Taxation Theory, Practice and Law

This document provides an overview of taxation theory, practice, and law. It discusses the different functions of taxation, income tax liability, tax treatment of payments, deductibility of expenses, and depreciation calculations. The document also includes case studies and examples to illustrate the concepts. It is a valuable resource for students studying taxation and related subjects.

Taxation Theory,
Practice and Law

Table of Contents
1. Briefly explain different functions of taxation............................................................................3
2. Whether Amandeep needs to pay income tax on his salary and investment income explained
above................................................................................................................................................4
3. Discuss the tax treatment of this payment for Gary....................................................................5
4. Advise John on the assessability and deductibility of above events...........................................6
5. Calculate the amount allowed as deduction for the decline in value of the machinery and the
Holden car........................................................................................................................................7

1. Briefly explain different functions of taxation
Taxes
Taxes are in this manner characterized as a necessary withdrawal by the state, so as to back open
administrations and to meet general interests. A kind of mandatory regular subsidizing, by
residents, to the express that utilizes these assets for the open great, and for different
administrations, such as ensuring open request, equity and barrier of the state, or to fund works
of normal intrigue, for example, streets or open works, so as to seek after the goals of financial
strategy.
Specifically, it tends to be said that assessments can have four sorts of functions:
1. The basic capacity of the tax collection is the fiscal function. It is through the fact that
responsibilities assume their role in the basis of state cost resolution for the recognition of
national programs and including state programs. Financial capacity presupposes the achievement
of the primary social objective of the tax assessment: the development of the funds of the state
budget is fundamental for carrying out the work of the last (defense, social proof, natural and so
on).
2. The acquisition functions are those planned for ensuring the State or the open body the assets
important to fund open consumption, or to ensure the working and the accomplishment of
specific targets after some time.
3. Rather, there is discussion of a re-distributive function, if it is chosen to survey the
circulation of commitments to ensure a standard of value and social equity. The tax collection
circulation act communicates their marrow as a common tool of lot relations and involves the
redistribution of social pay between different collections of residents: from rich to rejected,
which is finally in favor of reinforcing the social stability of the population.
4. At long last, charges have a promotional function, in the event that they are planned to
support and energize, or despite what might be expected, to dishearten certain lead of residents
and may accommodate the presentation of a progression of tax cuts, or, in actuality, the
commitment to burden punishments so as to prevent citizens.

2. Whether Amandeep needs to pay income tax on his salary and
investment income explained above
To determine an individual's residence situation, "The Resides Test" may be made to determine
whether an individual is an Australian resident with the ultimate goal of personal liability.
Tax legislation TR 93/7 applies to the class of newcomers to Australia:
 Transients
 Scholastics who teach or speculate and say they aim for Australia
 Traveling people
 Employees who have entered into precautionary employment contracts.
For the most part, the determination of whether an individual is a resident of Australia in terms
of costs is achieved by considering the individual's issues and conditions taking into account
customary law and pending legal processes. the image below. For example, a person who spends
most of the year spending in Australia is likely to become resident in Australia with these tests.
Common law test
A person is considered to be a resident of Australian law if the person "resides" in Australia as
defined by the ordinary meaning of that word (subsection 6 (1) of the Income Tax Assessment
Act - Inserted in 1936 (ITAA 1936). of conventional residence considers the general conditions
of a person in the important year of pay, including:
 The goal or inspiration behind the essence of the person in Australia;
 The degree of the individual's family or business relationship in Australia;
 The support and range of benefits of the individual; is
 Social and live game plans of the person.
Statutory tests
If a person does not pass a law-based residency test, the person is still considered to be a resident
assessed in Australia if the person passes at least one of the three legal residency tests in
subsection 6 (1) of ITAA 1936:

 The individual's residence is in Australia (but only if his permanent place of residence is
outside Australia);
 The person is very Australian for most of the year financially connected (unless he has
his usual place of residence outside Australia and wants to move to Australia); or
It is also possible that a person falls into the ideal class of an unstable Australian resident. For the
most part, non-permanent residents have visas that allow them to move to Australia for a limited
period of time (for example, an employee of the universal company who is transferred to the
Australian branch for a long time) and responsible to specific income tax, capital gains tax and
superannuation consequences.
Hence, based on above analysis; Amandeep is needs to pay income tax on his salary as well as
on capital gains received in the form of investment income.
3. Discuss the tax treatment of this payment for Gary
The cost law provides that a landowner has no remuneration when a tenant makes improvements
to the owner's property or when these updates return to the land owner at the end of the lease.
“This will allow the landlord to allow the property estimate to be added from updates to the sale
of the property, at which point the owner will have the power to pay for the appraisal of the
extension triggered by a person’s improvements.
A resident's prohibition on paying for relevant improvements does not materialize when an
upgrade is made to replace the lease. At a time when this is the case, the resident is paying the
kind of rental development compared to real money. Based on the cash sharing method of
managing salary recognition, the estimation of these updates is recalled for personal evaluation.
In this given case; John is liable to pay Gary for damage to building, this improvement will help
Gary to raise income from it, and therefore the amount of $3,100 paid by John is subject to pay
income tax on it. On the other hand; if it was reverted by Gary to John or bared by Gary alone
than it was not subject to pay income tax by Gary. Hence, in this case; Gary have to pay tax on
$3,100 received from John as repairing expenses because any improvement in the building will
increase the rent of building and simultaneously increase the income of Gary. Also Gary is not

paying $3,100 from himself and it doesn’t affect the income; therefore no tax reduction is
allowed.
4. Advise John on the assessability and deductibility of above events
Deductible advertising expenses
You can deduct the expenses for promoting your customers' business. It should be noted that
these must be the normal and reasonable costs of advertising. Some models would be the printing
of business cards, the sending of advertisements on the Yellow Pages, the publication of paper,
television and radio advertisements (calculation of the creation costs) and the costs of creating
the established company site.
Charges for promotional activities
Expenses like sponsoring local events, special events to bring people to your business, publicity
costs.
Non-deductible expenses:
It is not possible to deduct expenses that are substantially close to home, despite the fact that they
may have a bit of a turnaround. For example, if your little girl is beaten and welcomes a portion
of your best clients for the wedding, you cannot deduct the wedding expenses.
Legal fees Deductibility
IRS publication 535 states that a citizen is able to deduct various costs and attorney fees
associated with the resolution of the duty for which the IRS assessed the penalties. Court costs
can also be deducted in a debit form, subject to the IRS as far as possible. According to IRS 529,
it claims as far as possible that legitimate costs for cost management can be deducted if a citizen
decides his decisions, but such attorney fees are incurred under the 2% barrier to the various
prescribed outcomes.
Hence basis on the above analyses; it can be concluded that some of the expenses mentioned
below are not deductible by John:

 Legal expenses sued by John for false advertising
 Fine paid by John for putting sales item outside the shop
These above expenses are non-deductible because it offenses the civil law and any deduction
provided will entertain more cases and make these activities convincible and legal; hence John
will not allowed tax benefit for the same.
5. Calculate the amount allowed as deduction for the decline in value of
the machinery and the Holden car
There are two valuation strategies to calculate plant and equipment degradation in a risk
building: the method of reducing value and a principal cost strategy.
The ATO allows for two completely different strategies for determining the outcome of property
rights abatement, the value reduction method and the primary cost method. Most speculators
choose the method of reducing value because it will bring back the best degree of reasoning on
the first stage with almost no holding time. In any case it is advisable to check it with your
accountant, as an increase in your case may not be helpful if your salary is likely to rise
significantly along the way.
Prime cost (straight line) method
As part of the basic cost strategy (also known as a straight-line method), a fixed amount is
guaranteed each year according to the accompanying equation:
Asset’s cost × (days held ÷ 365) × (100% ÷ asset’s effective life)
Diminishing value method
The following formula is used for the diminishing value method:
Base value × (days held ÷ 365) × (200% ÷ asset’s effective life)
The amount to be allowed as a deduction for the decline in the value of machinery:
i) Machinery = $110,000 / 7 yrs = $15,714.28 per year

ii) Holden car = $63,000 / 5 = $12,600

REFERENCES
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Braithwaite, V.A., 2009. Defiance in taxation and governance: Resisting and dismissing
authority in a democracy. Edward Elgar Publishing.
Deng, X., Shimizu, Y. and Xiao, F., 2019. A fifth-order shock capturing scheme with two-stage
boundary variation diminishing algorithm. Journal of Computational Physics, 386, pp.323-
349.
Fry, M., 2017. Australian taxation of offshore hubs: an examination of the law on the ability of
Australia to tax economic activity in offshore hubs and the position of the Australian
Taxation Office. The APPEA Journal, 57(1), pp.49-63.
Hoopes, J.L., Robinson, L. and Slemrod, J., 2018. Public tax-return disclosure. Journal of
Accounting and Economics, 66(1), pp.142-162.
Lymer, A., 2019. Contemporary issues in taxation research. Routledge.
Murphy, K., 2019. Moving towards a more effective model of regulatory enforcement in the
Australian Taxation Office. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Murphy, K., 2019. Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity (CTSI), Research School of Social Sciences,
The Australian National University.
Rawlings, G., 2005. Cultural narratives of taxation and citizenship: Fairness, groups and
globalisation. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University.
Srinivas, Y. and Khan, M.A.A., 2017. A Conceptual Analysis of Accounting for Depreciation
using Component Wise Approach-Indian Perspective. Sumedha Journal of
Management, 6(1), pp.78-102.
Woellner, R.H., and et.al., 2010. Australian taxation law. CCH Australia.