Taxation Law: Partnership Profit and Deductions

Running head: TAXATION LAW
Taxation
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1TAXATION LAW
Table of Contents
Answer 1:...................................................................................................................................2
Answer 2:...................................................................................................................................7
References:...............................................................................................................................10

2TAXATION LAW
Answer 1:
Issues:
Considerable discussion in this section is all about the profit gained by the partnership
during the pertinent income year.
Rule:
Conferring to the “division 5 of ITAA 1936” partnership is defined as, the partners
are not liable for paying the taxes and also they are not considered as a single unit of
operation (Thuronyi 2014). “Section 91 of ITAA 1997” elaborates that an individual
taxpayer should always prepare their return files in order to highlight the amount of profit
distributed among the shareholders. Consequently “sec 92, ITA Act 1997” section highlights
that partners are liable for incurred loss as well as profits. “Section 995-1(1)” states
partnership is the meaning of continuing the same objective of earning profit throughout the
business. The profit obtained from the partnership is considered as wither ordinary or
statutory income.
Referring to “section 6-5(4)” and “section 6-10 (3), ITAA 1997” the taxpayer is
liable for taking the income and this should be according to the directions of the taxpayer
(Markle 2016). In reference with “sec 6-5, ITA Act 1997” ordinary income is considered
from the large part of the income of taxpayer. In “Scott v CT (1935)” the commissioner
stated there are different sort of principles those are used for understanding the gains from the
ordinary income. Any kind of business receipts that is made is taken into the account as
ordinary income based on “S-6-5, ITA Act 1997”.
Rendering to “Section 8-1 of ITA Act 1997” allows the taxpayer to avail the
deductions those are his personal outgoing expenses and also these expenses are generated

3TAXATION LAW
while maintaining the business objectives. Consequently, the negative aspect of the “Section
8-1 of ITA Act 1997” is, it doesn’t allow the taxpayer to maintain these deductions if he is
involving private, domestic or capital expenses (Hurst, Li and Pugsley 2014). Therefor if the
taxpayer is applying some sort of expenses those are falling under the capital, private or
domestic nature then he will be not be allowed the deductions.
According to ATO, the taxpayer is eligible in getting the deductions if their expenses
are below 20,000. Consequently, it makes the taxpayer eligible for obtaining the deductions
for repair of their assets (Nichols and Rothstein 2015). According to “Subsection 25-10 (1),
ITA Act 1997”, the taxpayer is permissible in getting the deductions for decorations,
deterioration and damages in any of their assets. In a similar manner “FC of T v Western
Suburbs Cinemas (1952)” states the taxpayer is not permissible in getting the deductions if
they are incurring capital expenses for repairs.
Application:
In accordance with the case discussed in this section Daniel and Olivia are keeping
the business objectives in order gain profit over their ordinary income and has been incurred
some receipts and outgoing expenditures. Sales and payments from the debtors are
considered as receipts. As per the “section 6-5, ITA Act 1997” the sales and payment
received from the debtors are the income gained from the business and this is according to the
concepts of ordinary income.
Two partners has drawn the amount of profit as follows $5600 AND $6000 from the
business. Along with these two amounts they have drawn $3200 amount for their private
purpose. According to “section 8-1 (2), ITA Act 1997”, as Daniel and Olivia has made these
outgoing expenses as private in nature so they are not allowed in getting the deductions under
the negative limbs (Fairfield and Jorratt De Luis 2016).