Issue:
With reference to “Section 8-1 of the ITAA”, is allowable deduction applicable for placing machinery from one location to another.
Rule:
On applying the rulings of “Section 8-1 of the ITAA”, it has been discerned that moving of machinery involves inflated asset value. As the activity of shifting the machinery has taken place based on the assessable income it cannot be held liable for deductions as this has led to increased cost of asset.
As per the findings of the case “British Insulated & Helsby Cables”, it has been discerned that previously companies have taken advantage of moving a depreciable asset. As per the rulings of “Taxation ruling of TD 92/126” the cost of assembling a new machinery can be considered as a part of the revenue under cost of capital which cannot be held for allowable deductions (Barkoczy 2016).
Conclusion:
It can be rightly said that the cost of moving the depreciable asset/machinery cannot be taken into account for the purpose of deductions which are allowable as they are a division of the capital.
Issue:
The issue has been recognised for the consideration of asset revaluation based on the insurance cover with reference to “Section 8-1 of the ITAA 1997”.
Rule:
Application:
As per the applicability aspect of “Section 8-1 of the ITAA 1997”, it has been discerned that any cost which is recurring in nature needs to be entitled for the allowable nature of deductions. As for the given case the cost of the expenditure is seen to be repeating and moreover the outer cost incurred for the fixed asset is seen to be considered as per straight-line basis such costs depict impertinent advantages. Therefore it is important to take into consideration the cost of asset revaluation as per “Section 8-1 of the ITAA 1997” (Millar 2014).
Conclusion:
The given rulings under “Section 8-1 of the ITAA 1997”, shows that it is important to consider the asset revaluation as an outcome of insurance cover.
Issue:
The basic question has highlighted on the important aspect of legal expenditure incurred in opposition to a shutting down of business activity and the same is to be considered under permissible amount of deductions.
Rule:
As per the inference made from “Section 8-1 of the ITAA 1997”, the legal expenditure which has been identified with shutting down of business cannot be held under permissible nature of deductions. As per “Taxation ruling of ID 2004/367” the legal expenditure cost which is proposed to carry out any business operation then only can be held for permissible deductions. However, as the expense is a result of ordinary course of business it cannot be treated under permissible deductions (Australian Trade Commission 2015).
In a similar case of “FC of T v Snowden and Wilson Pty Ltd (1958)”, the expenses are borne as a result from ordinary course of business which prevented it from consideration from allowable deductions (Australian Government 2015).
Based on the given situation shutdown of business may be qualifying under the positive limbs but as the expenses are aligned with business structure it is having characteristics nature of capital henceforth cannot be considered for deductions.
Conclusion:
The study shows how the expenses which are depicting capital characteristics of business activities cannot be considered for deductions as per “Section 8-1 of the ITAA 1997”.
The depiction is made from “Section 8-1 of the ITAA 1997”, has been able to demonstrate that legal outlay with characteristic features of capital cannot be held under non-deductible income. The trading activities should be taken into consideration based on the parameter of allowable deduction as it should be noted that the legal expenditure is directly associated to the revenue producing aspect. By consideration of the given situation, it needs to be noted that the cost born for solicitor services are duly considered for deductions as per “Section 8-1 of the ITAA 1997” (Australian Taxation Office 2015).
Conclusion:
The different types of legal expenditure as a result of revenue generating criteria allow for the deductions with the rulings of “Section 8-1 of the ITAA 1997”.
Issue:
The important concern is related to “GST Act 1999” and to discern that the taxpayer needs to determine the “Input Tax Credit (ITC)” for the GST supplies.
Rule:
Applications:
The main form of the GST supplies for the Big Bank has been duly noted with the advertising cost. The consideration of ITC as per “Chapter 2 of the GST Act 1999”, shows that any expense which has been incurred the normal business function should be inclusive of ITC. However, the claim for a city needs to be added up with the GST amount. The bank has been recognised to provide its financial services in more than 50 branches throughout the country. There have been several programs for insurance and home content apart from the credit facilities. Henceforth, the various types of ITC have been considered under the rulings of “Taxation Ruling of GSTR 2006/3”.
The consideration is made from “division 11-15 and 129 of the GST Act 1999”, has been further able to highlight on the acquisitions as per previous rulings. The important applications of taxation ruling have been recognised with “GSTR 2006/3” which depicts the benchmark on the acquisition limit associated to the acquisitions of ITC or “lower input tax credit”.
In the given situation of the bank, it can be stated that the expenses has been mainly incurred as a result of advertising cost and that has been already clubbed with GST amount. Therefore, the present question needs to ensure whether the issue is able to comply with “GSTR 2006/3”. By the rulings of “GSTR 2006/3”, it has been discerned that Big Bank has duly met the criteria for ITC. As per the various types of depictions from “GSTR 2006/3”, it has been inferred that any registration of having commercial significance needs to be recognised under “GST Act 1999”, for the payment of GST amount based on the financial requirements (Besley and PerssonT 2013).
It has been for the discerned from the “GSTR 2006/3”, that the commercial activity can be directly claimed for ITC as it has been associated to the GST amount for financial supplies. On the other hand, commercial entity is seen to be related to claimable amount of ITC. However, only a certain portion of the entity is claimable (ATO 2015).
As for the application of the case “Ronpibon Tin NL v FC of T”, significant criteria as per the rulings of “GSTR 2006/3” for the GST depicts that “extent” and “to the extent” concept is applied to the supplies of GST. Based on the aforementioned legislation, GST assessment should be carefully taken into consideration for business concern. Adding to another investigation as per “para 11-5 and 15-5” mentioned in “GSTR 2006/3”, it can before the discerned that the various types of financial services which are eligible for credible purposes should signify whether creditable acquisition is made fully or partially.
The application of “para 11-5 and 15-5” clearly signifies that the acquisition needs to be considered fully. However the partial degree of flexibility also needs to be ascertained.
|
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 |
Henceforth, the depictions made as per GST under “GSTR 2006/3”, have been seen to be surpassed the financial obligations. Therefore the bank needs to bring forward the claim for ITC with the GST supplies.
Conclusion:
The main application has been seen with “GSTR 2006/3” which duly qualifies big bank for “input tax credit” due to the advertising expenditure.
Computation of Taxable Income of Angelo
|
Assessable Income |
Amount ($) |
Amount ($) |
|
Gross Income |
||
|
Employment income from Australia |
44000 |
|
|
Employment income from United States |
12000 |
|
|
Employment income from United Kingdom |
8000 |
|
|
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 (%) |
21.0 |
|
|
(14257/68000)*100 |
|
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 |
Computation of Net Income from the Partnership
|
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 |
References
ATO (2015) Simplified depreciation rules | Australian Taxation Office, ATO. Available at: https://www.ato.gov.au/Business/Small-business-entity-concessions/In-detail/Income-tax/Simplified-depreciation-rules/.
Australian Government (2015) ‘Australian Taxation Office’, Registerting for GST. Available at: https://www.ato.gov.au/Business/GST/Registering-for-GST/.
Australian Taxation Office (2015) Yearly reports and returns | Australian Taxation Office, Yearly reports and returns. Available at: https://www.ato.gov.au/Business/Yearly-reports-and-returns/.
Australian Trade Commission (2015) Australian Business Taxes, Company Tax. Available at: https://www.austrade.gov.au/International/Invest/Guide-to-investing/Running-a-business/Understanding-Australian-taxes/Australian-business-taxes.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
BesleyT. and PerssonT. (2013) ‘Taxation and Development’, Handbook of Public Economics, 5, pp. 51–110. doi: 10.1016/B978-0-444-53759-1.00002-9.
Millar, R., 2014. Grappling with basic VAT concepts in the Australian GST: the meaning of ‘supply for consideration’. World Journal of VAT/GST Law, 3(1), pp.1-31.
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