Taxation and Small Business Concession in Australia

Running head: TAXATION
Tax
Name of the Student:
Name of the university:
Authors Note:

1TAXATION
Table of Contents
Answer To Part A:.....................................................................................................................2
Answer To Part B:......................................................................................................................5
Reference..................................................................................................................................17

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Answer To Part A:
Issue:
The current issue is regarding the income tax consequence for the financial year
ended 2018 for Anna. In other words, to be exact the issue is, whether the person paying tax
qualifies for deduction under section “8-1 of ITAA 1997”?
Rule:
The provision of “section 8-1 of ITAA 1997” says that, a person paying tax can claim
deduction relating to transaction mentioned under the general deduction clause of the said act.
An expense or loss may be considered as deduction under section 8-1 and under certain
specific provision. A person paying tax can be allowed to claim deduction from the income
that is taxable only if the expense is a consequence of earning that income (Becker et al.,
2015). A taxpayer is not allowed to claim deduction under the negative or non-permissible
limb of section 8-1(2) of ITAA 1997. Expenses in the nature of capital, private or domestic is
not allowed for deduction.
If a person acquires loan for buying equipment and stock, then it is allowed for
deduction under the positive limb of the section 8-1 of ITAA 1997. The reason being, those
expenses are a result of producing assessable income or operating business with the intention
of creating an income that is taxable in nature (Saad, 2014).
The tax commissioner in the case of “Lunney v FCT” decided that the pre-requisite
of deriving income that is taxable should be considered. A person paying tax is allowed to
claim deduction under the general provision of section 8-1 of ITAA 1997, regarding the pre-
commencement of income producing acts. As decided by the court of law in the case of
“Softwood Pulp and paper v FCT”, the commissioner denied the deduction as the expense

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was not incurred for producing taxable income (Lang et al., 2018). It was used to establish
the business and the actual income producing activity. This deduction can be claimed only in
situation where the expense was incurred in earning the actual income. Thus, purchasing any
tool or equipment which assist in earing income will qualify for deduction which can be
claimed for the entire or a part depending on the cost of business and private use of asset
(Richardson et al., 2015).
A person can claim deduction when some of act travelling or employee traveling
result to expense. As said under section 25-100 of ITAA 1997, deduction for the travel
expense can be claimed in situation where the travel places are related income generating
activities. The taxpayer can claim deduction for travel expense when it forms part-performing
duties related to the job or business.
An individual who pays tax is allowed to assert deduction for majority of the expenses
that is incurred in carrying or running the business. The expenses incurred for purchase of
jewellery represents the mercantilism stock expense and it is allowed as deductions. On the
opposite hand, a private person paying tax is allowed to assert for the salaries and wages
that's paid to the worker or staff (Wilkins, 2015). If a person operates because the sole dealer,
or the business owner and not because the worker of the business and thus the owner of the
business cannot pay remuneration to themselves. However, on creating any variety of
nominal payment within the variety of regular payment or wages is usually control because
the profit distribution that does not forms the part of deductions.
Application:
The present case says that Anna has a jewellery business and she incurred a bank
interest of $6000 for acquiring equipment and stocks. She can claim deduction under the
affirmative wing of section 8-1 of ITAA 1997. Anna sustained the expenses in producing the