Taxation Theory, Practice & Law: Individual Assignment T3 2018

HI6028 Taxation Theory, Practice &
Law
T3 2018 Individual Assignment

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Provisions...............................................................................................................................3
Net income for the partner for the year ended 30 June 2017.................................................3
Working papers......................................................................................................................3
Question 2..................................................................................................................................3
Provisions...............................................................................................................................3
Calculations............................................................................................................................3
References..................................................................................................................................4

QUESTION 1
Provisions
The provision related with the determination of the assessable income of the partnership firm
is contained in the Pt III of Division 5 of the Income Tax Assessment Act 1997. Tax is
chargeable on the all income which is derived by the firm from the ordinary course of the
business activity (Butler, and Giles, 2018). Along with this, normally all the expenses which
are incurred for carrying the business activity are allowed as deduction while calculating the
assessable income (Datt, and Keating, 2018). The provision related to the partnership firm is
described as below –
Repair and maintenance
As per the Income Tax Assessment Act 1997, section 25-5, the person can avail the
deduction of the expenses to the extent they are related with managing the tax affairs of the
business. Section 25-10 of the ITAA is related with the deduction of expenses related with
the repairs; it states that person can deduct expenses incurred for repairing the premises or
depreciating assets which are solely used for producing the assessable income (Wilkins,
2015). If the property is used party for the business purpose then only so much of expenses
are allowed for the deduction. Further, the deduction of the capital expenditure is not
allowed. Generally, the repair and maintenance related to the initial installation of the asset
are not deductible (Burkhauser, Hahn, and Wilkins, 2015). As per the legal case law FCT v
Western Suburbs Cinema, the court held that deduction is not allowed as the taxpayer chose
to make the capital expenditure by replacing the ceiling, therefore, it is notional repair which
is not deductible. Therefore if the item is considered as the improvement, then no deduction
is allowed. If the repair results in substantially replacing the asset, it is the capital expenditure
as per the decision was given under Lindsay v FCT. Further functional improvement in the
quality of the asset is not considered as the repair of the asset (Bloch, and Bhattacharya,
2016).
Trading stock
Trading stock is considered as the revenue assets, therefore, it is dealt as per the normal
income tax provisions (Chardon, Freudenberg, and Brimble, 2016). Receipt from sale of
trading stock is considered as the ordinary income which is assessable under section 6-5.

Borrowing and interest expenses
Section 25-25 of the ITAA 1997 is related to the deduction of the borrowing expenses. This
section states that the deduction is allowed for the expenditure incurred for borrowing the
money used in generating the assessable income. These expenses are normally deducted over
the term of the loan amount. Interest on money loaned to the partnership is deductible
expenses to the partnership firm (Barth, 2017).
Depreciation
Depreciation can be calculated by two methods which are prime cost method and the
diminishing value method. In the prime cost, method depreciation is charged over the useful
life of asset uniformly (Richardson Taylor, and Lanis, 2015). In the case of the diminishing
method,
If the assets are hold before 10 May, 2006 then formula of depreciation =
Base vale * (days held/365)*150% / effective life of assets)
If the assets are hold after 10 May 2006 then the formula of depreciation =
Base vale * (days held/365)*200% / effective life of assets)
Drawings
Drawings of the partners are not deductible expenses from the assessable income (Cumming,
and Johan, 2016).
Union fee
Payment of the fee is allowed as deduction if the partner is the member of the union. In this
study, it is assumed that the partner is the member of the union, therefore, the deduction is
allowed.
Net income for the partner for the year ended 30 June 2017
Particulars Working notes The amount in ($)
Income