Taxation Law Assignment: Analysis of Racing Parts Pty Ltd (LEGL300)

This assignment analyzes the taxation implications for Racing Parts Pty Ltd, an Australian resident private company and small business entity, for the year ended 30 June. The assignment addresses two key questions, with the first question detailing the impact of various income and expense items on taxable income, including depreciation, bad debt, long service leave paid, dividends, borrowing costs, donations, capital gains and losses, and cost of goods sold. The second question examines the tax consequences and reasoning behind specific financial transactions, such as interest on a loan, carpet replacement costs, an antique desk, travel expenses, the sale of a house (partially used as a main residence), and the sale of an antique, outlining what is deductible and what is not. The analysis includes relevant sections from the ITAA and case law to support the tax treatment of each item. The assignment follows AGLC referencing guidelines and is submitted via Turnitin.

Running head: TAXATION’S LAW
TAXATION’S LAW
Name of Student
Name of University
Author’s Note
Course ID

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TAXATION’S LAW
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:...................................................................................................................10
References:....................................................................................................................................17

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Answer to Question 1:
DESCRIPTION IMPACT ON TAXABLE
INCOME
REASONING
Net exempted income and
non-exempt and non-
assessable Income
Less: $100,000 and $50,000 The amount $100,000 is the
part of the exempted income
which is under “section 6-20”
and it is termed to be non-
assessable. As per above
mentioned state the $50,000 is
also considered as the non-
assessable income and it cannot
treated under the tax1. By
division 36, it is not considered
as the exempted income when the
treatment of tax loss carried on.
This will not be considered in
deducting of tax loss.
Depreciation Less: $30,000 This expenses which incurred
by the taxpayer is charged
over profit2. It does not have
1 Barkoczy, Stephen, Foundations Of Taxation Law 2014
2 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew. Principles Of Business
Taxation 2014.

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any kind of effect on the
expenditure which is seen as
the capital and it is capital in
nature. The applicable
provision will be relating to

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TAXATION’S LAW
the capital allowances.
Bad Debt Less:$20,000 As per stated in the section
“25-35 (1A), of the ITAA
1997”bad debt is liable for the
deduction as it is the part of the
financial year3. From the
3 Krever, Richard E, Australian Taxation Law Cases 2015

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calculation it can be understood
that the company’s taxable
income on accrual receipts. It is
seen that the taxpayer has deduct
the expenses that was not paid by
the creditor from the last year.
Long Service Leave Paid Less:$10,000 As per stated in the “section
26-10 of the ITAA 1997”,
taxpayer is liable to claim
deduction on the annual leave

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TAXATION’S LAW
which it is concerned in that
financial income year. As per
stated in the case of
“Development Pty Ltd v FCT
(1981)”the provision paid in the
case of long leave is liable to
deduction only when the
transaction made in that financial
year of the taxable year4.
4 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)

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Dividend from Cash Add:$50,000 As per stated in the “section 44
(1) of the ITAA 1936”. The court
in “FCT v McNeil (2007)”the
dividend which is realized by the
taxpayer in that financial year
will be treated as the assessable
income in the tax calculation for
that income year5. The above
mentioned section also tells that
the any amount which can be
5 Sadiq, Kerrie, Principles Of Taxation Law 2014

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TAXATION’S LAW
considered as the gain will be
treated as the ordinary income
and hence it will be taxable. In
this case the dividend of $50,000
will be included as the gain made
from cash.
Borrowing Cost Less:$833 Borrowing cost is considered
as expense which states that
the taxpayer has taken the loan
which is escalated for five
years or the period of the loan,
whichever is lower6. The
borrowing cost is greater than
6 Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook Co./Thomson
Reuters, 2013)

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$100 and it is escalated for
five years or the period of loan
duration whichever is lower.
As the case taxpayer is liable
for the deduction of the
amount of $833 as it is more
than $100for the current
financial year. The taxpayer
will get the deduction till the
end period of loan.
Donation Less:$1000 and $5,000 As per the division 30 the gift
or any kind of contribution
made by the taxpayer is higher
than $2 is provided to the
deductible recipient as
considered to be deductible.

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As per the case “FCT v
McPhail (1968)”gift or
contribution or donation can be
deductible there are no chance of
getting material advantage in
terms of return7. In this case the
donation which is made by the
taxpayer for the amount of $1000
and $5000 respectively will be
deductible under the division 30.
Capital Gains `received from
Shares
Add:$30,000-$10,000 =
$20,000
As per the quarantined rule the
capital loss can be offset
against the capital gains. In
this case the capital loss which
is offset from the sale of
stocks in the market made
7 Woellner, R. H et al, Australian Taxation Law 2014

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against the capital gain
occurred from the sale of
shares which is purchase 13
months earlier8. Similarly in
the case capital loss of
$10,000 is being offset from
the capital gain of $30,000
which is as per quarantine
rule.
Capital Loss from Antique Carry Forward-$10,000 As per mentioned in the
“Section 108-10 (4)”the
collectibles added made from
capital loss should carry forward.
The offset done against the
capital gains9. If the company
does not mention about the
8 Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19 (2017): 21
9 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).