Aussie Ltd Imports High Quality of Furniture

Added on - 01 Apr 2020

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Solution 1:Issue:Aussie Ltd imports high quality of furniture at low cost and sold it to the Australian market andenjoying huge sales volume. That will affect the Australian furniture market and threatened thelocal employment market. For the protection of Australian domestic market AustralianGovernment impose a high import duty on the annual sales of all imported furniture by AussieLtd. This high import duty affects the Aussie sales, and the company wants to repeal importduty.Law:Tax implication for Aussie Ltd. was Deductible Expenses of the Tax Payer. The Main provisionfor Taxpayer is theGeneral Deduction Provision Section 8-1 of the ITAA 1997[ CITATION The12 \l1033 ]. The General deduction stated that1.Gaining or producing assessable income,2.Necessarily carrying a business to gain or producing assessable income.A taxpayer will be entitled to a general deduction under section 8-1 for loss or outgoing; it mustbe satisfied either one of the twoPositive limbs or one of the four negative limbsfor getting taxdeduction:The First positive limbApplies to all taxpayer whether they earn profit or loss.[ CITATION Fed50 \l 1033 ]. Onthe otherhand,
ASecond positive limbApplied to only that taxpayer who carries business for profit or producing assessableincome[ CITATION Fed58 \l 1033 ].Negative limbs:-Capital or capital in nature-Private or domestic-Incurred gain exempt or non-exempt income-Prevented from being deducted by a specific provision of the income tax legislation.First negative limb:An expense that occurs in “once and for all” is capital expenses. An expense that occurs inrecurring basis is revenue expenses. Cases that describe both expenses clearly are:[ CITATIONInc10 \l 1033 ]Application
This case falls under the first negative limb. Expenses on advertising are the revenue natureexpenses and are deductible under section 8-12(2)(a). This expense is recurring nature whichrecurs every year. Advertising of a product direct affect the sales of a product. (Bhagwati, 1954)In this case, construction of the building is of “revenue expenditure”. Expenses made for theexpansion of business or a substantial replacement of equipment. Similarly in (British Insulatedand Helsby Cables Ltd v. Atherton, 1925).ConclusionAfter studying all the cases, we conclude that Aussie Ltd had made expenditure on advertisingwhich is “revenue expenditure” and it is deductible.REFERENCES:Vallambrosa Rubber Co Ltd v Farmer, (1910) 5 TC 529 (1 Div) (1910).British Insulated and Helsby Cables Ltd v. Atherton, [1926] AC 205 (House of Lords Dec 11, 1925).Federal Commissioner of Taxation v Green, 11 (High Court of Australia June 21, 1950).Assam Bengal Cement Co. Ltd vs The Commissioner, 1955 AIR 89, 1955 SCR (1) 876 (Lahore High CourtNov 11, 1954).
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