Taxation Law: Calculation of Taxable Income for Partnership and Excel Mining Ltd

Taxation 1
Taxations Law

Taxation 2
Question 1:
Partnership is the concept were two of more parties joins together to commence business or a
specific activity. In this case the profits are shared equally by both the partners. Usually it
depends upon the mutual understanding and written partnership deed to share the profits among
the partners (Woellner, et al., 2018). In the absence of any information it is assumed that the
profits are to be shared equally whether the capital introduced by each of the partners are not
equal.
Gross receipts from trading: Under section 8-1 ITAA97 of Income Tax Act, 1994, this is the
proceeds of the sales that take place during the year so it will be the main income that happens
during the whole year it can also be termed as gross income (Australian Government, 2018). All
the expenses and losses are deducted from this head for the calculation of the net income of the
firm.
Payments: Under section 8-1 ITAA97, all the payments that are made for the various
transactions are deducted from the incomes for the calculation of the net income so the various
heads such as purchase of the trading stock, salaries of each of the partners, interest on cash
advances from peter are to be deducted from the gross receipts (Woellner, et al., 2018). The
other deductions include salaries to the employees and rent paid and legal expenses. The
amounts related to the partners and their salaries are deducted as they are treated as separate
entity as per the company law (ATO, 2018). Australian taxation office also considers a person as
individual and the incomes are taxable under various heads such as salaries, income from
business and profession, capital gains, other sources and professional income.

Taxation 3
The taxable income refers to the income earned by the firm on which there is a need to calculate
the tax that requires to be paid to the government. The main reason behind it is that taxes are
considered as the revenues for the government.
Calculation of the taxable income of Peter
In this problem first of all it is needed to identify the total income of the partnership firm.
Particulars Amount
($)
Particulars Amount ($)
Trading stock at beginning 1July 10000 Sales 300000
Purchases 100000 closing stock 30 June 20000
Gross profit (Balancing figure) 210000
Grand total 320000 Grand total 320000
From the above calculation it is identified that the total income of the partnership was $300000 and the
remaining stock that is to be carried forward for the next year will be 20000. The gross profit for the
partnership firm is $210000. This profit is also termed as gross income of the company. Thereafter, the
various expenses related to the company are to be deducted from this income for the purpose of
calculating net income for the purpose of tax (ATO, 2018). The various expenses incurred and paid by
the company/partnership firm are as below:
Particulars Amount in ($)
Gross profit 210000
Less: Interest in cash advances (2000)
Less: Salaries for employees and rent (60000)

Taxation 4
Less: Legal expenses for recovering bad debts (2000)
Net profit 146000
The amount will be available for being distributed among the partners will be 86000 [($146000 -
$60000 (salaries of both the partners 30000each)].
As per the available information peter and Jill shares the profits equally. So, the calculation of
the taxable income will be as below:
Sharing of profits equally = 86000/2 = $43000
Calculation of the taxable income of Peter:
Particulars Amount (in $)
Calculation of the total income of Peter
Share of partnership (net income share) 43000
Salary 30000
Interest on cash advances 2000
Winnings from gambling 2000
Net salary as a part time instructor 5000
Less: Deductions
Subscription to professional journals
(500)
Total taxable income 81500