Tax Calculation & Deductions Analysis

This assignment presents a hypothetical business scenario in Australia, requiring you to calculate its total income and deductible expenses. It includes various income sources like imputed gross-up, recovery of bad debts, and exempt income. Deductions encompass employee theft, capital losses, fringe benefit tax, interest expenses, legal fees, and business operating costs. The task culminates in determining the taxable loss based on the provided figures.

HA3042 Assessment 2
Australian taxation law

TABLE OF CONTENTS
Case study 1...............................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Conclusion..............................................................................................................................4
Case study 2...............................................................................................................................4
Issue........................................................................................................................................4
Legal provisions.....................................................................................................................4
Application and Conclusion...................................................................................................5
Case Study 3...............................................................................................................................5
Issue........................................................................................................................................5
Legal provisions.....................................................................................................................5
Applicability and conclusion..................................................................................................5
Case study 4...............................................................................................................................8
Issue........................................................................................................................................8
Legal provisions.....................................................................................................................8
Applicability and conclusion..................................................................................................8
References................................................................................................................................10

CASE STUDY 1
Issue
In this present case, interpretation and analysis of specified four expensed will be done in
order to determine if or if not they are entitled to deduction as per the section 8(1) of ITAA
1997.
Legal provisions
Under the provisions provided by ITAA97 s 8-1, a general deductibility is a loss accrued
which are related those income generation activities such as investments, personal efforts,
capital nature of business activities (Somers and Eynaud, 2015). According to ITAA97
Section 8(5), specific deduction refers to deductions which are not covered in provisions of
general deduction. Deductibility provisions are also inclusive of expenses that cannot be
deducted.
In accordance with the ITAA 1997 Section 8(1) General deductions; loss or expenditure can
be subtracted from taxable income to the cited extent
 If it is incurred while producing taxable income
 If it is incurred while carrying a business with the intention of gaining taxable income
it has been outstanding
In accordance with the ITAA 1997 Section 8-1(2) these losses or outgoing cannot be
deducted:
 If the loss or outgoing is of capital nature or for the purpose of personal use
 If the loss is incurred with the object of having personal benefit
 The provision of act denies deduction
 For gaining exempted income incurred
Application of cited provisions
Scenario Allowable
as
deduction
Reason
Cost of moving machinery to
a new site
No No, as it is considered as a capital expense
Cost of revaluing assets Yes Yes, due to poor information it is alleged

that the benefit is persistent and is incurred
for the purpose of business.
Legal expenses for wind up No In this event, legal expenses incurred will
assist the firm during its wind up so it will
be considered nature of capital.
Legal expenses incurred on
services of a solicitor.
Yes Yes, as the occurred expenditure is of
revenue nature and is incurred for the
purpose of business.
Conclusion
As per the application of specified provisions only revaluing assets costs to effect legal
expense and insurance occurred on solicitor services will be deductible.
CASE STUDY 2
Issue
This given case is all about the analysis of whether the Big Bank is eligible to take input tax
credit of expenditure of advertisement.
Legal provisions
Input tax credit is not entitled to those expenditures which are based on sales of input-taxed.
As per the Australian Taxation provisions, there will be no GST included in financial
supplies price and the similar will be considered in the case of input-taxed sales (Maddison
and Denniss, 2013).
Financial supply assesses these activities:
 Taking a loan
 Granting credit to customer
 Trading shares or any other securities
 For the superannuation fund creation, transfer, allotment or acquiring of an interest
 As per the agreement of hire purchase, providing of credit must come into effect 1
July 2012
GST credit can still be claimed for a purchase made, in which a financial supply has to be
made if these following provisions are applicable (Millar and Moon, 2016):

 The borrowed money is related to the purchase made and is intended to supply non-
input tax
 Allowance of less input tax will be there when the purchase meets the criteria of
reduced acquisition of credit
 The threshold in regards to financial acquisitions must not exceed.
Application and Conclusion
By taking these legal provisions into account in regards to GST input credit and the
applicability of this on this proposed case, it can be said that Big Bank is allowed to make
claims for expenses incurred on advertising but only for $550,000. Further, the big bank is
not entitled to do claims of input credit for the left amount of 1,100,000, as the principles of
the bank do not comply with the provisions cited under deduction as the expense is on
financial supplies.
CASE STUDY 3
Issue
This cited case is connected with foreign offset for Angelo; it is because he is generating
income from its residential and foreign country.
Legal provisions
The limit of foreign offset to an extent is the difference between tax payable on overall
income earned and the tax payable on income earned from home country (Becker, Reimer
and Rust, 2015).
Applicability and conclusion
Step 1: Taxability of income earned globally
Particulars Amount
Gross income Working note 1 $62,000.00
Taxable income As per tax slab of Australia $11,697.00
Medicare levy $1,240.00
Less: Low Income Tax Offset -$70.00
Total amount of tax $12,867.00

Step 2: Taxability of income earned in Australia
Particulars Amount
Gross income Working note 1 $39400.00
Taxable income As per tax slab of Australia $4352.00
Medicare levy $788.00
Less: Low Income Tax Offset -$409.00
Total amount of tax $4731.00
Step 3: The limit of foreign offset
Taxability of income earned globally - Taxability of income earned in Australia
$12,867.00-$4731.00
Working note 1
Calculation of Gross income Amount
Employment income (Australia) $44,000.00
Employment income (United states) $12,000.00
Employment income (United Kingdom) $8,000.00
Rental income (United Kingdom) $2,000.00
Dividend income (United Kingdom) $1,200.00
Interest income(United Kingdom) $800.00
A: Total Gross income $68,000.00

Expenses
Amount paid for earning salary (Australia) -$4,000.00
Amount paid for earning salary (United States) -$900.00
Amount paid for earning salary (United
Kingdom)
-$500.00
Gift -$400.00
Interest expense in regards to dividend (United
Kingdom)
-$140.00
Expense in regards to interest income (United
Kingdom)
-$60.00
B: Total allowable deductions -$6000.00
(A-B) Taxable income $62000.00
Working note 2
Calculation of Gross income Amount
Salary (Australia) $44,000.00 $44,000.00
A: Total Gross income $68,000.00
Expenses
Amount paid for earning salary (Australia) -$4,000.00

Gift -$400.00
Interest expense in regards to dividend (United
Kingdom)
-$140.00
Expense in regards to interest income (United
Kingdom)
-$60.00
B: Total allowable deductions -$4600.00
(A-B) Taxable income $39400.00
CASE STUDY 4
Issue
To determine the taxable amount by considering business transactions of Leon and Johnny.
Legal provisions
Taxability will be determined in accordance with the provisions cited under ITAA 1997 for
partnership business.
Applicability and conclusion
Particulars Amount
Assessable income
Sales as per Sec 6-5 $40,000.00
Interest by bank as per Sec 6-5 $10,000.00
Dividend as per Sec 44 $21,000.00
imputation gross-up as per Sec 207-20 $5,400.00
recovery of bad debts as per Sec20-30 $10,000.00

Exempt income (not assessable) as per Sec 6-20
Gain on capital as per Sec106-5 -
(A) Total income $86,400.00
Deductions
Sales proceeds stolen by employee as per Sec 25-45 -$3,000.00
Capital loss of $15000 as per Sec 8-1
Salary to Johny and Leon as per Sec 8-1
Fringe benefit tax -$16,000.00
Interest on loan -$4,000.00
Interest on capital as per Sec 8-1
Johnny's travelling expenses -$3,000.00
Legal fees for the renewal of lease -$2,000.00
Legal expenses for partnership agreement -$1,200.00
Legal expenses for lease of business premises -$700.00
Debt collection expenses -$500.00
Council rates on business premises -$500.00
Staff salaries -$20,000.00
Purchase of sporting goods supplies -$30,000.00
Rent on retail shop -$20,000.00
Provision for doubtful debts
Business lunches -$10,000.00
(B) Total deductible expenses $110,900.00
(A-B) Taxable Loss 24,500.0

REFERENCES
Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International.
Maddison, S. and Denniss, R., 2013. An introduction to Australian public policy: theory and
practice. Cambridge University Press.
Millar, R. and Moon, L., 2016. Designing a Simple and Fraud-Proof Tax System: Australia.
Somers, R. and Eynaud, A., 2015. A matter of trusts: The ATO's proposed treatment of
unpaid present entitlements: Part 1. Taxation in Australia, 50(2), p.90.