Partnership Income Tax Calculation

This assignment presents a detailed example of calculating the income tax for a partnership firm. It outlines various income sources, exempt incomes, eligible expenses, and ultimately arrives at the net income after setting off losses from the previous year. The calculation provides a clear understanding of the process involved in determining a partnership's taxable income.

Running head: TAXATION LAW
Taxation law
Name of the University
Name of the student
Authors note

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TAXATION LAW
Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................3
Answer to Question 3:.....................................................................................................................5
Answer to Question 4:.....................................................................................................................8
References:....................................................................................................................................10

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Answer to Question 1.
The calculation of income tax is done by reducing the allowable expenses from the
assessable income as per section 4-15 of the Income tax Assessment Act 199. According to 8-
1(1) of the ITAA 199, deduction can be claimed by tax payers for the expenses that have been
incurred on following:
 Conducting any activities relating to business purpose
 For assessable income gain or production
Therefore,
1. If the machinery is used for earning an income that can be taxed, then only the expenses
related to movement if machinery will be considered for deduction as per Section 8-1.
Since the expense related to machinery relocation in case of Granite Supply Association
Ltd vKitton (1905) and Smith v Westinghouse Brake Company (1888) was of capital
nature, they would not be allowed for deduction (Barkoczy 2016).
2. Cost uncured in assets revaluation cannot be regarded as deductible expenses under
section -1 of ITAA 1997.
3. Expenditure incurred in opposing the wingding up of company and is related to lawful
procedures will be regarded as expenditure that are deductible according to section 8-1.
4. If solicitor expenditure is while carrying out business and earning income, then there will
be allowable deduction of such expenditure under section 8-1.
Answer to Question 2.
1. The input credit of GST is permissible in event of purchase done by business
organization, when proper documentation of such transactions is maintained. A business

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has the right to acquire input tax credit that has purchased any assets according to GST
Act 1999.
Problem:
$1,650,000 amount have been spent by Big Bank and this amount is inclusive of
expenses relating to advertisement. It is now assured by bank that expenses incurred does not
include value of GST and therefore, it will not be allowed as input credit.
Rules:
An input tax credit on GST relating to such expenses can be taken by organization if they
are incurred in business normal course according to chapter 2 of the Goods and Service Act
1999, provided if such expenses include GST (Lang et al. 2015).
Appliance:
Big bank is involved in serving fifty branches all over country and provide financial
assistance to people. They are registered for purpose of GST. A new product such as Big bank
home was launched recently by bank and has introduced insurance policy and is actively
engaged in providing deposits and loan to people. An amount $1,650,000 was kept separately by
bank for advertisement purpose out of which advertisement and insurance product advertisement
involves $ 550,000. Remaining balance of $ 1,100,000 is inclusive of GST amount that is
required for promoting the products and services of bank.
Therefore, it can be said that majority of revenue of Big bank is generated from services
and products promotion that incur $ 110000 costs. Since the income generation of company is
yet to account for newly launched product, capital expenditure of bank would be $ 550000.

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Conclusion:
It can be concluded that amount of expenditure that is involved in carrying out
advertisement of existing services and products of Big bank is permissible to take input credit
and the amount is $ $1,100,000. Since, 2% of expenditure relating to such advertisement helps in
generating revenue for company, there will not be any prohibition on amount $ 550000 to take
input credit.
Calculation of Input Tax credit
Particulars Amount
($)
Amount
($)
Total spending on advertisement and promotional activities 16,50,000.0
0
GST input credit 100% eligible for: 11,00,000.0
0
Portion of advertisement expenditures ineligible for input credit in
respect of GST 5,50,000.00
100% GST input credit 1,00,000.0
0
Add: For 2% contribution in revenue 3,000.00
Amount of input credit allowed to the bank 1,03,000.0
0
Table 1: Input tax credit
(Source: Created by Author)
Answer to Question 3:
Rules in relation to offset of income tax is discussed in subdivision 717A and the below
table provides with calculation.
Assessable income of Angelo inclusive of foreign incomes
Particulars Amount Amount

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Gross total income without any deductions $
68,000.00
Available deductions:
Medical expenditures $
5,000.00
Expenses for deriving employment expenses disallowed for
deduction -
Expenses incurred in UK for generating Rental income $
500.00
Interests expenditures for generation of dividend income $
140.00
Expenses for generation of interest income $
60.00
Total amount of deductions $
5,700.00
Net income after deductions $
62,300.00
Income tax payable $
11,794.18
Table 2: Income Tax Payable
(Source: created by Author)
Assessable income of Angelo inclusive of foreign incomes
Details ($) ($)
Gross total income without any deductions 52,000.0
0
Available deductions:
Medical expenditures 5,000.0
0
Expenses for deriving employment expenses disallowed for
deduction -

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Expenses incurred in UK for generating Rental income -
Interests expenditures for generation of dividend income -
Expenses for generation of interest income -
Total amount of deductions 5,000.00
Net income after deductions 47,000.0
0
Income tax payable 6,821.68
Table 3: Income Tax Payable
(Source: Created by Author)
Assessable income of Angelo inclusive of foreign incomes
Details ($) ($)
Gross total income without any deductions 52,000.0
0
Available deductions:
Medical expenditures 5,000.0
0
Expenses for deriving employment expenses disallowed for
deduction -
Expenses incurred in UK for generating Rental income -
Interests expenditures for generation of dividend income -
Expenses for generation of interest income -
Total amount of deductions 5,000.00
Net income after deductions 47,000.0
0
Income tax payable 6,821.68

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Table 4: Income Tax Payable
(Source: Created by Author)
Calculation of foreign tax offset under first option is done by reducing the amount of
income tax that is paid and in second option; they are calculated by deducing the income tax
payable (Scholes 2015).
Hence, the value of limit is = $4972.50 (11794.18-6821.68)
The amount of foreign tax paid is less or lower than foreign tax offset amount and
therefore, the value of limit of foreign tax offset is $ 4400.
Answer to Question 4:
The calculation is shown in the following table:
Statement showing Calculation of Income from Partnership
Particulars Amount Amount
Revenue from sporting goods sales $
4,00,000.00
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 $
4,58,400.00
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 $

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TAXATION LAW
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
Bad debt losses $
30,000.00
Expenses related to business lunches -
Pilferage $
3,000.00
$
1,60,700.00
Income of the partnership firm for the income year before setoff of loss
$
2,97,700.00
Less: Setting off loss incurred in the previous year
$
40,000.00
Net income of the partnership in the income year
$
2,57,700.00
Table 5: Net Income from partnership
(Source: created by Author)

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References:
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Christie, M., 2015. Principles of Taxation Law 2015.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. eds., 2015. Introduction to European tax law
on direct taxation. Linde Verlag GmbH.
Scholes, M.S., 2015. Taxes and business strategy. Prentice Hall.