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HI3042 Taxation Law T2 2017 INDIVIDUAL ASSIGNMENT STUDENT ID AND NAME

   

Added on  2020-04-07

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HI3042 TAXATION LAWT2 2017 INDIVIDUAL ASSIGNMENTSTUDENT ID AND NAME[Pick the date]

Question 1 Issue The issue is to determine whether the given expenses would be considered for tax deductions asper the provisions of section 8-1, ITAA 1997. Rule In accordance of section 8-1, ITAA 1997 the following expenses or losses resulted from businessactivities would be considered for tax deduction on the part of the taxpayer for the given scenario(CCH, 2013).Business losses or outgoings which are capital in nature would not be deductible.The loss or expense derived from business in order to generate exempt income would not beconsidered for tax deduction. The loss or expense of domestic nature would not be considered for tax deduction. Application The cost incurred in movement of machine to a new site is an outgoing of capital nature as thereare no changes to the site but rather asset movement. As a result, this cost would add to themachine cost and would result in increase in expense on account of depreciation (Gilders et. al.,2016). However, the cost of moving machine would be termed as non-deductible as per s. 8(1).The asset revaluation cost could be termed as deductible only when the revaluation exerciseleads to higher assessable income being generated. However, the asset revaluation here is beingcarried out for insurance which is essentially related to asset preservation and hence this cannotbe termed as deductible as per s. 8(1).The incurred legal expenses would be deductible under s.8(1) only if there is an impact on thecompany operations or the ability to produce assessable income in line with the verdict inSnowden & Wilson Pty Ltd (1958) 7 AITR 308 case (Woellner, 2014). The current issue at handis related to company being winded up and hence relates to asset preservation and hence theexpense would be termed capital and non-deductible for tax.Based on the given information the expense on legal advice relates to general operations besidesconcerns like mortgage and conveyancing. Considering the inability of the solicitor todistinguish amongst these expenses, the expenses are of revenue nature (since concerned withgeneral operations) and thus would be held as deductible for tax purposes (Sadiq et. al., 2016).Conclusion 1

The first three cases i.e. moving the machine to a different location, revaluation for insurance,legal advice in winding up proceedings lead to outflow which would be capital and hence non-deductible. On the other hand, legal advice for operations would be revenue expense for which s.8(1) provides deduction. Question 2IssueIt needs to be determined in relation to the given GST on advertising expenditure as to the claimthat would arise for Big Bank in terms of input tax credits.Relevant LawThe critical aspect in relation to claiming input tax credit on GST paid on the financial suppliesis the Financial Acquisition Threshold (FAT) and to derive if the underlying firm has crossed thesame or not (Deutsch et. al., 2016). GST Act namely, s. 189(5) along with s. 189(10) provide thedefinition of FAT which then could be used to determine the input tax credit claim of a givenentity. FAT tends to be breached when the input credit tax in relation to financial acquisition ishigher than the lesser of the two values i.e. 150,000 and 10% of the total entitlement to the totalinput tax credits (Barkoczy, 2017). Full GST credit claim can be made in the event that theconcerned organisation does not breach the FAT. But if FAT breach does happen, the full claimon input tax credit would not be complied with (Nethercott, Richardson and Devos, 2016).ApplicationIt is essential that creditable acquisitions are those which are related to making taxable suppliesand in this case would apply to the home and content insurance. Advertising expense for promotion of home and content insurance = $550,000 (including GST)Hence, GST paid = (1/11)*550,000 = $ 50,000As a result, input tax credits worth $ 50,000 is availableBesides, Big Bank based on the given information and reasonable assumptions would havebreached the FAT limit. Also for the general advertising expense, based on the estimate providedby the company, a fair apportionment needs to be done. Total general purpose advertising expense = $ 1,100,000However, since 2% of the business constitutes home and content insurance, hence, generalinsurance which can be apportioned to the taxable supplies and input tax credit may be avoidedon the GST paid on same.2

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