The central issue in the present case is to comment on the nature of the given losses or expenses and to decide whether these would be allowable as deductions under s 8 – 1 of Income Tax Assessment Act 1997.
Section 8 – 1 ITAA 1997, describes various factors that would be taken into consideration in the process of deciding whether the loss or expenses occurring in the given business operations results in tax deduction for the business or not (Barkoczy, 2017). When the loss is of “capital nature”, then it would not be considered for tax deductions. Losses or expenses which occur to derive exempt income would also not be considered for tax deductions. Also, loss or expense that is of private nature or for domestic purposes would not be tax deductible (Gilders, et. al., 2016).
It is apparent that cost occurs for moving machinery from one site to another side is an outgoing capital expense. Therefore, it is not tax deductible.
Cost involved in revaluing the asset would be mainly incurred for the two reasons. One reason is to increase the total assessable income. In this case, the cost would lead tax deductions as per s 8 (1) ITAA 1997. On the other hand, if revaluing of the asset is created by the concerned party in order to protect the assets and not to make more money, then in such cases, the cost involved in revaluing would not be liable for tax deductions. In present case, it can be seen that revaluing of asset is not continuous and also not to make profit. Therefore, this cost is not tax deductible.
According to the highlights of Snowden & Wilson Pty Ltd (1958) 7 AITR 308 case, when legal expense occurs to improve the business of company and to make more income, then in such case the expense would lead not lead tax deduction because they become capital nature outgoings. In present case, legal expenses would not be deductible allowance.
When company paid fee to solicitor for their services which involves legal advice on general operations besides other purposes would be considered as revenue expenses. Further, revenue expenses would be considered for tax deduction. Hence, it can be said that legal expense is tax deductible under this section.
Conclusion
From the above discussion, it can be concluded that costs incurred in moving machinery and revaluing or asset and expense incurred on legal expense for petition of winding would not lead to tax deduction. However, the expense incurred as a fee offered to solicitor would amount to tax deduction as per section 8 (1), ITAA 1997.
The input tax credit that can be claimed by Big Bank based on the advertising expenditure related GST payment needs to be determined.
An essential consideration relevant to ascertain the claim making ability of input tax credits for financial supply is the Financial Acquisition Threshold (FAT). If the firm exceeds the firm, then full credits cannot be claimed or else full credits can be claimed. For determination of FAT, GST Act (s. 189(5), s. 189(10)) is quit helpful. It defines the FAT as the lower of the two values i.e. 10% of the total entitlement of the total input tax credits or $ 150,000 (Nethercott, Richardson and Devos, 2016). Acquisitions that tend to involve input taxed supplies in the context or loans or deposit facilities fail to be recognized as creditable acquisition. On the other hand, acquisitions that tend to lead to taxable supplies i.e. involving home and content insurance are recognized in the form of creditable acquisition (Barkoczy, 2015).
In line with the relevant rule highlighted above, the insurance (home and content) related spending on advertisement would be creditable and hence lead to input tax credits of $ 50,000 being available. Further, the FAT threshold would be crossed by the bank and thus for general advertisement, it is recommended that apportionment needs to be carried out in a fair manner. One manner to do that same is to rely on the estimate of 2% dedicated to insurance and hence this would generate taxable supplied unlike the remaining 98% of the expenditure.
Total advertisement expenditure (excluding GST) = $ 1,000,000
Spend on insurance = 2% of 1,000,000 = $ 20,000
Conclusion
Hence, $ 2,000 worth of input tax credit is left available. However, the reduced input tax credit related to advertising would be zero.
The objective is to determine the foreign tax offset for the taxpayer Angelo.
According to Australian tax law, the taxpayer is liable to pay the tax on his/her foreign (international) income only once. It means if the concerned taxpayer has paid the tax on international income to the government of foreign country, then it is not essential that he/she needs to pay the tax on international income in Australia (Barkoczy, 2017) . This process is used to avoid or prevent the double taxation. In such cases, when the taxpayer is filling the tax, form would be offered to claim for the foreign tax offset against the tax which the taxpayer has already paid in foreign land (Deutsch, et. al., 2016).
Taxpayer can claim for foreign tax offset only if the two given aspects are satiated by taxpayer (Barkoczy, 2017).
Further, the determination of actual foreign tax offset would be determined as per the foreign tax offset limit. This is the threshold limit of claiming the foreign tax offset. The taxpayer cannot claim the foreign tax offset higher than this limit (CCH , 2013).
Calculation of foreign tax offset for Angelo for current year
From the above analysis and computation, it can be seen that foreign tax paid by Angelo is $4400 and the foreign tax offset limit is $7,797. The amount paid by Angelo is lesser than foreign tax limit. Therefore, she has $4400 foreign tax offset that can be claimed by her in Australia.
Conclusion
The foreign tax offset of Angelo is $4400 for the current tax year.
The objective in this case is to calculate the net income of Johnny and Leon’s partnership firm.
The net income would be the difference between the total assessable income and total deductible expense. Therefore, the major step is to find the assessable income and deductible expenses for the firm based on the applicable sections (Sadiq, et al., 2016).
Assessable income
Exempt income would not be the part of assessable income because if the firm generates capital gains then this gain would equally be distributed between the partners.
Factors essential to considered before the determination of tax deductions are as illustrated below (Woellner, 2014):
Tax deductions
Therefore,
Net income would be the difference between total assessable income and total tax deductions.
Net income
Conclusion
Based on the above computation, it can be concluded that the net income for the Johnny and Leon’s partnership firm is $345, 700.
References
Barkoczy, S. (2017), Foundation of Taxation Law 2017, 9thed., North Ryde: CCH Publications
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax handbook 8th ed., Pymont: Thomson Reuters,
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016), Understanding taxation law 2016, 9th ed., Sydney: LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2016) , Principles of Taxation Law 2016, 8th ed., Pymont:Thomson Reuters
Woellner, R (2014), Australian taxation law 2014, 7th ed., North Ryde: CCH Australia
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