BA317: Exploring Deduction Rules & Income Tax Regimes in Australia

This report provides an analysis of deduction provisions in Australian taxation law. It discusses the implications of not having deduction provisions, the capping of deductions at reasonable expenses, and expenses not deductible under ITAA97 s 8-1, citing relevant case laws such as FCT v Payne and Cooper v FCT (1957). The report also examines the net results of income tax regimes, the impact of tax breaks, and the role of the tax-free threshold in minimizing tax liability. It concludes by emphasizing the importance of the tax-free threshold in addressing taxpayer liabilities.

Taxation Law

If Australia did not have the
provision of claiming deductions?
 An individual taxpayer would not have been able to claim an
allowable deduction for the money spent for the business
 The taxpayer may not have been able to claim the operating
expenses that they incur while producing the assessable income
 The capital expenses would not have been allowed for
deductions over the long period of time.

Should deductions be capped at reasonable
expenses rather than actual expenses?
 The actual expenses are generally larger item of expenditure than the
actual expenses.
 For a taxpayer it wise to cap the deductions at reasonable expenses
rather than actual expenses as time would enable the taxpayer in
having the enduring benefit for the business.
 The reasonable expenses might quality as the allowance and the
expenditure might be effectively treated similar to that of the actual
expenses.

SHOULD DEDUCTIONS BE CAPPED AT REASONABLE
EXPENSES RATHER THAN ACTUAL EXPENSES?
• All the actual expenses are not allowed as the deductions for the
taxation purpose.
• The actual expense might be allowed as disallowed expenses since
they are not allowed to be added back.
• There might be some actual expenses that cannot be capped into the
account because they are partly for the business and personal
purposes.

EXPENSES NOT DEDUCTIBLE UNDER ITAA97
S 8-1 OR SPECIFIC DEDUCTION PROVISIONS
• Cost of travelling to work: Referring to “FCT v Payne” travel between
two unconnected place of work is usually not allowed as deductions.
• Cost of child minding for a working parent: Referring to “Lodge v FCT”
child care expenses are non-deductible because the expenses are neither
incidental nor relevant in the derivation of the taxable income of the
taxpayer.
• Knee reconstruction cost for a footballer: Citing the case of “Cooper v
FCT (1957)” the cost of knee reconstruction is a domestic or private
expense and hence not deductible under the provision of “section 8-1 of
the ITA Act 1997”.

Expenses not deductible under
ITAA97 s 8-1 or specific deduction
provisions
 Knee reconstruction cost for a footballer: Citing the case of
“Cooper v FCT (1957)” the cost of knee reconstruction is a domestic
or private expense and hence not deductible under the provision of
“section 8-1 of the ITA Act 1997”.
 Education Expenses: Self education expenses relating to the
occupation in which the taxpayer is not engaged currently is not
allowed as deductions because the nexus test is not met.
 Income Tax: The general provision of section 8-1 denies taxpayer from
claiming deductions relating to the income tax.

NET RESULTS OF INCOME TAX
REGIMES:
• The net results of the income tax regimes for personal income tax would
not have been progressive tax.
• The rates of taxation for the residents and foreign individuals would
reflected a different outcome.
• The current tax-free threshold limit for the residents might surpass the
marginal tax rate for the individuals.

Net results of income tax regimes:
 Lower amount of taxes would have been imposed to minimize the tax liability.
 A tax break subsidy at the same time can create the similar outcome as the
concessional basis by providing taxpayer with the selective tax breaks as through the
cash payment.

TAX FREE-THRESHOLD:
 The tax free threshold would partly help in addressing the
issue as this will enable the taxpayer in claiming the tax free
threshold to lower down the value of tax that are withheld
from their pay.
 The tax-free threshold would help in meeting the taxpayer
their end of the year tax liability.
 The taxpayer would not be out of pocket as the amounts that
are withheld would credited when income tax return is lodged.

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