Taxation Law

This document provides a comprehensive study material on Taxation Law, including answers to questions related to taxation liabilities and fringe benefits. It discusses the rules and regulations governing taxation, deductions, and capital expenses. The document also includes a computation of partnership net income and taxable value of rent for housing fringe benefits.

Running head: TAXATION LAW
Taxation Law
Name of the Student
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
References:.................................................................................................................................8

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Answer to question 1:
Issue:
Is the taxpayer liable for taxation for the income derived under partnership business?
Rule:
As per “sec 91, ITA Act 1997” taxpayers should file income tax return to provide the
allocation of profit among the partners. As per “Sect 92 ITAA 1997” any profit or loss
distributed among partners is liable for taxation. Under the “sec 6-5 of the ITA Act 1997” the
income earned by the taxpayers are referred as ordinary income (Abel 2017). In “Scott v CT
(1935)” determination of income under ordinary concepts requires the application of
necessary facts and principles (Manning, Sciacca and Alford 2016). Business receipts are
taxable as ordinary income under “sec 6-5, ITA Act 1997”.
Referring to “sect 8-1, ITA Act 1997” deduction is allowed to taxpayers for expenses
which relates to the derivation of taxable income or occurred during the ordinary business
phase (Edgar, O'Brien and Cockfield 2015). However, “sect 8-1 (2) of ITA Act 1997”
prohibits the taxpayer under the negative limbs to obtain deduction for private, domestic or
capital outgoings.
The elucidation of ATO requires the taxpayer to immediately write-off the assets that
has the purchase value of less than $20,000. While “sub-sect 25-10, ITAA 1997” allows
deduction to the taxpayers for the repairs that is occurred in correcting the defects or damage
on the assets (Lang et al. 2018). However, a deduction is denied to the taxpayer for repairs
that involves extensive capital expenses. As held in “FCT v Western Suburbs Cinemas
(1952)” deduction for capital expenses was denied to the taxpayer.

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Application:
In the partnership business carried on by the Daniel and Olivia they derived business
receipts in the form of cash sales and debtor’s proceeds. Under the sec 6-5, ITA Act 1997 the
cash receipts from sales and debtors amounted to business receipts which is included as
taxable receipts.
Daniel and Olivia further conveyed drawings made from partnership of $6,000,
$5,600 and $3,200 for private purpose. Therefore, the above stated drawings does not qualify
for deduction as it is private expenses under the negative limbs of “sec 8-1, ITA Act 1997”
(Li, Magee and Wilkie 2017). The partners also reported purchase of air condition for $1,200.
As it is below the prescribed level of $20,000 the sum of $1,200 can be immediately written
off as tax deductible expenses.
Quoting the event of “FCT v Western Suburbs Cinemas (1952)” the shop painting
and motor replacement is a capital expense, therefore no deduction is permitted within the
view of “sub-sect 25-10, ITAA 1997”.
The net income of partners and work papers are as follows;

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Particulars Amount ($)
Receipts
Business sales 150170
Debtors Cash payments (Notes 1) 33715
Total Receipts 183885
Expenses Eligble for Deductions
Electricity Bill 1176
Council rates (Notes 6) 310.2
Business Insurance 1250
Mobile Bills (Notes 6) 633.6
Union Bills 284
Account Charges 595
Repair Expenses 1490
Loan Expenses (Notes 4) 5500
Purchase of Fixed Asset 3500
Cost of Sales (Notes 3) 30525
Van (Notes 5) 1134
SUV (Notes 5) 1230
Repayment to Creditors (Notes 2) 128168
Installation of Air-Condition 1200
Depreciation Expenses(Notes 7) 726.2
New Restaurant Freezer 3500
Total Expenses Eligible for Deductions 181222
Net Income From Partnership 2663
Computation of Partnership Net Income
For the year ended 30th June 2017
Depreciation Schedule Base Value Total Days Held Depreciation
New Restaurant Freezer 3500
Less: Trade In Value @ 500 3000 333 547.4
Air Conditions installation 1200 272 178.8
Total Depreciation 726.2
Working papers
Notes 7

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Notes 1
Debtors at 1st July 2016 3925
Debtors Cash Payments 32800
Debtors at 30th June 2017 3010
Debtors Net 33715
Notes 2
Creditors at 1st July 2016 6500
Add: Repayment to Creditors 128678
Less: Creditors at 30 June 2017 7010
Creditors Net 128168
Notes 3
Cost of Sales
Stock on 1st July 2016 9120
Add: Purchase 31155
Less: Stock on 30th June 2017 9750
Notes 4 30525
Loan Repayment
Business Loan 8500
Less: Reduction of loan 3000
Net Loan Re-Payment 5500
Notes 5
Cost of Maintainance
Van 1260
Less: Business use 90% 1134
SUV 2050
Less: Business use 60% 1230
Total cost of Maintainance 2364
Notes 6
Mobile Bills 704
Less: 90%Business Use 633.6
Electricity Expenses 1470
Less: 80%Business Use 1176
Council Rates 517
Less: 60%Business Use 310.2

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Conclusion:
The business receipts derived by partners is held as income under ordinary concepts
and the partnership net income stands $2,663.
Answer to question 2:
Issues:
Is the employer held liable for fringe benefit tax under FBTAA 1986 for the expense
payment fringe benefit and housing fringe benefit?
Rule:
Any kind of benefit that is provided as the part of occupation to the employee should
be viewed as fringe benefit under “FBTAA 1986”. As per “sec 20, FBTAA 1986” the
expenses payment fringe benefit happens when the employer pays the expenses to meet the
outgoings of the employee (Mueller 2016). The employers are held taxable for the taxable
amount of the fringe benefit provided to employee.
Within the meaning of “subparagraph 65A (ii), FBTAA 1986” tax liability of the
fringe benefit for employer can be reduced if the benefit is occurred by employer in relation
to the full-time school of the employee’s child (Yue 2016). A reduction in taxable value was
allowed by court in “FCT v J & G Knowles (2000)” where the expenses of recipient had
enough relation with the occupation of the employee.
Under, the “sec 25, FBTA Act 1986” housing benefits occurs when the employer
gives an accommodation to the employee (Chaturvedi 2015). The chargeable value of benefit
is ascertained by considering the market value of rent following any subtraction of
contribution made by the employee in conclusion to the unit of accommodation.

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Application:
John who is employed as the senior executive in the printing company is provided
with the remuneration package by the employer that pays the school fees of his child. The
expense fringe benefit tax has occurred for the employer of John under “sect 20, FBTA Act
1986” (Kudert, Kopec and Nagel 2015). Quoting the example of “FCT v J & G Knowles
(2000)” the expenses of John had enough relation with his occupation and the employer of
John would be liable for the taxable value of the fringe benefit provided to John as the part of
remuneration package.
John was also provided with the unit of accommodation by his employer where the
contribution of John amounted to $100 and his employer’s contribution stood $800. Here, the
employer of John would be liable for the housing fringe benefit based on the market value of
rent followed by the subtraction made from the amount contributed by John in respect of the
unit of accommodation (Philipps et al. 2015).
Particulars Amount ($)
Rent Per Week 800
Annualized Market Value 41600
(800 x 52 weeks)
Less: Employee’s Contribution
(100 x 52 weeks) 5200
Taxable Value 36400
Computation of Taxable value of rent
Conclusion:
Under “section 25, FBTA Act 1986” the employer of John is held liable for taxation
based on the housing fringe benefit.

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References:
Abel, J., 2017. Review of: Daniel Shaviro: Taxing Potential Community Members' Foreign
Source Income (Tax Law Review, Vol. 70 (2016), S. 75-109).
Chaturvedi, K.N., 2015. 031_Bussiness Activity and Tax Exemption on Charitable Trusts in
Income Tax Law.
Edgar, T., O'Brien, M. and Cockfield, A.J., 2015. Materials on Australian Income Tax.
Carswell.
Kudert, S., Kopec, A. and Nagel, A., 2015. 2014 income tax law changes: new taxation rules
for partnerships limited by shares. European taxation, 55(1), pp.40-44.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. eds., 2018. Introduction to European tax
law on direct taxation. Linde Verlag GmbH.
Li, J., Magee, J.E. and Wilkie, J.S., 2017. Principles of Australian Income Tax Law.
Thomson Reuters.
Manning, R., Sciacca, R. and Alford, A., 2016. Tax Inversions: A Preliminary Review of
Company Financial Data. Bates White, January, 12.
Mueller, H.J., 2016. Corporate Tax Inversions: A Brief Overview.
Philipps, L., Duff, D.G., Alarie, B., Brooks, K. and Loomer, G., 2015. Australian Income Tax
Law.
Yue, P.E.N.G., 2016. Domestic Application of Taxation Treaty: Study on Article 58 of the
Enterprise Income Tax Law. Northern Legal Science, 6, p.014.