Partnership Income and Expenses Calculation

This assignment focuses on calculating the net profit of a partnership firm in Australia. It provides a detailed breakdown of various income and expense items, including interest expenses, travel costs, office fees, salaries, cost of goods sold, rent, bad debt losses, and pilferage. The calculation involves applying relevant tax regulations and setting off losses incurred in the previous year. Students need to analyze the provided data and accurately compute the partnership's net income for the income year.

Running head: TAXATION LAW
Taxation Law
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1TAXATION LAW
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................3
Answer to Question 3:.....................................................................................................................6
Answer to Question 4:.....................................................................................................................9
References:....................................................................................................................................12

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Answer to Question 1:
“Section 4-15 of the Income Tax Assessment Act 1997” states that in order to calculate
taxable income, the allowable expenses are deducted from assessable income. In addition, a
taxpayer is allowed in claiming deduction under “Section 8-1(1) of the ITAA 1997” for
expenditures incurred on gaining or developing assessable income along with conducting the
activities associated with the businesses1. Hence, the following points are discussed briefly as
follows:
1) According to “Section 8-1”, the amount spent on moving a machinery would be taken
into account for deduction only, if the machinery is utilised in earning an income, which
is taxable. In case of “Granite Supply Association Ltd v Kitton (1905) and Smith v
Westinghouse Brake Company (1888)”, the sum of money incurred for relocating
expenses and plant would not be allowed as deduction due to the capital nature of the
expenditures.
2) “Section 8-1 of ITAA 1997” denotes that the cost of revaluation related to an asset is not
considered as deductible expense2.
3) “Section 8-1 of ITAA 1997” represents that any expenditure related to lawful suits is
suffered in contrast to the closure of the company and this would be taken into account in
the form of deductible expenditure3.
1 Caldwell, R, Taxation for Australian businesses. in .
2 Morgan, A, C Mortimer, & D Pinto, A practical introduction to Australian taxation law. in .

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4) As laid out in “Section 8-1 of ITAA 1997”, in order to assure business income, with prior
experience of solicitor expense, it would be considered in the form of permissible
deduction4.
Answer to Question 2:
If a business organisation makes any purchase, the input credit of GST is permitted only,
in case; pertinent documents are stored properly in association with such transactions. According
to “GST Act 1999”, any organisation intending to make business income possesses the right to
obtain credit of input for payments related to GST involving material or asset purchase5.
Issue:
It has been identified from the provided case that Big Bank Limited has incurred
advertisement expenditure of $1,650,000 that includes GST as well. In the current scenario, the
bank intends to assure that the overall expenditures related to advertisement would be permitted
as credit of input or not, as the expenditures include GST6.
3 Woellner, R, S Barkoczy, S Murphy, C Evans, & D Pinto, Australian taxation law select 2014.
in .
4 Kenny, P, Australian tax 2013. in , Chatswood, N.S.W., LexisNexis Butterworths, 2013.
5 Woellner, R, R Woellner, S Barkoczy, S Murphy, C Evans, & D Pinto, Australian Taxation
Law 2015. in .
6 Krever, R, Australian taxation law cases 2013. in , Pyrmont, N.S.W., Thomson Reuters, 2013.

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Rules:
As identified from the “Chapter 2 of the Goods and Services Act 1999”, input tax credit
including GST would be permitted to an organisation on the incurred expenditures at the time of
general course of the business. However, it is to be noted that such expenses include the amount
of GST.
Application:
Big Bank Limited is a financial organisation that provides services to the individuals
having more than 50 branches throughout the province of Australia. It has a 10-storied
apartment, in which its head office is situated. Along with, there has been the introduction of
home content and insurance policy in Australian market coupled with loan and deposit
provisions of the customers over the years7. In order to carry out advertising work, the bank has
kept apart a budget amounting to $1,650,000 from which $550,000 is invested for house
advertisement and insurance products. With the help of such investment, the organisation has
managed to generate 2% of its overall revenues. The leftover amount of $1,100,000 is for
promoting the other services of the organisation and it takes into consideration the GST as well8.
Therefore, it has been evaluated that $1,100,000 had been incurred for the promotion of
services for generation of maximum revenue, while the amount of $550,000 is to be considered
7 Woellner, R, Australian taxation law select 2013. in , North Ryde, N.S.W., CCH Australia,
2013.
8 Morgan, A, C Mortimer, & D Pinto, A practical introduction to Australian taxation law. in ,
North Ryde [N.S.W.], CCH Australia, 2013.

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as capital expense. This is because the newly launched product would contribute towards the
income generation of the organisation9.
Conclusion:
From the above discussion, it is inherent that the sum of $1,100,000 that the organisation
has spent on advertising its current products and services would be allowed to obtain credit input.
On the contrary, the overall amount of $550,000 would not be restricted to obtain credit of input,
since 2% of such expense contributes towards the generation of income of Big Bank Limited10.
Calculation of Input Tax credit
Particulars
Amount
($)
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
550,000.0
0
100% GST input credit 100,000.0
9 Morgan, A, C Mortimer, & D Pinto, A practical introduction to Australian taxation law. in .
2016.
10 Woellner, R, Australian taxation law 2012. in , North Ryde [N.S.W.], CCH Australia, 2013.

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0
Add: For 2% contribution in revenue 3,000.00
Amount of input credit allowed to the bank
103,000.0
0
Table 1: Computation of input tax credit allowed to Big Bank Limited
(Source: As created by author)
Answer to Question 3:
The subdivision 717A concentrates on rules pertaining to the offset of income tax. The
computation is provided as follows:
Assessable income of Angelo inclusive of foreign incomes
Particulars Amount Amount
Gross total income without any deductions
$
68,000.00
Available deductions:
Medical expenditures
$
5,000.00
Expenses for deriving employment expenses disallowed for
deduction
-
Expenses incurred in UK for generating Rental income
$
500.00

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Interests expenditures for generation of dividend income
$
140.00
Expenses for generation of interest income
$
60.00
Total amount of deductions
$
5,700.00
Net income after deductions
$
62,300.00
Income tax payable
$
11,794.18
Table 2: Computation of income tax payable
(Source: As created by author)
Along with the above-depicted table, the following computation is presented as follows:
Assessable income of Angelo inclusive of foreign incomes
Details ($) ($)
Gross total income without any deductions
52,000.00
Available deductions:
Medical expenditures
5,000.00

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Expenses for deriving employment expenses disallowed for deduction -
Expenses incurred in UK for generating Rental income -
Interests expenditures for generation of dividend income -
Expenses for generation of interest income -
Total amount of deductions 5,000.00
Net income after deductions
47,000.00
Income tax payable 6,821.68
Table 3: Computation of income tax payable
(Source: As created by author)
Assessable income of Angelo inclusive of foreign incomes
Details ($) ($)
Gross total income without any deductions
52,000.
00
Available deductions:
Medical expenditures
5,000.
00
Expenses for deriving employment expenses disallowed for
deduction
-
Expenses incurred in UK for generating Rental income -

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Interests expenditures for generation of dividend income -
Expenses for generation of interest income -
Total amount of deductions
5,000.0
0
Net income after deductions
47,000.
00
Income tax payable
6,821.6
8
Table 3: Computation of income tax payable
(Source: As created by author)
The offset of foreign tax is computed by subtracting the amount of income tax payable
under the first alternative from income tax payable from the second alternative. Henceforth, the
limit is computed as $4,972.50 ($11,794.18 - $6,821.68). It could be observed that the sum of
offset of foreign tax is greater in contrast to the payment of foreign tax. Hence, the offset limit of
foreign tax is $4,400.
Answer to Question 4:
Statement showing Calculation of Income from Partnership
Particulars Amount Amount
Revenue from sporting goods sales $ 400,000.00
Interests incomes on bank deposits $ 10,000.00

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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