Understanding Tax Assessment And Deduction Under ITAA 1997: A Case Study Of Big Bank Ltd.

Discussion on the deduction under section 8-1 ITAA 1997

Tax is one important sources of government and identification of tax deduction sources it provides good support for individual. This, study highlighted on individual tax assessment and its impacts on individual income. Apart from this, different situation in which business organisation claim tax deduction under Sec 8.1 of Income Assessment Tax 1997 has been discussed. A consequence of tax deduction sources has been identified for understanding operational activity of business. Case study of BIG Bank Ltd has been utilized in this study for understanding impacts on tax on business operational activities.

However, the different aspect of tax payable amount and deduction amount has been utilized in this study.In addition to this, net profit for partnership business as well as the tax offset as per Australian has been calculated.Net income of Leon and Johnny has been analyzed  in this study for understanding their business financial performance.

Discussion on the deduction under section 8-1 ITAA 1997

Deduction criteria as per under section 8-1 ITAA 1997

Considering different issues for understanding deduction criteria are

As per section 8-1 ITAA 1997 deduction considered for a cost of machinery movement for a new site.

Deduction allowed for cost of the assets revaluation in respect for covering insurance

Deduction allowed for any type of legal expenses incurred in relation to petition opposition in context to winding up company

The deduction allowed in respect to mortgage, legal expenses for the conveyance in relation to providing legal assistance to client.

General deductions as per under section 8-1 of the ITTA Act requires full understanding of certain rules and regulation regarding eligibility of deduction (Warren, 2015). However, eligibility of deduction depends on certain basic criteria, which are covered in this act. Therefore, for understanding the deduction of expenses as per ITAA Act under sec 8-1 in context to the general deduction is helpful.

In this case, cost has been incurred for moving machinery to the new site of the company. However, as per Sec 8.1 of the Income Assessment Tax 1997 for such activities, there is no deduction provision on the cost related to mobility of the machinery to new site (Bain et al. 2015). Hence, this deduction is not possible. Therefore, as per this act if cost incurred for moving machinery to a place to another and this is made by company for increasing their operational activities. Thus, Gitman Juchau & Flanagan (2015) figure out that,reductions in context is internal issue of company that are not allowable in Income Assessment Tax 1997 .As per the case of moving of machinery to new site and cost incurred for movement is eligible for deduction if it is done by company outside their working place. However, cost incurred for moving the machinery to a new site as per under section 8-1 of ITAA 1997 deduction criteria are not fulfilled so deduction is not allowable.

As per the Sec 8.1 of Income Assessment Tax 1997, there is the proviso for deduction for assets revaluation of the assets for insurance covers. Therefore, revaluation of assets in context to fixed assets deduction is provided if it fulfills the certain criteria, which are provided in the act. Golin & Delhaise (2013) stated that revaluation of assets is done by a business organization for identification of their assets and it is done by internal purpose. Therefore, for revaluation of expense in context to the business purpose, it cannot be allowed for deduction, as it is an internal expense of business. Thus, these types of expenses are deducted from the profit of company, as it is internal expenses of the business. Hence, deduction the insurance company considers it possible if revaluation cost incurred for insuring the assets and it.  

Application of the Law

In this case, the company for opposing the petition for the winding up it is considered as deductible expenses incurs legal expenses. According to Income Assessment Tax 1997 under Sec 8.1 legal expense are allowable as deduction Greenville et al. (2015). However, legal expense is incurred by the company for opposing the petition for the winding up a company as per Sec 8.1 of Income Assessment Tax 1997 deduction is possible. As per opinion of Highfield & Warren (2015) winding up of company it indicates the company is facing financial loss for this reason winding is done, therefore, the deduction is allowed to these company for overcoming burden for legal expenses. Thus, winding up business it considered as one critical situation for the company .Thus, Keynes (2016) stated that for this reason deduction in the cost of opposing draining of business are considered as deductible under section sec 8.1 of Income assessment Tax 1997.

In this case, cost has been incurred as expenses of the solicitor as it contains conveyance, general legal advice in relation to clients, business purpose and conveyance as well as the discharge of the mortgage. However, these costs are arises due to internal issues of a company for running the operational activities smoothly. Therefore, according to Mawuli (2014) for such activities, no deduction is possible under Sec 8.1 of Income Assessment Tax 1997 for increasing the efficiency of business. Thus, these expenses that are incurred for availing service of a solicitor are incorporated in profit and loss of company. Hence, there is no such deduction is possible under Sec 8.1 of Income Assessment Tax 1997 as these expenses are incurred for internal issue of the company (Murfin & Njoroge, 2014).

Big Bank Ltd operational activity is more than the 50 branches and it has large operational area in country. However, any individual or bank institution for claiming tax input then it should be registered under GST. Therefore, Big Bank Ltd is registered under the GST and for this reasons there is the possibility for claiming the claim in organization. Although, organization has to claim input tax as the expenses, which were incurred for increasing financial activities. According to Rimmer et al. (2014), expenses incurred for increasing business operational activity in this organisation and for this reason this company can claim certain claim in relation to GST. Therefore, for claiming tax under GST Law in context to input tax credit for GST under section 11-15(1) of GST act 1999 is important to claim according to the act.

An availing claim under GST it should be full filled all terms and conditions which are mandatory for availing claim for expenses. However, for claiming expense for deduction it is compulsory for fulfillment of terms and condition for eligibility. Spahn & Pearson (2016) figure out that, for claiming expense, which is incurred in business organization, must be enlisted in GST for claiming the input tax credit. This, the tax invoice must contain the amounts more than the $82.50 that is claiming for input tax credit.

Question 2

Total Advertising	Amounts
Television Advertising	$550000
General advertising campaign	$1100000
Total	$1650000
Total Taxable invoice	$1650000

Table:1 Calculation of Total taxable invoice amount

(Source: Learner)

The total amount of taxable invoice of Big Bank Ltd it indicates that amount is exceeding minimum limit of $82.50. Therefore, as the in invoice limit indicates exceeding of lower limit then it is allowed to avail claim for input tax credit.  As per Xynas et al. (2014) bank must verify all relevant information, which is necessary for availing input tax credit. Thus, for claiming input credit tax under GST, Big Bank Ltd should follow certain steps. According to case of House of Lords in C&E commrs VS Redrow Group PLC it found that Redrow claimed for input tax credit in the context of the commission which has to be paid to agents. However, the English court of appeal deprived of claim as per under Section 15 of GST ACT 1999. In this regard commission to agents is created only for tax purposes and it is not included in the section 11-15(1) of GST act 1999 (Jausttax.com, 2000).Such steps are having a tax invoice, receipt or invoice and a cash registered docket. Therefore, as per input tax claim of Big Bank Ltd, it indicates that this, bank has followed all the steps of GST. The above table indicates bank has invested $1100000 for promoting the operational activity of bank. Apart from this, as per opinion of Xynas (2014), $550000 invested for advertising purpose and $550000 for establishment of TV advertising. However, these costs are incurred exclusively for increasing business operational activity. Hence, finally, it can be concluded that the bank can claim input Tax under GST. Entire expenses, which are made by the bank, can come under the criteria of GST so claim can be obtained by this organisation in positive ways. Thus, Bank Ltd can claim input Tax of $1650000 under section 11-15(1) of GST act 1999 (Murfin & Njoroge, 2014).

Income	Amount ($)
Employment income from Australia	$44,000
Employment income from the United States	$12,000
Employment income from the United Kingdom	$8,000
Rental income from property in the United Kingdom	$2,000
Dividend income from the United Kingdom	$1,200
Interest income from the United Kingdom	$800
Total assessable income	68,000

Table 2: Total assessable income

(Source: Learner)

From the above table, it found that total assessable income of Angelo is $ 68000. Therefore, these figures indicate the annual income of Angelo is $68000.

EXPENSES	Amount ($)
Medical Expenses	$5,000
Expenses incurred in deriving employment income from  the Australia	$4,000
Expenses incurred in deriving employment income from the United States	$900
Expenses incurred in deriving rental income from the United Kingdom	$500
Gift to a deductible gift recipient	$400
Interest (debt deductions) incurred in deriving dividend income	$140
Expenses (debt deductions) incurred in deriving interest income	$60
TOTAL ALLOWABLE DEDUCTIONS	11,000

Table3: Total allowable deduction

(Source: Learner)

From the above table, it is clear that actual income tax which is payable by Angelo is

Total assessable income-Total allowable deduction

= $68000- $11000

=$57000

FOREIGN TAX PAID	AMOUNT ($)
Employment income from the United States	3,600
Dividend income from the United Kingdom	120
Interest income from the United Kingdom	80
Rental income from the United Kingdom	600
Total foreign tax paid	4,400

TAX CALCULATION	AMOUNT ($)
Income tax payable:	$10,072
Medicare levy payable:	$1,140
YOUR INCOME AFTER TAX & MEDICARE LEVY:	$45,788

Table 4 INCOMES AFTER TAX & MEDICARE LEVY

(Source: Learner)

Calculation of tax payable on $5700 taxable income is

($10072+$1140)

=$11212 (Including Medicare levy)

Items which are not included assessable income are as follows

PARTICULAR	AMOUNT ($)
Employment income from the United States	$3,600
Employment income from the United Kingdom	$120
Rental income from the United Kingdom	$80
Dividend income from the United Kingdom	$600
Interest income from the United Kingdom	$4400
Total	$ 8,800

Table5: Items which are not included inaccessible income

(Source:  Learner)

The individual tax assessment is most important for achievements of tax emption in a country.

From the above table, it is clear that items which are mention are in above table is excluded from the income of the Angelo. However, these amounts are excluded from assessable income as the tax is paid on foreign income. Therefore, it is if tax offset that is allocated in the foreign country should not be considered for tax offset in Australia (Ato.gov.au, 2017).

Total expenses incurred in relation to deriving employment income from the United States as well as expenses incurred in deriving rental income from the UK are $1400 for Angelo. Therefore, these amounts can be deducted from the total expense.

TOTAL TAXABLE INCOME FOR OFFSET INCOME	AMOUNT ($)
Employment income from Australia	$44,000
Expenses incurred in deriving employment income from Australia	$4,000
Medical expenses	$5,000
Gift to a deductible gift recipient	$400
Interest (debt deductions) incurred in deriving dividend income	$140
Expenses (debt deductions) incurred in deriving interest income	$60
Total	$34,400

Table 6: Total taxable income for offset income

(Source: Learner)

From the above table, it is clear that the taxable income amount for the offset of income is $34,3400.

CALCULATION  OF TAX	AMOUNT ($)
Income Tax Payable:	$3078
Medicare Levy Payable	$ 688
Total	$3,766
Your income after tax and Medicare levy	$ 30,634

Table7: Calculation of Actual tax payable

(Source: Learner)

Actual tax payable calculation it indicates that there is $30,634 amount. However, these amounts have to pay for offsetting income. Therefore, tax offset of the Angelo is derived from his total income minus his tax payable amount. However, from total taxable amount is subtracted from the offset taxable amount than normal taxable amount is derived.

INCOME	Total   ($)	Johnny ($)	Leon ($)
Sales of sporting goods	397000	198500	198500
Interest on bank deposits	10000	5000	5000
Dividend franked to 60% received from an Australian resident company	21000	10500	10500
Exempt income	50000	25000	25000
Bad debts recovered	10000	5000	5000
Capital gain from the disposal of shares acquired in 2009 and sold in June this income year	15000	7500	7500
TOTAL	503000	251500	251500
EXPENSES
Salary to Leon	15000		15000
Salary to Johnny	10000	10000
Johnny’s traveling expenses from home to work and return	3000	3000
Interest on capital provided by Johnny	15000	15000
Interest on loan made by Johnny to the partnership	4000	4000
Fringe benefits tax	16000	8000	8000
Debt collection expenses paid to a solicitor	500	250	250
Legal expenses for preparation of new lease of business premises	700	350	350
Legal fees for the renewal of lease of the office building	2000	1000	1000
Legal expenses for preparation of a partnership agreement	1200	600	600
Staff salaries	25000	17500	7500
Rent on retail shop	20000	10000	10000
Purchase of sporting goods supplies	30000	15000	15000
Business Lunches	10000	5000	5000
Bad debt	30000	15000	15000
Council rates on business premises	500	250	250
TOTAL	182900	104950	77950
Profit Before Tax	320100	146550	173550
Tax	93,701.00	41,855.50	51,845.50
Net Income After Tax	226,399.00	104,694.50	121,704.50

Table 8: Calculation of net income from partnership business for the income year

(Source: Learner)

Johnny and Leon have a partnership business and their operational activity is selling sporting goods. However, Keynes (2016) stated that as partnership business income from business equally distributed among partners. From the above table, it found that the net profit of company it is found that$ 226399. Therefore, as per the given condition, profit amount is equally distributed among partners and capital is divided equally among partners. Thus, for this, reason allocation of profit divided equally between Jonny and Leon.

Calculation of the share loss	Amount
Shares sold	$ 30000
Less: Loss	$ 15000
Actual gain	$ 15000	$ 7500	$ 7500

Table 9: Calculation of the share loss

(Source: Learner)

Conclusion

Tax deduction as per under section 8-1 ITAA 1997 requires more terms and conditions for availing deduction. If eligibility criteria not fulfilled then it leads deduction does not provide to business organisation or any individual. In business organisation advertisement expenses are most important for increasing operational activity of business. If business organization is registered under GST then it can avail input tax credit as advertisement is considered as business expenses. Identification of business income is important for running business smoothly and it provides support for taking better business decisions. Net profit is most important for business organisation for understanding growth and development of business in market. As per rules and regulation of GST, input claim can be achieved by the business organizations. Apart from this, if rules and regulation are not followed claim cannot take place. Thus, however, tax deductions are easily not available to individual or any business organization if proper rules and regulations are not followed.

References List

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