(Solved) Assignment on Taxation Law
Added on 2019-10-31
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TAXATION LAW
Taxation lawAnswer-11) Issue- Whether or not the Cost of moving machinery to a new site allowable as a deduction under s 8-1 while computing the assessable income.Rule- According to the s 8-1 of the ITAA 1997, those expenses which are incurred directly or indirectly in running the business are treated as allowable expenses. Further, those expenses which are of capital nature or are incurred in relation to purchasing, transportation, and installation of a capital asset purchased or are for domestic or private use are not allowed as a deduction under s 8-1 (Barcokzy, 2010). Application- It was held in the case of W Neville & Co v FCT (1937) that the expenses done forthe purpose of the business must be provided as a deduction (Barcokzy, 2010). In the given question, it is not clear that whether the machinery being moved to the new site is a brand new machine which is being transported from the seller place to buyer’s site the or it is an old machine which is being transported from one site to another. In the former case that is where the new machinery purchased is being transported to the buyer’s site then the expenses that will be incurred in such transportation shall be treated as included in the cost of machinery purchased and shall not be allowed as a deduction from the assessable income. In the latter case, if the old machinery is being transported from one site to another, for example in case of road constructionthe road rollers are shifted from one site to another once the work gets completed at the first site. In such case, the transportation cost shall be treated as a business expenditure and shall be allowed as a deduction under s 8-1of ITAA 1997 (Sadiq et. al, 2017).Conclusion- If the machinery is old and is being transported from one site to another for completion of business purpose, and then the cost shall be considered as transportation cost and shall be allowable as a deduction under s 8-1 (Kobestky, 2005).2
Taxation law2) Issue- Whether or not the cost of revaluing assets to effect insurance cover allowable as a deduction under s 8-1 while computing the assessable income.Rule- According to the s 8-1 of the ITAA 1997, those expenses which are incurred directly or indirectly in running the regular business activity and earning of assessable income are treated asallowable expenses. If the expenses of revaluation of assets are related to the fixed assets, then such expenses shall not be treated as allowable expenses under s 8-1. If the expenses are related to assets such as stock which directly affect the calculation of assessable income, then such expenses shall be treated as allowable expenses under s 8-1. Application and Conclusion- in the given question, it is not clear that whether the evaluation is being done for fixed assets or inventories. For determining the allowable expenses, it is important to know whether such expenses being incurred are affecting the income making capacity or are affecting the fixed assets. In case the expense is recurring in nature and are being incurred for evaluation of inventories for the insurance cover for recovery of loss from destruction of inventories, then the same shall be allowable expenses for deduction under s 8-1 asthe inventories are directly related to the calculation of assessable income.3)Issue – whether the legal expenses incurred by a company opposing a petition for winding up allowable as a deduction under section 8-1 of ITAA 1997 or not.Rule- the expenses that are deductible under s 8-1 of ITAA 1997 are those which are either incurred in earning the taxable income or are incurred while carrying on the regular business activities through which the said assessable income shall be earned. Deduction of those expensesis not allowed which are either capital in nature or expenses which are private or domestic in nature or the expenses which are in relation to earning of exempt income. The expenses which are incurred for keeping the company in running position shall be allowed as business expenses. Application and Conclusion- there may be two outcomes of the given situation. One is that the company may lose the petition case and the company gets winded up and the second case that the company shall win the case and company shall continue with its operations normally. But in 3
Taxation lawboth the cases the expenses incurred will not result in earning of the assessable income directly (Pratt & Kulsrud, 2013). The said expense is just necessary to save the business from winding up. Hence the same shall not be treated as business expenses under s 8-1. 4)Issue – whether the Legal Expenses incurred for services of a solicitor in respect of a number of matters, including conveyance, discharge of a mortgage, and general legal advice relating to a client’s business operations. (The Solicitor account does not separate the costs for various matters.)Rule- the expenses that are deductible under s 8-1 of ITAA 1997 are those which are either incurred in earning the taxable income or are incurred while carrying on the regular business activities through which the said assessable income shall be earned. Deduction of those expensesis not allowed which are either capital in nature or expenses which are private or domestic in nature or the expenses which are in relation to earning of exempt income (Nethercott et. al, 2013). The expenses which are incurred for keeping the company in running position shall be allowed as business expenses. Application and Conclusion- in the given case the solicitor has given varied services which include general business expenses and other charges which may be categorized into capital nature expense such as the discharge of a mortgage. The solicitor does not separate the costs for different matters. Hence it shall be assumed in the given case that all the costs have been directlyand indirectly incurred for the discharge of mortgage (Cartwright, 2013). In such assumption, thecosts shall not be allowed as a deduction under s 8-1, but shall be deductible under another section of ITAA 1997.4
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