This issue determines whether an individual tax payer will be liable to claim allowable deductions for the cost of moving the machine to the new site.
I. Section 8-1 of the ITAA 1997
II. Taxation ruling TD 93/126
As it is evident from the current situation that tax payer has occurred cost for moving the machine to the new site and it can rightly bought forward in respect of section 8-1 of the ITAA 1997, deductions will not be allowable in this context. As defined in the Taxation Ruling of 93/126 cost that is occurred in the process of transportation will be regarded as constant advantage for the business premises by locating the depreciable asset to the new site. Therefore, the taxation ruling is states that installation of machine and starting the production process results in cost that are regarded as the part of revenue. So it can be said that cost involved in moving the machine to the new site would be held as expense which cannot be treated as deductions.
Conclusion:
Moving the machine to the new site is cost that is forms the part of capital outlay. Hence, in reference to section 8-1 of the ITAA 1997 no deductions can be claimed in this respect.
The current situation is related to the determination of the cost that is incurred in revaluation of asset as the effect of insurance coverage. This issue introduces that whether such expenses shall be treated as allowable deductions under section 8-1 of the ITAA 1997.
I. Section 8-1 of ITAA 1997
From the above stated issue it is found that the taxpayer incurs cost on the revaluation of asset to the effect of insurance cover and it can be treated as deductions that are deductible under section 8-1 of the ITAA 1997. The cost incurred in this context represents they are directly related to the fixed asset. Hence, in considering the nature of deductibility of the cost it is necessary that such expenditure is occurred in respect of producing the assessable revenue or simply to protect the asset. If the later results in advantage of provisional nature and it would be treated as the allowable deductions under section 8-1 of the ITAA 1997.
Conclusion:
In respect of the above defined situation it is concluded that cost incurred in covering the effect of insurance would be treated as allowable deductions because the cost is repetitive in nature as classified under section 8-1 of the ITAA 1997.
As evident from this issue it can be stated that whether or not the cost incurred in legal expense with the objective of opposing the petition for winding up will be considered deductible expense under section 8-1 of the ITAA 1997.
The above defined issue is related to the issue where a taxpayer incurred a cost for opposing the winding up the business and such cost under section 8-1 of the ITAA 1997 cannot be treated as allowable deductions. Additionally the Taxation Ruling of ID 2004/367 legal cost that are incurred by the taxpayer would be considered as allowable deductions under section 8-1 of the ITAA 1997. To support the view point a judgement has been considered in the case of “FC of T v Snowden and Wilson Pty Ltd (1958)” where the expenditure incurred in previous occasion would not prohibit the expenditure from being regarded as deductible. The expense in the present context that is incurred by the taxpayer though meets the positive limbs but would not be regarded as deductible expense because they are held as capital in nature.
Conclusion:
Considering the above discussion, it is discerned in respect of section 8-1 of the ITAA 1997 that expense of opposing the winding up of business would not be considered for deductions.
The issue introduces that whether the legal expense for hiring the service of the solicitor would be treated as allowable deductions under section 8-1 of the ITAA 1997.
I. “Section 8-1 of the ITAA 1997”
Section 8-1 of the ITAA 1997, defines that legal outlay that occurs in producing the taxable income will be treated as the allowable deductions. However, an exception to this rule is that to qualify the legal expense as the allowable deductions there has to be a business relation. Hence, the expenditure should be incurred in producing the taxable income of the taxpayer. It is understood that the legal expense in the present cost that is incurred for the service of solicitor would be deductible under “section 8-1 of the ITAA 1997”.
Conclusion:
The analysis that has been conducted above evidently puts forward that legal expense for taking the service of solicitor will be deductible business expense since they are occurred producing the assessable revenue of the taxpayer.
In respect of the existing issue, the matter that is bought forward is related to the input tax credit which can be claimed by the company for the advertisement expense that has been occurred.
I. “GST Act 1999”
II. Subsection 15-25
III. Goods and Service Taxation Ruling of GSTR 2006/3
IV. Ronpibon Tin NL v FC of T
As it is understood in the case study Big Bank incurred an expense that is related to the advertisement. It is noteworthy to denote that Goods and Service Taxation Ruling of GSTR 2006/3 defines the procedure of that is involved in computing the input tax credit. As understood from the division 11-15 and the 129 of the GST Act 1999 the ruling of GST is usually applicable for the commercial units that are further than the prescribed limit of the financial acquisition. It is understood that Big Bank Ltd incurred an expenditure of $1,650,000 that includes the amount of GST that is incurred by the company for the sum that is incurred in the advertisement expenditure. The Goods and Service taxation ruling of GSTR 2006/ is implemented on Big Bank since the company has passed the financial acquisition threshold limit and it is eligible to claim input tax credit. In compliance with the taxation ruling if an organization is under the obligation of obtaining registration or it is required to obtain registration will be required to pay for the taxable supplies that is made by it. The above stated ruling defines that a commercial unit can be entitled to claim input tax credit for the financial supplies that is made by entity. Furthermore, if an organization makes the financial supplies and goes past the acquisition limit then those entities will not be provided the opportunity of recovering the amount of GST charged on those entities. However, those companies will be able to recover a part of those GST imposed on the company.
| Calculation of Input Tax credit | ||
| Particulars | Amount ($) | Amount ($) |
| Total spending on advertisement and promotional activities | 1,650,000.00 | |
| GST input credit 100% eligible for: | 1,100,000.00 | |
| Portion of advertisement expenditures ineligible for input credit in respect of GST | 550,000.00 | |
|
100% GST input credit |
100,000.00 | |
|
Add: For 2% contribution in revenue |
3,000.00 | |
|
Amount of input credit allowed to the bank |
103,000.00 |
To support this viewpoint in this case of Ronpibon Tin NL v FC of T is considered where the principle of “extent” and “to the extent” is bought forward to under the assess the legislation of GST. The rule of GST states that the method of apportionment that is adopted must be just and reasonable to the certain entities. Additionally, of para 11-5 and 15-5 defines that an acquisition will be treated as eligible creditable import the acquisition must be entirely or altogether for the use of the creditable purpose. In reference of the present context of Big Bank Ltd the advertisement expenditure that is incurred by it would be treated as creditable purpose. Furthermore, as it is defined under the “GSTR ruling of 2006/3” it is found that Big Bank Ltd in the present context will be able to claim for the input tax credit that is made by it since it has surpassed the financial acquisition threshold limit.
Conclusion:
The discussion conducted above provides clearly that Big Bank Ltd would be able to claim input tax credit for the amount of advertisement expenditure made by it with reference to the ruling of GSTR 2006/13.
|
Assessable Income |
Amount ($) | Amount ($) |
| Gross Income | ||
| Employment income from Australia | 44,000.00 | |
| Employment income from United States | 12,000.00 | |
| Employment income from United Kingdom | 8,000.00 | |
| Rental income from property in United Kingdom | 2000 | |
| Dividend income from United Kingdom | 1200 | |
| Interest income from United Kingdom | 800 | |
|
Total Taxable Income |
68000 | |
|
Tax on Taxable Income |
13647 | |
|
Medicare Levy |
1360 | |
|
Less: Tax Offset for Medical Expenses |
750 | |
| (5000-1250) | ||
|
Total Tax Payable |
14257 | |
|
Average rate of tax payable on Angelo Taxable Income (%) |
21 | |
|
(14257/68000)*100 |
||
|
Net Foreign Income From Each Class |
||
| Foreign Rental Income | 2000 | |
| Less: Expenses incurred in Deriving | 500 | 1500 |
|
Gross foreign dividend income |
1200 | |
|
Gross Interest income from United Kingdom |
800 | |
|
Net passive foreign income |
3500 | |
|
Other Foreign Income |
||
| Gross Employment income from United States | 12000 | |
| Less: Expenses incurred in deriving employment income from United States | 900 | 11100 |
| Gross Employment income from United Kingdom | 8000 | |
| Less: Expenses incurred in deriving employment income from United Kingdom | 500 | 7500 |
|
Net Other Foreign Income |
18600 | |
|
ANFI for each Class |
||
|
ANFI For Passive Foreign Income |
3479 | |
|
(3500*68000(68000+400) |
||
|
ANFI other Foreign Income |
18491 | |
|
(18600*(68000/68000+400) |
||
|
Amount of Australian Tax Payable on Passive Foreign Income (3749*21%) |
787.29 | |
|
Amount of Australian Tax Payable on Other Foreign Income (18491*21%) |
3883.11 | |
|
Tax payable on his passive foreign income |
||
| Tax on Dividend income from United Kingdom | 120 | |
| Tax on Interest income from United Kingdom | 80 | |
| Tax On Rental income from United Kingdom | 600 | |
| Total passive foreign Income tax paid | 800 | |
| Amount of Australian Tax Payable on Passive Foreign Income | 787.29 | |
|
Tax Credit on Passive Forign Income |
12.71 | |
| Foreign Tax Paid on Employment income from United States | 3600 | |
| Total Other foreign Income tax paid | 3883.11 | 283.11 |
|
Tax Credit Angelo can claim |
||
|
On Passive Income |
787.29 | |
|
On Other Foreign Income |
3883.11 | |
|
Total foreign tax offset he can claim |
4670.4 |
| Statement showing Calcuation of Income from Partnership | ||
| Particulars | ($) | ($) |
| Revenue from sporting goods sales | 400,000.00 | |
| Interests incomes on bank deposits | 10,000.00 | |
| Un-franked portion of dividend | 8,400.00 | |
| Amount of Bad debts recovered | 10,000.00 | |
| Incomes exempt | – | |
| Income from capital gain | 30,000.00 | |
|
The amount of gross total income |
458,400.00 | |
|
Expenses eligible as deduction: |
||
| Partners’ salaries | 25,000.00 | |
| Fringe benefit tax | 16,000.00 | |
| Interests on capital | 2,000.00 | |
| Interests expenses on loan | 4,000.00 | |
| Johnny’s travelling expenses | 3,000.00 | |
| Office building renewal fees | 2,000.00 | |
| Documentation related expenses | 700 | |
| Expenses on debt collection | 500 | |
| Council rates | 500 | |
| Salaries of employees | 20,000.00 | |
| Cost of goods sold {(Opening stock + purchases) – Closing stock} | 34,000.00 | |
| Retail shop rent | 20,000.00 | |
| Bad debt losses | 30,000.00 | |
| Expenses related to business lunches | – | |
| Pilferage | 3,000.00 | |
| 160,700.00 | ||
| Net income of the partnership firm for the income year | 297,700.00 |
| Statement showing Calcuation of Income from Partnership | ||
| Particulars | Amount | Amount |
| Revenue from sporting goods sales | $400,000.00 | |
| Interests incomes on bank deposits | $10,000.00 | |
| Un-franked portion of dividend | $8,400.00 | |
| Amount of Bad debts recovered | $10,000.00 | |
| Incomes exempt | – | |
| Income from capital gain | $30,000.00 | |
|
The amount of gross total income |
$458,400.00 | |
|
Expenses eligible as deduction: |
||
| Partners’ salaries | $25,000.00 | |
| Fringe benefit tax | $16,000.00 | |
| Interests on capital | $2,000.00 | |
| Interests expenses on loan | $4,000.00 | |
| Johnny’s travelling expenses | $3,000.00 | |
| Office building renewal fees | $2,000.00 | |
| Documentation related expenses | $700.00 | |
| Expenses on debt collection | $500.00 | |
| Council rates | $500.00 | |
| Salaries of employees | $20,000.00 | |
| Cost of goods sold {(Opening stock + purchases) – Closing stock} | $34,000.00 | |
| Retail shop rent | $20,000.00 | |
| Bad debt losses | $30,000.00 | |
| Expenses related to business lunches | – | |
| Pilferage | $3,000.00 | |
| $160,700.00 | ||
| Income of the partnership firm for the income year before setoff of loss | $297,700.00 | |
| Less: Setting off loss incurred in the previous year | $40,000.00 | |
| Net income of the partnership in the income year | $257,700.00 |
Reference List:
Coleman, Cynthia, and Kerrie Sadiq. Principles Of Taxation Law 2013.
Kenny, Paul. Australian Tax 2013. Chatswood, N.S.W., Lexisnexis Butterworths, 2013,.
Krever, Richard E. Australian Taxation Law Cases 2013. Pyrmont, N.S.W., Thomson Reuters, 2013,.
Morgan, Annette et al. A Practical Introduction To Australian Taxation Law. North Ryde [N.S.W.], CCH Australia, 2013,.
The Taxpayers’ Guide 2013 & 2014. Milton, Qld., Wrightbooks, 2013,.
Woellner, R. H. Australian Taxation Law 2012. North Ryde [N.S.W.], CCH Australia, 2013,.
Woellner, R. H et al. Australian Taxation Law 2014.
Barkoczy, Stephen. “Foundations of Taxation Law 2016.” OUP Catalogue(2016).
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.
Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and practice. Routledge, 2016.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing, 2016.
Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law. Cambridge University Press, 2015.
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