Taxation Law and Its Implications

The assignment delves into taxation law, discussing the importance of understanding legal expenses and their impact on capital expenditure. It also covers input tax credit, foreign tax offset, and partnership taxation, providing a comprehensive overview of these concepts and their applications.

TAXATION LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
1. Expense of moving machinery to new site.........................................................................1
2. Expense of revaluing assets to influence insurance...........................................................1
3. Legal costs incurred within a firm to oppose a petition for winding up.............................2
4. Legal costs associated on different matters........................................................................2
QUESTION 2...................................................................................................................................2
Discussing ability to claim for input tax credits by Big Bank in context to advertising costs2
QUESTION 3 ..................................................................................................................................4
Determining foreign tax offset of Angelo..............................................................................4
QUESTION 4...................................................................................................................................6
Calculating net profit for the partnership for the income period............................................6
CONCLUSION ...............................................................................................................................7
REFERENCES ...............................................................................................................................8
Books and Journals.................................................................................................................8
Online.....................................................................................................................................8

INTRODUCTION
A compulsory contribution which is taken by government from income generated by
workers and profits earned by businesses is known as the tax amount. Apart from this, something
which is added in cost of specific products, transactions and services is also a part of taxation. It
comprises various kinds of the laws and regulations which are mandatory to be followed by
employees and firms. The present report describes about some expenses incurred within
workplace which are whether allowable for deductions under ITAA 1997 (Income Tax
Assessment Act) section 8-1 or not. Apart from this, calculation of foreign tax offset amount
which would be payable by the relevant party after considering appropriate laws are performed.
Beside this, the present project of taxation law shows net income generated by a partnership
company.
QUESTION 1
1. Expense of moving machinery to new site
When one equipment in the company is placed at another location and re-installed then it
imposes cost on the entity. Due to this, it is considered as one of the travelling expenditures for
the business. According to ITAA act 1997 section 8-1, any cost which is associated within
working environment in form of travelling expense, cannot be allowed as deductions. In present
case, expense of moving a machine to another place is a kind of capital expenditure. Due to this,
it influences amount of depreciation on this particular asset (INCOME TAX ASSESSMENT ACT
1997 - SECT 8.1 General deductions, 2016). Henceforth, the mentioned cost is not allowable as
deductions in the firm.
2. Expense of revaluing assets to influence insurance
Insurance is one of the beneficial part for any company whether it is on new asset or
revaluing. It helps to decline total expenses of the firm in case asset gets damaged and entity has
to make expenditure for its maintenance. As per the ITAA 1997, insurance amount on assets is
allowed as deductions for an organisation. Hence, under the section 8-1 of ITAA 1997, expenses
made on asset revaluation in order to affect insurance which is deductible expense. The reason
behind this is that, it reduces revaluation cost of asset. Along with this, an entity can claim any
damages if occurred on asset and recover amount.
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3. Legal costs incurred within a firm to oppose a petition for winding up
As per the present case scenario, allowance as deductions in taxation amount depends on
the kind of expenditure. Behind making any kind of costs within entity, if it generates capital
expenses then not a part of deductibility as per the ITAA act 1997. On the other hand, , if
expenses made by firm are a part of capability in order to generate income then will be allowed
for deductions. Moreover, legal costs for winding up made are a part of improving capital
expenses then not allowable as deductions (Income Tax Assessment Act 1997, 2009). In opposite
to this, if such expenses improve income earning capability of the entity then, as per the ITAA
1997 section 8-1, it will be a part of deductibility.
4. Legal costs associated on different matters
In the present mentioned situation, the expenses are not clear and provide inadequate
information. Therefore, it is not clear that costs incurred on several matters are whether part of
deductible or not under section 8-1 of ITAA 1997. In order to make proper decisions and
determine such expenses are allowed for deductible or not additional information is required like
nature of expenditure, apportionment etc (Smith and et.al., 2016).
QUESTION 2
Discussing ability to claim for input tax credits by Big Bank in context to advertising costs
In the present case, Big Bank Limited currently operating in Australia with more than 50
branches. As of now, it is going to provide additional services to people which include home and
content insurance. Further, issues, rules, applications and final decisions about Big Bank's ability
in terms of claim of advertising expenses are stated below:
Issues:
 Plan for launching home and content insurance are said “Here for you” where issue is
related with the easily claim over the services by consumers.
 The bank made decisions for changing in existing accounting systems due to charging
goods and service tax on potential services. Along with this, it makes plan for incurring
advertisement expenses worth of $1,650,000 including GST.
 Other than these all, Big Bank planned for making expenses of $550,000 on
advertisement through television and rests through radio, print media etc.
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 Another issue with this case is that, bank estimated from home and content insurance
services that it will constitute 2% in overall company. In this, it may be possible or not
within working environment.
Rules:
In the present case, some rules and acts are applied which are such as follows:
 Provisions related to caring businesses of banking industry (Part-II).
 Rate of interests as per Banking Act, 1959. Goods and service tax act (GST), 2011.
Applicable:
Big Bank already planned for expanding business along with additional products and
services like home and content insurance. According to the Banking Act 1959 part II different
types of the functions as well as provisions are considered within workplace of banking sector. In
the present case, this act is applied in order to assess that cost made is whether creditable or not.
Budget for marketing expenses estimated are worth of $1,650,000 where goods and service taxes
are also included. For assessing its input tax creditability in the Big Bank working environment,
the GST act 2011 is applied in the current case scenario (Bowman, 2017). Provisions of banking
sector are implemented on the case of Big Bank because of analysing that whether it will be in
the profitable position or not after providing potential insurance services.
Decision:
Acquisition of the Big Bank in terms of input taxed supplied will not be considered as the
credited acquisition. Potential products as well as services like home and content insurance
which are provided by Big Bank also do not come under creditability. The reason is that these
are related with the taxable supplies within the cited bank. Apart from this, those expenses which
are made in order to do marketing of the potential insurance services are also creditable.
According to the Banking Act, expenditures made for advertising goods and services i.e.
$550,000 are highly creditable in firm. Beside this, 2% of acquisition made on taxable supplies
for the Big Bank (Bentley, 2016). Further, remaining 98% is considered as the input taxed which
indicates that the estimation can be split up from the actual line of the business. Therefore, it can
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be concluded that Big Bank able to claim for input tax credits with reference to the cost of
marketing which is worth of $1,65,000.
QUESTION 3
Determining foreign tax offset of Angelo
Step 1: Tax that is payable on income of Angelo
Foreign Income Tax Offset
Particulars Amount
Employment income generated from Australia 44000
Employment yield gained from US 12000
Occupation income earned from UK 8000
Rental profit generated from UK 2000
Dividend income gained from UK 1200
Yield earned from UK in terms of interest amount 800
Total Incomes generated 68000
Expenses
Expenses occurred in order to derive occupation income from US 900
Expenses occurred in order to derive employment income from UK 500
Interest (debt deduction) dividend income from UK 140
Expenses (debt deduction) incurred interest from UK 60
Gift to deductible gift recipient 400
Total expenses occurred 2000
Total income which is taxable 66000
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Foreign Income Tax
Particulars Amount
Employment income generated from US 12000
Employment profit gained from UK 8000
Dividend yield earned from UK 1200
Interest income gained from UK 800
Rental income generated from UK 2000
Total foreign income tax paid under step 1 24000
On the basis of the step 1 Angelo has to pay tax on worth of $66,000 which is $5847.3 in
the income year. Further, this amount is shown after including total costs of medical.
Step 2: Amount of tax which would be payable in an income year
Particulars Amount
Employment income generated from US 12000
Occupation profit gained from UK 8000
Rental income generated from UK 2000
Dividend yield earned from UK 1200
Interest income gained from UK 800
Total Incomes gained 24000
Expenses
Expenses occurred in order to derive occupation income from US 900
Expenses occurred in order to derive employment income from UK 500
Total expenses occurred 1400
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Taxable income 44000
Less: allowable deduction (including all debt deduction) 4600
Taxable income under step 2 39400
As per the second statement income of taxable for Angelo is worth of $39,400 at the end
of income year. Here taxation amount that has to pay Angelo is worth of $619.4.
Step 3: Foreign tax offset
Tax amount of step 1 – Tax amount of step 2
$5847.3 - $619.4= $5227.9
Henceforth, foreign tax offset limit amount of Angelo at the end of income tax year is
worth of $5227.9.
Interpretation: From the above presented calculation, it can be assessed that, Angelo
generated income from different countries like UK, Australia and US. These all the earnings are
a part of taxation in which he has to contribute to the revenue of state. According to the ITAA
1997 section 5-A, gained income from different sources are taxable on the basis of ATO law.
Apart from this, Angelo allowed for deductions on some expenses associated with overseas like
UK and US as per the section 8 of ITAA 1997 (Calculating and claiming your foreign income
tax offset, 2016). Moreover, in order to make treatment of debt and interest, section 6-20 and 8(1-
10) of the ITAA Act 1997 are considered. Foreign offset tax computed after using legislative
sections 13-A and 13-1 of ITAA act in the present case.
QUESTION 4
Calculating net profit for the partnership for the income period
Income statement of Johnny and Leon partnership company for the income tax year ended:
Particulars Amount
Incomes generated ($)
Revenue from selling sporting products 400000
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Interest earned from bank deposits 10000
Dividend amount gained from an Australian resident company 21000
Amount of imputation gross up 5400
Amount of bad debts recovered 10000
Total Incomes 446400
Expenses or payments
Amount stolen by an employee from sales generated 3000
Legal expenditures on lease of business premises 700
Cost of collecting debt given to solicitor 500
council rates on business premises 500
Salaries to the staff 30000
Loss on the capital 15000
Loss from bankrupt debtor 30000
Expenses on business lunches with overseas buyers 10000
Rental expenses on retail shop 20000
legal expenses on lease of office building 2000
Stock expenses 34000
Purchase of sporting product supplies 30000
Loss generated on net partnership 40000
Total payments 215700
Net Profit (Total incomes – Total payments) 230700
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Interpretation: As per the above income statement total income generated in sports
partnership company is worth of $230700. Further, this total profit will be divided among both
the partners Johnny and Leon equally. Henceforth, income of each partner is worth of $115350
($230700 / 2). In the present income statement for making treatment of debt, part 4.3 (92) and
(93) of Trade Support Loans Act, 2014 is considered. Apart from this, Trade representative act,
trade person regulations act etc. are also used (Woellner and et.al., 2016). The reason is that such
laws help to create broad understanding of the partners regarding taxation as well as deductions.
CONCLUSION
From the above project of taxation law, it can be concluded that cost of moving
machinery and legal expenses enhances capital expenditure of the firm if not allowed as
deductions under section 8-1 of ITAA 1997. Further, when legal costs incurred generate income
and cost of revaluing assets then will be considered as deductible within company in legal
manner. From the second question, it can be ascertained that, home and context insurance both
are creditable for Big Bank. Therefore, input tax credit which may be available for Big Bank is
worth of $5,50,000 at the end of an accounting period. Beside this, foreign tax offset amount for
Angelo is worth of $5227.9 and net income by partnership firm generated is worth of $230700
which will be equally divided among both Leon and Johnny.
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