Australian Taxation: Assessable Income of Partnership Business, Depreciating Assets, Repairs and Maintenance, Loss in Partnership

This document discusses the principles concerning partnership taxation in Australia, including assessable income, depreciation of assets, repairs and maintenance, and loss in partnership. It also covers the fringe benefits tax and its consequences on John's remuneration package.

Australian Taxation
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Table of Contents
Question 1..................................................................................................................................3
Assessable Income of Partnership Business..........................................................................3
Depreciating the assets...........................................................................................................3
Repairs and Maintenance.......................................................................................................4
Loss in Partnership.................................................................................................................4
Question 2..................................................................................................................................8
References................................................................................................................................10
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QUESTION 1
Assessable Income of Partnership Business
Division 5 of Pt of III ITAA deals with the principles concerning partnership taxation. These
are applicable to all types of partnership exclusive of limited corporate partnership. It is
stated by Morse and Deutsch (2015), that, the main purpose of this division is to inflict the
tax on the partners rather than partnership which is obliged to be the individual taxpayer.
Further, it is the responsibility of partners to report their separate interest for each amount.
Section 92 (1) asserts assessable income of a partner must comprise:
a) Individual interest of a partner in the net profit of partnership of year of income as the
same is attributable to a phase when the partner was an occupant.
b) The interest of a partner in net income of partnership of the year of income as is
referable to a time when the partner was non- resident.
Further, section 2 if the partnership experiences a loss, in that case, the partner is enabled to
deduct its separate interest in the loss. Blakelock and King (2017), asserts that it also
facilitates the partner who is not a resident with so much of loss of partnership as is
attributable to Australian sources.
In accordance with the Australian Taxation Office (ATO), while estimating the assessable
income, the company is obliged to calculate gross profit or profits from the ordinary course of
business. Apart from this, Chardon, Freudenberg and Brimble (2016), specifies that there are
other payments also which are not the part of regular activities of firm but is necessary to be
included in the assessable income. Furthermore, as per assertions of Wicker (2018), the
principal amount of repayment of loan cannot be deducted from the tax.
Depreciating the assets
According to Raftery (2017), the business cannot reduce the spending on capital assets
instantly rather the cost can be claimed for the same, representing the value of assets that is
fall in value. Depreciating assets refer to those assets which have a restricted effective life,
and it could be anticipated that with the utilisation of assets there will be a fall in value. There
are some assets which are not depreciating assets, and they are land, trading stock as well as
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intangible. Further, in order to depreciate the assets and other capital expenditure, ATO has a
specified set of general rule. The effectual life of the asset, expressed in years will govern the
number of years according to which the depreciation will be allocated to a specific asset.
Repairs and Maintenance
Section 25.10 of ITAA 1997 the expenditures which are incurred on repairing of an asset or a
depreciating asset are deductible which is embraced or taken into use only with the purpose
of generating assessable income. Further, if the company has utilised that property partly for
this objective, the business can deduct so much of expenses as is rational in the circumstances
(Woellner et al., 2016). At the same time, according to subsection 3, the capital expenses are
not deductible in profit and loss account.
Loss in Partnership
In accordance with Yin and Burke (2016), the partnership loss occurs when there is a surplus
of allowable deductions which means they are more than the assessable income of the
partnership firm as such the partnership was a resident taxpayer. In the case of partnership
loss, there are no deductions. Though the loss incurred is distributed among the partners
according to the ratio specified in the agreement. Consequently, it is considered as a
deduction in the individual tax return of partner. Resident partners are enabled to proclaim for
the deduction for their net loss of partnership. Along with this, there are some exceptional
rules according to which the partner is declared as a non-resident for the whole or for the part
of the year. Exemptions for foreign partnership loss comprises the quarantines in partnership
and are not accessible for partner allocation, and losses could be taken ahead in order to
harmonise the same with foreign income of following years.
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STATEMENT PRESENTING THE BUSINESS INCOME OF PARTNERSHIP
Particular Note Amount (in $)
Income
Business Sales (Cash) 150170.00
Business Sales (Credit) 1 31885.00
Increase in Stock 2 630.00
Total 182685.00
Expenses
Car Expenses 3 2364.00
Electricity expenses 4 1176.00
Council rates 5 310.20
Business insurance 1250.00
Mobile bill 6 633.60
Union fees 284.00
Account charges 595.00
Repair expenses 7 1490.00
Interest on loan 8 5500.00
Cash Purchases 31155.00
Credit Purchase 9 129188.00
Depreciation 10 4836.52
Total Expenses 178782.32
Net Business Income 3902.68
Notes to Account
Working Note 1
Calculation of Credit Sales (Debtors Account)
Particular
Amount
(Dr.) Particular Amount Cr.
Balance B/d 3925 Bank / Cash 32800
Credit Sales (b/f) 31885 Balance c/d 3010
Total 35810 35810
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Working Note 2
Calculation of Increase/Decrease in Stock
Particular Amount
Closing Stock (A) 9750
Opening Stock (B) 9120
Increase in Stock (A-B) 630
Working Note 3
Calculation of Car and Van Maintenance
Particular Amount
Cost of maintaining van 1260
% used in business 1134
Deductible expenses 1134
Cost of maintaining SUV 2050
60% used in business 1230
Deductible expenses 1230
Total deductible maintenance expenses 2364
Working Note 4
Electricity Expenses
Particular Amount
Total Bill 1470
Business Use (90%) 1176
Deductible Expenses 1176
Working Note 5
Council Rates
Particular Amount
Total amount 517
Business Use (90%) 310.2
Deductible Expenses 310.2
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Working Note 6
Mobile Bills
Particular Amount
Total Bill 704
Business Use (90%) 633.6
Deductible Expenses 633.6
Working Note 7
Calculation of Repairs and Maintenance
Particulars Amount (in $)
Air Condition Installation 1200
Shop Painting 150
Refrigerator motor replacement 140
Total 1490
Note: Installation expenses are added in cost. Since in the present year no air conditioner is
acquired due to which it will be treated as revenue expenditure.
Working Note 8
Calculation of Interest on Loan
Particulars Amount (in $)
Repayment of Loan 8500
Principal 3000
Interest 5500
(Repayment of Loan - Principal)
Working Note 9
Creditors Account
Particular Amount (Dr.) Particular Amount Cr.
Bank/ Cash 128678 Balance b/d 6500
Balance c/d 7010 Credit Purchase (b/f) 129188
Total 135688 135688
Working Note 10
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Calculation of Depreciation
Union Fees
Union Fees is fully deductible expense in case the partner is a union member. In the present
case, it is assumed that partners are a union member. Thus, the full amount is deductible.
QUESTION 2
Fringe benefits tax (FBT), is applied on non-cash benefits offered apart from cash salary.
These type of benefits are generally paid regarding an employment association. These
benefits include such as providing car, entertainment expenses and laptops (Braverman,
Marsden and Sadiq, 2015). The procedure for scheming FBT accountability includes
following steps Working out the taxable value of the benefits offered to the workers, by
applying any pertinent tax credits for deciding companies fringe benefits ‘taxable amount’.
This is further, multiplied by the present FBT rate.
Reduction in taxable value
Value of a fringe benefit is reduced by the “otherwise deductible” rule and
contributions/payments by the recipient.
Otherwise Deductible Rule
The otherwise deductible rule relates in the situation, where a worker had incurred the
expenses individually, they would have been allowed to a once-only inference (Shields and
North-Samardzic, 2015). It is essential to note that depreciation does not meet the criteria as
it would affect in numerous deductions.
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FBT consequences of John remuneration package
School Fees: The amount paid by the employer as school fees accomplish the requirement of
expenses refereed as a fringe benefit to the employee. Thus the whole amount of $15000 will
be included in fringe benefits taxable value. Moreover, no GST credit is available on same
due to which it will be included in the lower gross value category.
Taxable benefit relating to accommodation:
= Market Value of Rent – Amount Reimbursed by employee
= $41600 - $5200
= $36400
Thus the total taxable value of FBT = $15000+$36400
= $51400
FBT Tax to be paid by John is = Taxable amount * FBT rate of the year * Lower gross-up
rate
=$51400*47%*1.8868
= $ 45581.31
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REFERENCES
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), p.18.
Braverman, D., Marsden, S. and Sadiq, K., 2015. Assessing Taxpayer Response to
Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax'n, 17,
p.1.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Morse, S.C. and Deutsch, R., 2015. Tax Anti-Avoidance Law in Australia and the United
States. The International Lawyer, 49(2), pp.111-148.
Raftery, A., 2017. 101 Ways to Save Money on Your Tax-Legally! 2017-2018. John Wiley &
Sons, Melbourne.
Sakurai, Y. and Braithwaite, V., 2019. Taxpayers' perceptions of the ideal tax adviser:
Playing safe or saving dollars?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, Australia.
Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee
Performance and Reward: Concepts, Practices, Strategies, 1(1). p.218.
Wicker, H., 2018. Tax consolidation: A review of the recommended changes. Taxation in
Australia, 53(5), p.242.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue, Australia.
Yin, G.K. and Burke, K.C., 2016. Partnership Taxation. Wolters Kluwer Law, Florida.
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