

Issue arised: 

Issue that arised here is the situation of Big Bank which is considered for evaluating the input tax credit with in respect to the advertising expenditure that is incurred with under law section GSTR Act 1999.

Law used:

1. GST Act 1999
2. Paragraphs 11-5 and 15-5
3. Subsection 15-25
4. Goods and Service taxation ruling of GSTR 2006/3
5. Ronpibon Tin NL v. FC of T

Application:

Goods and Service tax law of GSTR 2006/3 shows the methods that can be imposed to evaluate the input tax credit in accordance with administration for change that is followed by financial suppliers under the new system of tax GST Act 1999.

Part 3: Deductibility of Legal Expenses Incurred in Opposing Petition for Winding Up

Current situation of Big Bank shows that, Big Bank Ltd has incurred an expense of $1,650,000 as GST was added to advertisement expense in the prior year. Thus Big Bank Ltd follow law under the section GSTR 2006/3 which is followed by the company because the company recognized eligible for input tax credit. According to the law if an entity is registered or required to obtain registration, GST shall be payable for creation of taxable supplies. The framework under GST law shows that an entity or an individual is required to claim input tax credit for the GST inclusive supplies that is acquired or import for the entity.

Case of Ronpibon Tin NL v. FC of T  is applied in analysing the law of GST. This incorporates compulsion in which the method of distribution adopted must sensible in situation of the particular enterprise. Under the paragraph 11-5 and 15-5 to be eligible for acquisition, creditable acquisition must be creditable in different parts.

One more requirements of paragraphs 11-5 and 15-5 (a) for an acquisition to meet the criteria as creditable , the acquisition must be completely for creditable purpose. In case the acquisition is partly for creditable use then it is essential to determine the degree of the creditable use. Now the subsection 15-25 shows that  import shall be viewed as creditable if it is for creditable use. Now section 11-15 or 15-10 an acquisition eligible to be creditable if an entity makes the supplies for the purpose of claiming input tax credit. It is worth mentioning the advertising expense incurred by Big Bank Ltd was for the use of creditable acquisition. In respect of the GSTR ruling of 2006/3 Big Bank Ltd has gone past the economic acquisition threshold boundary and the invoice that is issued to Big Bank Ltd will be allowed for input tax credit for the GST supplies made. 

Conclusion:

Conclusion shows that Big Bank Ltd will be eligible to claim input tax credit in regard to the GSTR 2006/13 for the sum that is incurred due to advertising expenses for the use of the creditable acquisition. 

References:

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