Taxation of Financial Institutions

This taxation assignment delves into the application of tax laws on financial institutions. It presents a case study of Big Bank, where students must analyze its advertising expenses to determine the allowable input tax credit. Additionally, it requires calculating Angelo's taxable income and the net income of a partnership, demonstrating an understanding of individual and partnership tax computations.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Answer to question 1:
Answer to Question 1.1:
Issue:
The prevailing problem introduces that whether an individual incurring the cost on
moving the machine to the new site will be able to claim deductions specified under the
“section 8-1 of the ITAA 1997”.
Rule: The rules are section 8-1 of the ITAA The rules for this study is “British Insulated and Helsby Cables v Atherton (1926)”
Applications:
From the above-defined prevailing issue of cost incurred on the movement of the
machine to a new place a person will be disallowed from making allowable deductions in tax
return. One should note that “Section 8-1 of the ITAA 1997” accordingly specifies that a
person is disallowed from claiming expense that is not related in the production of assessable
income or business proceeds having private or domestic character (Kiprotich 2016). The
problem statement provides that the cost of moving the machine is capital outlay and such
expenses are disallowed from being considered as deductions.
An evidence of such cost is put forward under the “Taxation ruling of IT 2197”
where the cost of moving the machine is observed as capital expenditure and deductions for
income tax is disallowed for such outlay or expense (Chan 2013). The important case laws of
“British Insulated and Helsby Cables Ltd v. Atherton (1926)” expenditure taking place at

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the time of moving the depreciable asset is portrayed as unceasing benefit to the asset (Miller
and Oats 2016).
Conclusion:
The argument can be concluded that capital cost are disallowed from being considered
as deductible expense and cost of moving the machine to the new site is prevent from
allowable income tax deductions.
Answer to question 1.2:
Issue:
The problem that has been prevalent in this context is making of claim of admissible
income tax related deductions defined in context of “section 8-1 of the ITAA 1997” about
the revaluating of asset.
Rule:
 The applicable rule in this context is the “Section 8-1 of the ITAA 1997”
Application:
The problem that has been stated in the context of the situation is the asset revaluation
and claiming the deductions that has been allowed in accordance with the “section 8-1 of the
ITAA 1997”. As evident the cost that is incurred by the individual taxpayer in order to
revalue the asset to the effect of insurance cover is primarily occurred from the execution of
trade activities. The cost of revaluation is solely incurred in the deriving the business revenue
and therefore such cost can be considered as allowable deductions for the reason that they are
not carrying the nature of domestic, private or capital under the purview of first limb (Preez
2016). It is assumed that cost of revaluing the asset to effect insurance cover is cyclical
business cost and such is incurred in generating the business revenue. Furthermore, an

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assertion can be bought forward that the cost incurred possess significant association with the
taxpayers business functions and does not constitute capital or private expense.
Conclusion:
Arguably, the cost of revaluing asset in order to effect insurance cover is a recurring
business cost. Therefore, such cost forms the part of the income tax deductions.
Answer to question 1.3:
The prevailing circumstances is associated with determining the deductibility of the
legal cost a person incurs for opposing the petition of winding up.
Rule: The applicable rule in this context is the “Section 8-1 of the ITAA 1997” The applicable case laws legislation in this issue is the “Sun Newspapers Ltd v F C of
T (1938)”
Applications:
The above stated problems statement is concerned with the deductibility of the legal
cost that a person incurs for opposing the winding up petition. In order to obtain an income
tax deductions for legal expenses or outgoings, in important considerations is to paid in
understanding the nature of such cost under “Section 8-1 of the ITAA 1997” (Atkinson and
Stiglitz 2016). The character or the feature of the legal expense carries a benefit that is sought
by the taxpayers for the expenses incurred. An important consideration of the “Section 8-1 of
the ITAA 1997” is that when individual taxpayers in the process of gaining or deriving
business revenue occur a legal expenditure then such legal expense is regarded as admissible
income tax deductible expense.

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Reciting the situation “Sun Newspapers Ltd v F C of T (1938)” when a legal
expense is primarily dedicated for deriving the operational trade functions then such expense
are considered for income tax purpose (Shome 2015). Whereas, when the expense are
structural in nature then such legal expense are disallowed from being considered as
admissible income tax deductions. The legal expense of opposing the petition of winding up
represents structural business cost rather than an operative cost therefore, such expense are
disallowed from allowable deductions.
Conclusion:
The above stated explanation provides conclusive evidence that the legal expenditure
are incurred are structural business cost rather a operative business cost. In compliance with
“Section 8-1 of the ITAA 1997”, these expenses are disallowed from being considered as
deductible expense.
Answer to question 1.4:
Issue:
The prevalent issue is focussed on determining the deductibility of the legal expense
incurred by an individual taxpayer in discharge of the business functions for taking the
service of the solicitor.
Rule: The applicable rule in this problem statement is the “Section 8-1 of the ITAA 1997” The appropriate case laws that is applicable here is “Herald and Weekly Times v.
F.C. of T (1932)”

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Applications:
Denoting the prevalent of determining the deductibility of legal expense that is
incurred by the taxpayer for discharge of varied business functions with the help of solicitor
should be considered as admissible income tax deductible expense (Lang 2014). A significant
considerations of “Section 8-1 of the ITAA 1997” is that legal expense incurred by the
taxpayers carrying the nature of the operative business functions are regarded for income tax
deductions except for capital, domestic or private expense (Kaldor 2014). Referring the
instance of “Herald & Weekly Times v F C of T (1932)” expenses incurred in the discharge
of regular business functions are treated for deductions since they form the part of the
revenue deriving actions. Moreover, if the legal expense has more than outlying connection
with the business actions then such expense qualifies for income tax deductions (Bankman et
al. 2017). As noted in the prevailing case that legal expense was incurred for taking the
service of solicitor in order to discharge numerous business functions and those functions
formed the operative part of the business. Therefore, the taxpayer in this scenario can claim
for income tax allowable deductions.
Conclusion:
Under the reference of “Section 8-1 of the ITAA 1997” legal expense that originated
in the present scenario formed the part of the business functions and the taxpayer for such
expense can claim an allowable income tax deduction.
Answer to question 2:
Issue:
The following case study of Big Bank Ltd deals with the determination of the input
tax credit that can be claimed by the company for the financial supplies made by them under
the purview of the “GST Act 1999”.

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Rule:
I. The applicable rule in this present context is the “GST Act 1999”
II. Another applicable rulings that is has been concerned is the “Goods and Service
Taxation Ruling of GSTR 2006/3”
III. The appropriate case laws legislation is the “Ronpibon Tin NL v FC of T”
Applications:
The problem statement brings forward the scenario of Big Bank Ltd providing
financial supplies to its customers and the advertisement expenditure incurred by the
company. The bank provided service in more than 50 branches across the state of Australia
and had large number of customers to access the service of the home content and insurance
products. Apart from this, Big Bank also provided the services of loans and deposits to its
customers. As evident from the “Taxation ruling of GSTR 2006/3” it provides process of
computing and determining the amount of input tax credit that can be availed by the
commercial entities making financial supplies (Schmalbeck, Zelenak and Lawsky 2015). An
important considerations has been laid down under the second chapter of the “GST Act
1999” that effectively puts forward that an commercial entities making financial supplies
would be entitled for claiming input tax credit concerning the expenditure occurred by the
business in their ordinary course.
More significantly, to claim an input tax credit an organization must be the price of
the financial supplies must include the amount of the GST (Beard and Lucas 2017). The
“taxation ruling of GSTR 2006/3” is generally applicable to the commercial entities making
financial supplies that goes past the financial acquisition threshold limit. The prevalent study
of Big Bank has evidently puts forward that the bank has made the spending on
advertisement that was inclusive of the sum of GST (Scholes 2015). The applicable rulings in
the case study of Big Bank that can be applied is the GSTR of 2006/3. Arguably, Big Bank

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has surpassed the threshold limit of the financial acquisition threshold limit and the bank
meets the eligibility criteria of claiming input tax credit.
According to the principles that has been laid down under the “GSTR 2006/3” an
entity making a commercial supplies is fundamentally required to acquire registration under
the “GST Act 1999” (McDaniel 2015). Furthermore, the act provides that an organization
can claim the input tax credit for the commercial made by it together with the sum of GST.
On the other hand, if the organization goes past the prescribed limit of the threshold
acquisition the commercial unit will not be able to claim input tax credit however, a part of
such input tax credit shall be allowable for recovery. According to the judgement that has
been stated under the case of “Ronpibon Tin NL v FC of T”, the provision of extent and the
degree of extent is applicable in determining the amount of GST (Seto 2015). The “GSTR
2006/3” evidently states that determination of GST must be made in a fair and equitable
manner. “Para 11-5 and 15-5” of the “GST Act 1999” defines that when a commercial unit
successfully meets the criteria of claiming input tax credit then it is necessary that the
financial acquisition that is made must be wholly or partially for the creditable purpose.
There are some necessary obligations defined under the “para 11-5 and 15-5” of
“GST Act 1999” which evidently puts forward that an acquisition to be considered for
creditable purpose it must be entirely creditable (Heathcote and Tsujiyama 2015). On the
contrary to the situation on noting the acquisition to be partially meeting the criteria of
creditable purpose then it is vital to determine the extent of the creditable purpose.

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From the applicable rulings of GSTR 2006/3, important explanations has been
provided in section 11-5 and 15-10 that is concerned with the issue of creditable acquisition.
An individual firm can make claim of the input tax credit if the monetary supplies is
including the amount of the GST (Snape and De Souza 2016). In context of the present
scenario of Big Bank, the commercial supplies of financial nature made by the bank has an
association with creditable supplies. From the given case study of Big Bank it has been
observed that it has already crossed the threshold limit that was stated in GSTR 2006/3 for
the financial acquisition so, it can claim partly for input tax credit supplies that it has made.
Conclusion:
The explanation to the case study is providing a conclusive evidence that it can claim
the input tax credit that Big Bank has incurred for its advertisement expense under the
framework of GSTR 2006/3.
Answer to question 3:
Computation of Taxable Income of Angelo

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Answer to question 4:
Computation of Net Income from the Partnership

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Reference List:
Atkinson, A.B. and Stiglitz, J.E., 2016. The design of tax structure: direct versus indirect
taxation. Journal of public Economics, 6(1-2), pp.55-75.
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation.
Wolters Kluwer Law & Business.
Beard, R. and Lucas, G.S., 2017. Federal Income Taxation. Mercer L. Rev., 68, pp.1041-
1161.
Chan, L.K., 2013. AAT.: Principles of Taxation. Paper 5. Pearson Education Asia Limited.
Du Preez, H., 2016. A construction of the fundamental principles of taxation (Doctoral
dissertation, University of Pretoria).
Heathcote, J. and Tsujiyama, H., 2015. Optimal income taxation: Mirrlees meets Ramsey.
Kaldor, N., 2014. Expenditure tax. Routledge.
Kiprotich, B.A., 2016. Principles of Taxation. governance.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
McDaniel, P.R., 2017. FEDERAL INCOME TAXATION. Foundation Press.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Schmalbeck, R., Zelenak, L. and Lawsky, S.B., 2015. Federal Income Taxation. Wolters
Kluwer Law & Business.
Scholes, M.S., 2015. Taxes and business strategy. Prentice Hall.
Seto, T., 2015. Federal Income Taxation: Cases, Problems, and Materials. West Academic
Publishing.

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Shome, P. ed., 2015. Tax policy handbook. International Monetary Fund.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice.
Routledge.