Taxation Homework: Input Tax Credits and Partnership Net Income

The assignment focuses on two main questions regarding taxation: the calculation of GST input tax credit and net income determination for a partnership firm. For question one, it calculates $52,000 as potential input tax credit based on advertising expenses related to an insurance business under the GST Act 1999, considering both specific and general advertising costs. The second part addresses computing the net income of a partnership firm under the Income Tax Assessment Act, 1997, concluding with a calculated net income of $345,700 after considering various deductions and exclusions such as capital gains distribution, exempt incomes, and other non-deductible expenses.

TAXATION
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Taxation
Question 2
Issue
Based on the GST Act 1999, the amount of input tax credits in relation to the advertising
expenditure needs to be computed.
Relevant Law
The following things are noteworthy in relation to claiming input tax credits (Barkoczy, 2017).
 All acquisitions would not be creditable; however those which involve taxable suppliers
would be classified as creditable acquisitions.
 A reporting entity can adopt a 100% claim on the input tax credit only if the FAT
(Financial Acquisition Threshold) threshold value breach does not take place.
The definition of FAT is provided by applicable sections of the GST Act 1099. The lower of the
following two listed values would be considered as FAT (CCH, 2013).
 “10% of the entitled total input tax credits”
 $ 150,000
For the claiming of input tax credit to 100% extent, the FAT threshold limit must not be crossed
by the concerned entity (Deutsch et. al., 2016).
Application
It is known that amount of promotional advertisement which relates to insurance (home and
content) amounts to $ 550,000.
GST amount included in the above amount = 550000*(1/11) or $ 50,000
Since, this spending would amount to creditable acquisition; hence input tax credit to the extent
of $ 50,000 can be potentially availed by Big Bank.
The Bank also incurs some expense on general advertising which as a whole cannot be
considered as creditable acquisition. Hence, only that portion needs to be chosen which can be
assumed to be diverted to the insurance business. Since, insurance business constitutes only 2%
of total business, thus, general advertising linked to the advertising business = 2% of 1,100,000
or $ 22,000
The above amount includes the GST of 22000*(1/11) or $ 2,000 on which the input tax credit
may be claimed by the Big Bank.
Conclusion
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Taxation
On account of discussion highlighted above, it would be fair to come to conclusion that an input
tax credit to the extent off $ 52,000 is available to the Big Bank for claiming due to the given
advertising expense.
Question 4
Issue
Leon and Johnny are running a partnership firm for which the computation of net income needs
to be performed for the given assessment year.
Rule
Net income can be determined with the help of the two factors i.e. assessable income and
available total tax deductions. The essential points for the computation of tax deductions and
assessable income as per Income Tax Assessment Act, 1997 are listed below (Barkoczy, 2017).
 Any generated capital gains needs to be distributed among the respective partners of the firm.
 Any exempt income would not be the part of assessable income.
 The amount of “bad debt” would also not be the part of tax deductions as per the highlights
of “section 25(35), ITAA 1997 (CCH, 2013).
 Any previous year’s capital loss assumed to be offset against the previous year’s capital gains
of the respective individual partners.
 Legal fees and payment made to lower would not be the part of tax deduction as per the
highlights of “section 8 (1), ITAA 1997.”
 Salaries extended to the partners and the interest payment is also not available for tax
deduction (Deutsch et. al.,2016).
Application
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Conclusion
Based on the above computation, conclusion can be made that the “net income of the partnership
firm is $345,700.”
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References
Barkoczy, S. (2017), Foundation of Taxation Law 2017, 9thed., North Ryde: CCH Publications
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax handbook
8th ed., Pymont: Thomson Reuters,
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