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HI3042 Taxation Law | Assignment

   

Added on  2020-04-07

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

Question 1 Issue A deduction for business general may be made as outlined in s. 8(1) provided certain conditionsare satisfied. In wake of this background, the objective is to assess whether the given expensesqualify for deduction or not under the above section.Rule As mentioned above, for any loss or outgoing expense to qualify for deduction under theprovided section 8-1, certain requirements would need to be met. These are outlined below(CCH, 2013).Deduction is permissible only for revenue expenses (mainly for increasing assessableincome) and not capital expenses (mainly for preservation of asset).Deduction is permissible only for business expenses and not for expenses that are classifiedas private or domestic.Deduction is not permissible for those expenses which contribute to non-assessable incomeproduction.Application 1)For the cost involved in machine movement to a designated site, the expense incurred wouldnot be categorised as a revenue expense. Instead, such an expense is essentially capital andthus would not lead to any deduction under the given section (Gilders et. al., 2016). 2)In order to determine whether the given cost can be deducted or not, focus needs to be paid onthe underlying reason. The revaluation is cleared being carried out for insurance which can belinked with preservation of asset value. Thus, the expense would assume a capital nature andthus would not lead to any deduction under the given section3)To decipher the nature of legal expense, the essential cause needs to be ascertained. Forinstance, the legal expense as per the given details deals with proceedings of winding up andhence the reason is apparently preservation of company or the asset in this case. Thus, theexpense would assume a capital nature and thus would not lead to any deduction under thegiven section.4)As has been highlighted above, the intention behind legal spending is critical. One of thereasons stated for hiring the services of the solicitor pertains to general business operations.Further, the fees paid cannot be differentiated and hence the whole fees or expense wouldassume a revenue nature and deduction in tax would be available (Sadiq et. al., 2016).Conclusion 1

Applying the conditions for availing s. 8(1), it becomes apparent that for the first three cases,owing to the expense being of capital nature, deduction would not be available. However, for thefourth case, deduction is available under s.8(1) as the expense is of revenue nature. Question 2IssueAs per the question, Big Bank has incurred expenditure in relation to business promotion andotherwise. On account of the GST paid, the key concern is to outline the input tax credit thatwould be available for the company.Relevant LawAny GST which is paid related to the financial supplies would lead to input tax credit generationfor the reporting entity as per GST Act. However, the ability of the entity to claim thiscompletely would depend on the threshold defined in the form of Financial AcquisitionThreshold (FAT) (Deutsch et. al., 2016). If FAT is not violated, then complete refund ispermissible (Nethercott, Richardson and Devos, 2016). The definition of FAT is the lesser valueof either $ 150,000 or “10% of the total entitlement to the total input tax credits” that is availablefor the company (Barkoczy, 2017). ApplicationIt needs to be understood that taxable supplies would result from creditable acquisition which forBig Bank would be the promotion expense on insurance business. This expense including GSTpayments has been highlighted as $ 550,000.Considering a GST rate of 10%, GST payment = (550000/11) or $ 50,000The above GST paid leads to availability of tax credits to the extent of $ 50,000.The bank also spends $ 1.1 million on general advertising but the portion of expense which isattributed to the insurance business can lead to generation of input tax credit. A reasonableassumption would be to assume that expense for insurance would be equal to the businesscontribution from insurance i.e. 2% currently.Thus, component of general advertisement linked to home and content insurance = 2% of 1.1million = $ 0.022 millionConsidering a GST rate of 10%, GST payment = (0.22 million/11) or $ 2,000Conclusion2

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