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The Taxation Assignment

   

Added on  2020-03-28

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TAXATIONASSIGNMENTStudent id[Pick the date]

Question 1Issue The core objective of the question is to determine whether the outgoings or expense in either ofthe given circumstance would be considered as leading to tax deduction on the basis of “s. 8(1),ITAA 1997.”Relevant LawIn relation to claiming general deductions for business, “s. 8(1) ITAA 1997” is found relevant. Inaccordance with this, for outgoings in the form loss of expense deduction are available providedthe expense is related to assessable income production (Barkoczy, 2017). Further, another keycondition is that the outgoings or expenses should be of revenue nature and not capture or elsethey would not lead to any deductions under s. 8(1). Besides, any outgoings or expense related toexempt income production will not lead to tax deduction (Gilders et. al., 2016). Also, if theexpense relate to private reason i.e. not related to business, then such an expense or outgoing willnot give rise to tax deduction (Sadiq et. al., 2016).Application1)The expense incurred for site changing of the machine would be capital outgoing whichwould not lead to tax deduction as it would lead to incremental machine cost and higherdepreciation expense in the future.2)The revaluation cost tax deduction would be governed by the underlying reason. In the givensituation, this is for insurance and hence asset preservation seems to be the purpose which1

provides this expense a capital nature and hence makes it non-deductible under “s.8(1), ITAA1997.”3)Just as in revaluation, for legal expense also, the underlying purpose is critical. For the givensituation, the legal advice is in relation of winding up proceeding and hence deals withpreserving the company or asset. Hence, this expense is not revenue nature and hence makesit non-deductible under “s. 8(1), ITAA 1997.”4)Here the reason for underlying legal expenses relates to business operations which cannot besegregated from other purposes and as a result, the underlying solicitor fee would be treatedas an expense of revenue nature which would be deductible under the aegis of “s. 8(1) ITAA1997.”ConclusionExcept in the case, where solicitor fee expense is for business operations, for all other situationsthe expense is capital due to which no tax deduction can be availed under the aegis of “s. 8(1)ITAA 1997.”Question 2IssueTaking into consideration the advertising expenditure of the Big Bank, it needs to be ascertainedas to how much input tax credits may be claimed in relation to the GST paid.Relevant Law2

In the context of financial supplies, the underlying claim in relation to the input tax credits isessentially linked to the FAT (Financial Acquisition Threshold) and whether it is breached or notby the concerned entity. The definition of FAT is provided by relevant provision “(s. 189(5)) ofthe GST Act, 1999” as per which FAT would be the lower value out of 150,000 or the 10%“total input tax credits” (CCH, 2013). The FAT is breached when the input credit tax tends to begreater for the entity under consideration. Full GST credits claim is permissible only when thethreshold is not breached by the reporting entity or else the only partial GST credits claim maybe entertained (Woellener, 2014).ApplicationIt is critical to understand the meaning of creditable acquisitions in the context of the givensituation as only taxable supplies such as spending related to “home and content insurance”would be considered. Hence, in the given scenario, the spending for advertisement which relatesto the insurance (home and contents) would be considered as creditable. This leads to $ 50,000worth of input tax credit being available which in turn would lead to breaching of the FATthreshold value for the Big Bank. The breakup of general advertisement needs to be madekeeping in consideration the split of revenue. Hence, taxable supplies would make up only 2% ofthe expenditure that relate to the spending related to “home and content insurance”. Hence, therespective input tax credit ($ 2,000) will be taken into consideration. Further, the present inputtax credits on the account of advertising will not be decreased. ConclusionHence, it will be appropriate to conclude that on account of advertising the availability of inputtax credit would not be reduced and also $ 2,000 worth of input tax credit is available.3

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