Taxation Law: Calculation of Net Income from Partnership and Fringe Benefit Taxation

This document discusses the calculation of net income from partnership and fringe benefit taxation under Taxation Law. It includes issues, rules, and applications related to the calculation of net income from partnership and fringe benefit taxation. The document also includes a table of contents, working papers, and a conclusion.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Applications:..........................................................................................................................4
Conclusion:............................................................................................................................5
Answer to question 2:.................................................................................................................5
Issues:.....................................................................................................................................5
Rule:.......................................................................................................................................5
Application:............................................................................................................................6
Conclusion:............................................................................................................................7
References:.................................................................................................................................8

2TAXATION LAW
Answer to question 1:
Issues:
The case introduces the issues that is related to the calculation of the net income from
the partnership made by the partners during the year.
Rule:
As per the “division 5 of the ITAA 1936”, a partnership is not treated as the separate
business under the general law and partnerships is not required to the tax. Instead the partners
pay the tax on the profits that is distributed to the partners (Arnold, 2016). Under the “section
90, ITAA 1936” the calculation of the net income or loss of the partnership is done after
deducting the allowable expenses.
Assessable income of the taxpayers is regarded as the taxable income that is included
for taxation purpose. Ordinary income is viewed as the income that an individual derives
under the ordinary concepts and the same is considered for taxable purpose under the
“section 6-5, ITAA 1997” (Carlisle & Harrington, 2017). Income as per the ordinary
concepts is explained under the “Scott v CT (1935)” income should be interpreted based on
the ordinary notions and use of mankind.
The provision of general deduction under the “section 8-1, ITAA 1997” explains that
the taxpayer can obtain the deduction for the expenditure if the expenses are sustained at the
time of earning income. The general provision of “section 8-1, ITAA 1997” has the potential
of being implemented to any taxpayer (Deutsch, 2018). Expenses or outgoings that is
necessarily occurred at the time of gaining or producing the assessable income is allowed for
deduction under the general provision of “section 8-1, ITAA 1997”.

3TAXATION LAW
In “Amalgamated Zinc Ltd v FCT (1935)” gaining or producing the assessable
income must hold the adequate nexus with the losses or outgoings (James, 2016). This
implies that the expenses should be incurred in the course of producing assessable income.
It is noteworthy to denote that as per the negative limbs of “section 8-1(2))”,
expenses or losses or not allowed for deduction under the general deduction rule given that it
meets the criteria for negative limbs. Expenses that are capital, domestic or private is not
treated for deduction under the negative limbs of “S-8-1 (2))”.
As it has been described under the “sec 25-10” deductions are permitted to the
taxpayer for expenses which is occurred for repairs to the premises or assets that are
depreciative in nature and used for generating the income under “section 25-10” (Kenny et
al., 2018). Similarly, under the “TR 97/23” work that is performed to satisfy the requirement
of the regulatory bodies is not held as repair unless the work is involve remedies to defects.
Item should be used for producing income in order to be permitted for deduction
under the “section 25-10”. This includes the repairs that is occurred in carrying on the
business or repairs that is made to the investment property (McCouat, 2018). Maintenance
work is regarded as repair such as painting on the plant or business premises for rectifying the
damage is held as deductible repair.
The costs that is occurred in replacing the items that are permanent fixtures installed
in the premises used for producing the income is regarded as the deductible repairs under the
“section 25-10” given that the replacement is for damaged out unit by the new one of
identical design to normally restore the function of the asset.
As per the ATO if a taxpayer buys an asset and it is costing $20,000, the taxpayer can
write-off the business part of the asset in their tax return. The taxpayers are eligible for using

4TAXATION LAW
the simplified rules of depreciation and can claim an immediate deduction for the business
part of every asset that has the loss of less than $20,000.
Applications:
As per the evidence from the case Olivia and Daniel are operating a business as the
partners. Any kind of receipts that is made by Olivia and Daniel from the partnership will be
included for ordinary income within the meaning of ordinary concepts. Under the “section
90, ITAA 1936” the calculation of the net income or loss of the partnership between Olivia
and Daniel is done after deducting the allowable expenses.
The partnership furnished the information that it is earned cash payments from the
sales proceeds and the payment that is obtained from the debtors. The business receipts that is
made by the partners is the real gain that satisfies the prerequisite of the ordinary income.
Denoting the judgement made in “Scott v CT (1935)” the cash receipts and the payments
obtained by the debtors is interpreted as the ordinary business income and is included for
determining the partnership net income.
In the course of carrying on the partnership business the partners also incurred for
electricity bills, council rates, telephone charges, insurance etc. Referring to “Amalgamated
Zinc Ltd v FCT (1935)” the expenses are incurred in gaining or producing the assessable
income and holds the adequate nexus for the losses or outgoings (Raftery, 2015). Therefore,
under the general provision of “section 8-1, ITAA 1997” the expenses are allowed for
deductions.
The partnership also reported certain drawings that were made by them in the form of
cash withdraw and goods withdraw for personal use. The drawings that is made by Olivia and
Daniel during partnership meets the criteria for negative limbs under “section 8-1(2))”. The
expenses will not be permitted for deduction as they are private type of expenses.

5TAXATION LAW
The repairs and maintenance expenses were occurred by the partners in the form of
shop painting. Under the “sec 25-10” the shop painting amounts to repairs to the premises for
rectifying the damage and it is held as deductible repair (Richelle et al., 2016). Additionally,
there was a replacement costs of refrigerator motor that amounted to $140. The costs that is
occurred in replacing the motor of refrigerator constitutes a permanent fixtures installed on
the premises and used for producing the income. The replacement costs are a repair and it is
assumed as the deductible repairs under the “section 25-10, ITAA 1997”.
The taxpayer also reports the purchase of air-conditions for $1,200. As the expenses
are below $20,000 ATO prescribed limit. The taxpayers are eligible for using the simplified
rules of depreciation and can claim an immediate deduction for the business part of the air-
conditions that is installed.
Net Income from Partnership:

6TAXATION LAW
Particulars Amount ($)
Receipts
Business sales 1,50,170.00$
Debtors Cash payments (Notes 1) 33,715.00$
Total Receipts 1,83,885.00$
Expenses Eligble for Deductions
Electricity Bill 1,176.00$
Council rates (Notes 6) 310.20$
Business Insurance 1,250.00$
Mobile Bills (Notes 6) 633.60$
Union Bills 284.00$
Account Charges 595.00$
Repair Expenses (Notes 7) 1,780.00$
Loan Expenses (Notes 4) 5,500.00$
Purchase of Fixed Asset 3,500.00$
Cost of Sales (Notes 3) 30,525.00$
Van (Notes 5) 1,134.00$
SUV (Notes 5) 1,230.00$
Repayment to Creditors (Notes 2) 1,28,168.00$
Installation of Air-Condition 1,200.00$
Depreciation Expenses(Notes 8) 726.20$
New Restaurant Freezer 3,500.00$
Total Expenses Eligible for Deductions 1,81,512.00$
Net Income From Partnership 2,373.00$
Computation of Partnership Net Income
For the year ended 30th June 2017
Working Papers:

7TAXATION LAW
Notes 1
Debtors at 1st July 2016 3,925.00$
Debtors Cash Payments 32,800.00$
Debtors at 30th June 2017 3,010.00$
Debtors Net 33,715.00$
Notes 2
Creditors at 1st July 2016 6,500.00$
Add: Repayment to Creditors 1,28,678.00$
Less: Creditors at 30 June 2017 7,010.00$
Creditors Net 1,28,168.00$
Notes 3
Cost of Sales
Stock on 1st July 2016 9,120.00$
Add: Purchase 31,155.00$
Less: Stock on 30th June 2017 9,750.00$
Notes 4 30,525.00$
Loan Repayment
Business Loan 8,500.00$
Less: Reduction of loan 3,000.00$
Net Loan Re-Payment 5,500.00$
Notes 5
Cost of Maintainance
Van 1,260.00$
Less: Business use 90% 1,134.00$
SUV 2,050.00$
Less: Business use 60% 1,230.00$
Total cost of Maintainance 2,364.00$
Notes 6
Mobile Bills 704.00$
Less: 90% Business Use 633.60$
Electricity Expenses 1,470.00$
Less: 80% Business Use 1,176.00$
Council Rates 517.00$
Less: 60% Business Use 310.20$
Notes 7
Repairs Expenses 1,780.00$
Add: Shop painting 150.00$
Add: Motor replacement expenses 140.00$
Total Repairs 2,070.00$

8TAXATION LAW
Depreciation Schedule Base Value Total Days Held Depreciation
New Restaurant Freezer 3,500.00$
Less: Trade In Value @ 500 3,000.00$ 333.00$ 547.40$
Air Conditions installation 1,200.00$ 272.00$ 178.85$
Total Depreciation 726.25$
Working papers
Notes 8
Conclusion:
The net income of the partnership under “section 90, ITA Act 1936” is derived
following the deduction of expenses that is made during the year that amounted to $2,373.
Answer to question 2:
Issues:
In context of the current case study the issue bought forward here is ascertaining the
taxable value of the fringe benefit that is given by the provider to the recipient in discharge of
the employment duties.
Rule:
In context of the explanation that is made under the “section 20 of FBTA Act 1986”
where the person that makes the payment as a means of discharging the accountability of the
recipient to pay the sum to a third-party in relation to the expenses that is occurred by
recipient (Sadiq et al., 2018). Subjected to “section 23, FBTA Act 1986” the chargeable
value of the fringe benefit is the year of tax when the expenses payment benefit was made in
the year by the employer. In other words, the taxable value of the expense payment fringe
benefit represents the amount that the employer pays or reimburses.
Subject to “section 25, FBTAA 1986” housing fringe benefit arises for the whole or
part of the year of taxation represents the housing right that is provided to the recipient will
be taken to have resulted in the fringe benefit that is provided by the employer during the
year of taxation (Taylor et al., 2018). The taxable value of the housing fringe benefit given

9TAXATION LAW
under the “section 27, FBTA Act 1986” represents the market value of right of using the
accommodations that can be further reduced by the rental payments which is made by
employee.
Application:
In context of the John the employer here as the part of remuneration package paid the
school fees of his child that studied in the private school. As per “sec 20 of FBTA Act 1986”,
the payment made by the employer for John’s child school fees amounts to fringe benefit
(Williams et al., 2017). The employer under “section 23, FBTA Act 1986” will be
accountable for the taxable amount of the expense payment fringe benefit made to John
throughout the FBT year.
The employer also provided John with the accommodation in Sydney apartment
through-out the FBT year. As the part of his accommodation the employee makes the
contribution of $100 as rent every week. Providing John with unit of accommodation resulted
in the Housing Fringe Benefit under “sec 25, FBTA Act 1986” (Woellner et al., 2018). The
taxable value here for John’s employer will be the market value of the right of using the
accommodation that is lowered by the rental payments contributed by John. The taxable
value of the housing benefit tax is calculated below;
Particulars Amount ($)
Rent Per Week 800.00$
Annualized Market Value 41,600.00$
(800 x 52 weeks)
Less: Employee’s Contribution
(100 x 52 weeks) 5,200.00$
Taxable Value 36,400.00$
Computation of Taxable value of rent

10TAXATION LAW
Conclusion:
As the employer here paid the school fees of John’s child and also provided an
apartment to John, he will be chargeable for the taxable value of the expense payment benefit
and the market value of the accommodation following the deduction of contribution made by
employee during the FBT year.

11TAXATION LAW
References:
Arnold, B. (2016). International tax primer. The Hague: Kluwer Law International.
Carlisle, L., & Harrington, J. (2017) Basics of international taxation 2017.
Deutsch, R. (2018). Australian tax handbook (2018): THOMSON REUTERS AUSTRALIA.
James, S. (2016). Economics of taxation (2016): Fiscal Publications.
Kenny, P., Blissenden, M., & Villios, S. (2018) Australian Tax.
McCouat, P. (2018) Australian master GST guide.
Raftery, A. (2015) 101 Ways to Save Money on Your Tax - Legally! (2015). Milton:
Wrightbooks.
Richelle, I., Schön, W., & Traversa, E. (2016) State Aid Law and Business Taxation.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., & Obst, W. et al. (2018)
Principles of taxation law 2018.
Taylor, C., Walpole, M., Burton, M., Ciro, T., & Murray, I. (2018) Understanding taxation
law 2018.
Williams, D., Morse, G., Eden, S., & Davies, F. (2017) Davies, principles of tax law.
Woellner, R., Barkoczy, S., & Murphy, S. (2018). Australian Taxation Law 2018 ebook 28e.
Melbourne: OUPANZ.

12TAXATION LAW