Taxation Law: Determination of Net Income of Partnership and Fringe Benefit Tax

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................8
References:...............................................................................................................................11

2TAXATION LAW
Answer to question 1:
Issues:
The issue is concerned with the determination of the net income of the partnership
under “division 5 of the ITAA 1936”.
Rule:
According to the “section 91, ITAA 1936” the partnership should lodge the income
tax return to reflect the amount of profit to be distributed among the partners. Consequently,
“division 5, ITAA 1936” explains that partnership under the general law is not the separate
legal entity and not required to pay tax (Becker, Reimer and Rust 2015). It is the partners
under “section 92, ITAA 1936” that pay tax in respect of the profits distributed to them. After
the allowable deductions “section 90, ITAA 1936” states that net income of partnership
should be determined.
Usually most of the income that is received by the taxpayer is termed as ordinary
income under “section 6-5, ITAA 1997”. The judicial concept of income in “Scott v CT
(1935)” denotes that income is not the word of art and requires implementation of principles
to determine the proportion of receipts should be held as income based on the ordinary
concepts and use (Tyson and Silverman 2013). Thus, gains originating from the business
activities are treated as income under “section 6-5, ITAA 1997”. To characterise the receipts
as ordinary income from business it is necessary that those receipts forms the part of normal
proceeds of the business.
The potentiality of applying “section 8-1” can be made to any person. Under the
positive limbs of “section 8-1 (1), ITAA 1997” a taxpayer is permitted to obtain deduction
from their taxable earnings for any expense or loss till the extent that it is occurred in

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producing taxable income or incurred in carrying on the business with the intent of gaining
taxable income (Rafool 2014). In “FCT v Amalgamated Zinc Ltd (1935)” gaining or
producing the taxable income should be interpreted as in the course of producing the taxable
income. Conversely, the negative limbs of general deduction rule states that a deduction for
outgoings under the general rule is denied if the expense meets any of the negative limbs
under “section 8-1 (2)”. This includes the expense of capital, domestic or private in nature.
Under “section 25-10, ITAA 1997” a taxpayer is permitted to claim for deduction
relating to expenses occurred on repairs to depreciating assets or properties that is used for
making income (Kaplan and Price 2014). Maintenance work are termed as repairs under
“section 25-10”. For instance, painting of the business property for fixing the current
deterioration and prohibiting any additional deterioration are termed as repair. The cost
incurred on replacing the items that are permanent fixtures installed on the business premises
for generating income is deductible repairs under the section 25-10. It must be noted that
deduction for replacement is only allowed of the worn out unit with the new unit of identical
design which only restores the effective functions and does results in any improvement.
The $20,000 instant write off allows the taxpayer to write-off the cost of assets that is
below the threshold limit of $20,000 up to the business portion in their tax return for the
relevant year of income (Mishra 2014).
Application:
The business activities carried on by Daniel and Olivia constitutes partnership under
“division 5, ITAA 1936”. Based on “section 91, ITAA 1936” the partnership carried on by
Daniel and Olivia should lodge the income tax return to reflect the amount of profit to be
distributed among the partners.