Tax Implications for Aussie Ltd: Deductions, Expenses, and Import Duty

This assignment analyzes the tax implications for Aussie Ltd, focusing on import duties, deductible expenses, and property-related deductions. The analysis begins with a scenario where Aussie Ltd imports furniture, facing high import duties that impact sales. The solution explores tax implications, ref...Read More

Solution 1:
Issue:
Aussie Ltd imports high quality of furniture at low cost and sold it to the Australian market and
enjoying huge sales volume. That will affect the Australian furniture market and threatened the
local employment market. For the protection of Australian domestic market Australian
Government impose a high import duty on the annual sales of all imported furniture by Aussie
Ltd. This high import duty affects the Aussie sales, and the company wants to repeal import
duty.
Law:
Tax implication for Aussie Ltd. was Deductible Expenses of the Tax Payer. The Main provision
for Taxpayer is the General Deduction Provision Section 8-1 of the ITAA 1997 (Specialists,
2012). The General deduction stated that
1. Gaining or producing assessable income,
2. Necessarily carrying a business to gain or producing assessable income.
A taxpayer will be entitled to a general deduction under section 8-1 for loss or outgoing; it must
be satisfied either one of the two Positive limbs or one of the four negative limbs for getting tax
deduction:
The First positive limb
Applies to all taxpayer whether they earn profit or loss. (Federal Commissioner of Taxation v
Green, 1950). On the other hand,

A Second positive limb
Applied to only that taxpayer who carries business for profit or producing assessable income
(Federal Commissioner of Taxation v Snowden and Willson Pty Ltd, 1958).
Negative limbs:
- Capital or capital in nature
- Private or domestic
- Incurred gain exempt or non-exempt income
- Prevented from being deducted by a specific provision of the income tax legislation.
First negative limb:
An expense that occurs in “once and for all” is capital expenses. An expense that occurs in
recurring basis is revenue expenses. Cases that describe both expenses clearly are: (Vallambrosa
Rubber Co Ltd v Farmer, 1910)
Application

This case falls under the first negative limb. Expenses on advertising are the revenue nature
expenses and are deductible under section 8-12(2)(a). This expense is recurring nature which
recurs every year. Advertising of a product direct affect the sales of a product. (Bhagwati, 1954)
In this case, construction of the building is of “revenue expenditure”. Expenses made for the
expansion of business or a substantial replacement of equipment. Similarly in (British Insulated
and Helsby Cables Ltd v. Atherton, 1925).
Conclusion
After studying all the cases, we conclude that Aussie Ltd had made expenditure on advertising
which is “revenue expenditure” and it is deductible.
REFERENCES:
Vallambrosa Rubber Co Ltd v Farmer, (1910) 5 TC 529 (1 Div) (1910).
British Insulated and Helsby Cables Ltd v. Atherton, [1926] AC 205 (House of Lords Dec 11, 1925).
Federal Commissioner of Taxation v Green, 11 (High Court of Australia June 21, 1950).
Assam Bengal Cement Co. Ltd vs The Commissioner, 1955 AIR 89, 1955 SCR (1) 876 (Lahore High Court
Nov 11, 1954).

Federal Commissioner of Taxation v Snowden and Willson Pty Ltd, 26 (High court of Australia May 15,
1958).
Commissioner of Taxation v. Consolidated Fertilizers Ltd, [1991] FCA 497; 101 ALR 385; 91 ATC 4677; 22
ATR 281 (high court of australia Aug 6, 1991).
Black v Garnock [2007] HCA 31, S401/2006 (high court of australia Aug 1, 2007).
Solution:
Issue
Deduction claim for property used for the income producing purpose
Law
There are two types of deduction general deduction and Specific deduction.
General deduction:
Its main provision is to provide taxpayers with a deduction for an expense. Section 8-1 had
applied to any taxpayer. It further divided into two parts:
1. Positive limbs.
2. Negative limbs.
In positive limbs taxpayer deduct their income, loss or outgoing to the extent:
1. Incurred in gain or producing assessable income

2. Necessarily incurred in carrying business to gain or producing assessable income
(Specialists, 2012)
In negative limbs, loss or outgoing is not deductible. Rules to satisfy negative limbs:
1. Capital or capital in nature
2. Private or domestic
3. Incurred in gaining exempt or non-assessable non- exempt income
4. Prevented from deducted by specific provision
Specific deduction:
Specific deduction in the income tax provides to the taxpayer with a deduction. A loss or
outgoing may be deductible under section 8-1 and a specific provision not qualifies for a
deductible under a specific provision.
The rule of double taxation contains in section 8-10.
List of a Specific provision is in section 12-5.
Section 25-5 provides deduction for the taxpayer for certain cases (Evans, 1997):
1. To manage their tax affairs
2. To comply with a notice imposed the taxpayer
3. Payment of general interest
4. Certain valuation.
The Certain specific deduction is:
1. Capital allowance – division 40 of the ITAA 1997 (TaxForYoungProfessionals-
AllowableDeductions-Essentials-TechnicalPaper).
2. Capital works – division 43 of the ITAA 1997

3. Miscellaneous deduction – division 25 of the ITAA 1977.
a) Repairs
b) Borrowing
c) Discharge of mortgage
d) Bad debts
e) Loans from the profit- making undertaking
4. Blackhole expenditure – division 40 of the ITAA 1997
5. Tax losses – division 36 of the ITAA 1997
6. Superannuation contribution
These all are the deductible losses under specific deductions
Now, NON-DEDUCTIBLE losses and outgoings:
1. Penalties
2. Entertainment
3. Interest
Application
James purchased a building for business purpose. This building is now his capital and what he is
investing it is his investment. He did repair work in his building this case comes under specific
deduction.
James purchases a building which comes under capital. According to specific deduction, a
repair that constitutes a capital expense is not deductible under section 25-10(3)
Repair capital further divided into three parts which are:
1. Initial repairs
2. Improvement
3. Replacements

Initial repairs
It exists at the time of acquisition.
- If the repairs undertaken after some time, it would still be an initial repair if the defect
exists at the time of purchase.
- Cost of repairs would have considered into the purchase price of the property. Similar
case of shipping company (Black v Garnock [2007] HCA 31, 2007)
Conclusion:
James did initial repairs because when he purchases a building, he invests $20000 for repair
work. These expenses should be of capital nature so it is not deductible.
REFERENCES:
Evans, i. (1997, May). Deductions (general and specific) and Trading Stock. (T. e. Network, Producer)
Retrieved from ten: www.tved.net.au
Specialists, T. i. (2012). Allowable deductions – essentials . The Institute of Chartered Accountants In
Australia. The institute Tax Training Specialists.
(n.d.). TaxForYoungProfessionals-AllowableDeductions-Essentials-TechnicalPaper. pdf, The Institute of
Chartered Accountants in Australia 2012 .