The assignment content discusses various topics related to taxation, including the calculation of taxable income, GST input credit, tax offsets for foreign income, and partnership income. The content also includes examples and calculations to illustrate the concepts.
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Running head: TAX Tax Name of the Student: Name of the University: Authors Note:
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1TAX Table of Contents Answer to Question 1.................................................................................................................1 Answer to Question 2.................................................................................................................2 Answer to Question 3.................................................................................................................4 Answer to Question 4.................................................................................................................6 Reference....................................................................................................................................7
2TAX Answer to Question 1. Thesection 4-15 of the Income tax Assessment Act 1997states that taxable income is calculated by deducting allowable expenses from the assessable income. A taxpayer is permitted to claim deduction undersection 8-1(1) of the ITAA 1997for expenses that are incurred on: i.For producing or gaining assessable income; ii.For carrying on the activity related to business. Thus, 1.Section 8-1 provides that expenses incurred to move a machinery will be considered for deduction only if that machinery is used to earn an income that is taxable. In the case ofGranite Supply Association Ltd v Kitton(1905)andSmith v Westinghouse Brake Company(1888) it was held that the expenses incurred for relocating plant and expenditure will not be allowed as deduction as the expenses are of capital nature. 2.Section 8-1 of ITAA 1997 states that cost of revaluation of an asset is not considered as deductible expense1. 3.Section 8-1 provides that any expenditure relating to lawful proceedings is suffered to oppose company’s winding up then it will be considered as deductible expenditure. 4.Under section 8-1 in order to earn business income, if any solicitor expenditure is experienced then such expenditure shall also be treated as permissible deduction. Answer to Question 2. On any purchase by a business organization, GST input credit is permissible only if appropriate documents relating to such transactions are properly kept. As per GST Act 1999, 1Gitman, Lawrence J., Roger Juchau, and Jack Flanagan.Principles of managerial finance. Pearson Higher Education AU, 2015.
3TAX any business organization operating to earn business income have the right to take input credit for GST payments that involves purchase of materials or assets. Issue: Big Bank Limited have spent $1,650,000 including GST on advertisement expenses. The bank now wants to ensure that the amount of advertisement expenses will be allowed as input credit or not as the expenses was including GST. Rules: According to Chapter 2 of the Goods and Service Act 1999, it states that an organisation or a firm will be permitted to take input tax credit of GST on such expenses that are spent by the firm during the normal course of the business provided if such expenses are inclusive of GST2. Application: Big Bank Limited is giving finance related services to the people and have over 50 branches all around the country. Its headquarters is held on a 10 storey apartment. Recently the bank has introduced insurance policy and home content in the market besides proving loans and deposits to the people over the years3. For the purpose of advertisement the bank has kept aside a budget of amount $1,650,000 out of which $550,000 is dedicated for advertisement of home and insurance product from which only 2% of the total revenue of the 2Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's departure tax: Tourism versus the economy?."Tourism Management40 (2014): 126-136. 3Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view."Procedia-Social and Behavioral Sciences109 (2014): 1069-1075.
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4TAX companyisgenerated.Theremainingamountof$1,100,000isforthepurposeof advertisement for promoting Big Bank’s other services and products which also includes GST. Thus as it is found that the bank had incurred $1,100,000 for the promotion of its service and products from which the company’s majority of the revenue is generated and amount of $550,000 will treated as capital expenditure as the newly launch product is yet to contribute towards company’s income generation. Conclusion: Thus from the above discussion it is clear that the amount of $1,100,000 which the company incurred on advertisement of its existing product and services will be permitted to take input credit. On the other hand, the entire amount of $550,000 will not be prohibited to take input credit as 2% of such expenditure contribute toward company’s income generation. Calculation of Input Tax credit ParticularsAmount ($) Amount ($) Total spending on advertisement and promotional activities1,650,000 .00 GST input credit 100% eligible for:1,100,000 .00 Portion of advertisement expenditures ineligible for input credit in respect of GST 550,000.0 0 100% GST input credit100,000.0 0 Add: For 2% contribution in revenue3,000.00 Amount of input credit allowed to the bank103,000.0 0 Table 1: Input tax credit (Source: Created by Author)
5TAX Answer to Question 3 The taxpayer is eligible to receive the tax offset for the tax paid on the foreign income. In step 4 the foreign income is classified into passive income and the other income.
6TAX Step 1 ParticularsAmountAmount Gross Income Employment income from Australia44,000.00$ Employment income from United States12,000.00$ Employment income from United Kingdom8,000.00$ Rental income from property in United Kingdom2,000.00$ Dividend income from United Kingdom1,200.00$ Interest income from United Kingdom800.00$ Total Asseessable Income68,000.00$ Less: Allowable Deduction Expenses incurred in deriving employment income from Australia 4,000 Expenses incurred in deriving employment income from United States 900 Expenses incurred in deriving rental income from United Kingdom 500 Gift to a deductible gift recipient400 Interest (debt deductions) incurred in deriving dividend income 140 Expenses (debt deductions) incurred in deriving interest income 60 Total Allowable expenses6,000.00$ Total taxable Income62,000.00$ Step 2 ParticularsAmount Tax Payable on Income$11,697.00 Medicare Levy payable on taxable income$1,240.00 Total Tax and Medicare Levy/ Tax Payable$12,937.00 Step 3 ParticularsAmount Tax payable$12,937.00 Taxable Income$62,000.00 Average rate of tax21% Step 5 ParticularsAmountAmount Gross Foreign Rental income2,000.00$ Expenses incurred(500.00)$ Net Foreign rental income1,500.00$ Gross Foreign Dividend Income1,200.00$ Expenses debt deduction not allowed-$ Net Foreign Dividend income1,200.00$ Gross foreign interest income800.00$ Expenses debt deduction is not allowed-$ Net Foreign interest income800.00$ Net Passive Foreign Income3,500.00$ ParticularsAmountAmount Gross income from Employment USA12,000.00$ Expenses incurred for genearting income(900.00)$ Net employment income fron USA11,100.00$ Employment income from United Kingdom800.00$ Net other Foreign income11,900.00$ Step 6 ParticularsPassive IncomeOther income Net Foreign income3,500.00$11,900.00$ Taxable Income62,000.00$62,000.00$ Taxable Income (including donation)62,400.00$62,400.00$ ANFI3,477.56$11,823.72$ Step 7 ParticularsPassive IncomeOther income Net Foreign Income3,477.56$11,823.72$ Avearge Tax Rate21%21% Australian Tax on each class of income725.63$2,467.15$ ParticularsPassive IncomeOther income Australian Tax on each class of income725.63$2,467.15$ Foreign tax paid800.00$3,600.00$ Allowable Foreign Tax Offset725.63$2,467.15$ Sttaement showing Deduction that can be claimed Calcuation of passive foreign Income Calcuation of other foreign Income Calculation of Adjusted ANFI for each class of foreign income Calcuation of Australian tax payable on each class of foreign income Angelos Statement showing calcuation of Taxable Income Angelo’s Statement showing Tax payable and Medicare Levy Calcuation Showing Average Australian tax
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7TAX Answer to Question 4 Statement showing Calculation of Income from Partnership ParticularsAmountAmount Revenue from sporting goods sales$400,000.00 Interests incomes on bank deposits$10,000.00 Un-franked portion of dividend$8,400.00 Amount of Bad debts recovered$10,000.00 Incomes exempt- Income from capital gain$30,000.00 The amount of gross total income$ 458,400.00 Expenses eligible as deduction: Partners’ salaries$25,000.00 Fringe benefit tax$16,000.00 Interests on capital$2,000.00 Interests expenses on loan$4,000.00 Johnny’s travelling expenses$3,000.00 Office building renewal fees$2,000.00 Documentation related expenses$700.00 Expenses on debt collection$500.00 Council rates$500.00 Salaries of employees$20,000.00 Cost of goods sold {(Opening stock + purchases) – Closing stock}$34,000.00 Retail shop rent$20,000.00
8TAX Bad debt losses$30,000.00 Expenses related to business lunches- Pilferage$3,000.00 $ 160,700.00 Income of the partnership firm for the income year before setoff of loss$ 297,700.00 Less: Setting off loss incurred in the previous year$40,000.00 Net income of the partnership in the income year$ 257,700.00 Table 5: Net Income from partnership (Source: created by Author)
9TAX Reference Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's departure tax: Tourism versus the economy?."Tourism Management40 (2014): 126-136. Gitman, Lawrence J., Roger Juchau, and Jack Flanagan.Principles of managerial finance. Pearson Higher Education AU, 2015. Saad,Natrah."Taxknowledge,taxcomplexityandtaxcompliance:Taxpayers’ view."Procedia-Social and Behavioral Sciences109 (2014): 1069-1075.