University Finance: Tax Assignment - Income Tax and GST Analysis

This assignment solution addresses various aspects of taxation, including income tax assessment, GST input credit, and foreign tax offsets. The first question delves into deductible expenses under the Income Tax Assessment Act 1997, while the second examines the eligibility for input credit of GST on advertising expenses. The third question provides a detailed calculation of taxable income, tax payable, and foreign tax offset, considering both passive and other foreign income sources. The assignment demonstrates the calculation of average tax rates and allowable deductions, and provides a final calculation for the total foreign tax offset that can be claimed. References to relevant literature are included at the end of the document.

Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................3
Answer to Question 3.................................................................................................................5
Answer to Question 4.................................................................................................................9
Reference..................................................................................................................................10

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Answer to Question 1:
The income that is taxable is computed by deducting allowable deductions from the
income that is assessable which is mentioned under section 4-15 of the Income Tax
Assessment Act 1997. It is also stated under section 8-1(1) of the Income Tax Assessment
Act 1997 that an individual who pays tax is entitled to claim for deduction against the
expenses that are spent on the following:
i. For generating any assessable income;
ii. In order to run any activity related to business.
Hence,
1. Under section 8-1 of the ITAA 1997, the expenses that is spent for moving a
machinery will not be taken as deduction.
2. As per Section 8-1 of the ITTA 1997, the revaluation cost of an asset cannot be
considered as an expense that is deductible (Gurran and Phibbs 2013).
3. According to the section 8-1 of the ITAA 1997, any expenditure that is spent on legal
proceedings in order to fight against the winding up of the company will be
considered as deductible expenses (Taylor and Richardson 2013).
4. Section 8-1 of the ITAA 1997 states that for producing any business income, any
expenses that is suffered by the lawyer shall be considered as a deductible expense.

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Answer to Question 2:
Input credit of GST regarding purchases made by the company shall be permitted if
only the requisite proof in respect of such purchase is kept by the company. A business that is
operating for earning any income have the right to claim input credit on purchasing an asset if
the payment is made inclusive of GST.
Issue:
An amount of $1,650,000 including GST has been spent by Big Bank Limited in
advertisement process. Now the issue is that the Bank want to ensure that whether the amount
of $1,650,000 which the bank incurred for advertisement purpose will be permitted to take
input credit or not.
Rules:
As mentioned in Chapter 2 of the Goods and Service Tax Act, an expenditure that is
experienced by the business in its regular course will be allowed to receive input credit of tax
provided such expense must be inclusive of GST.

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Application:
The company Big Bank Limited is a well-established and reputed company having
more than 50 branches and headquarters on a 10 storey building. In recent times, the
company has launched its insurance and home content products in the market in addition to
providing loans and accepting deposits from the people (Gitman et al. 2015). The company
had kept separately $1,650,000 for advertisement purpose amongst which $550,000 was kept
for advertisement of newly launched insurance and home content products whereas the rest
i.e., $1,100,000 was for the purpose of advertisement of its existing products. All these
expenditure were inclusive of GST (Douglas et al. 2014).
Furthermore, it was discovered that the majority of the revenue of the company was
generated from its existing products and the newly launched insurance and home content
products was yet to generate any revenue for the company. Thus the amount of $550,000
which was utilised for advertising and promotion of newly launched products was taken as an
expense of Capital nature or capital Expenditure (Forsyth et al. 2014).
Conclusion:
Therefore after studying the case it can be understood that the amount of $1,100,000
which was spent for the purpose advertisement of its existing products will be allowed to
receive input credit as it contributes towards the income generation of the company. Whereas
the entire $550,000 won’t be forbidden to get input tax credit as 2% of the same forms a part
of the company’s income generation.

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Particulars Amount Amount
Total spending on advertisement and
promotional activities $ 1,650,000.00
GST input credit 100% eligible for: $ 1,100,000.00
Portion of advertisement
expenditures ineligible for input
credit in respect of GST
$ 550,000.00
100% GST input credit $ 100,000.00
Add: For 2% contribution in
revenue $ 3,000.00
Amount of input credit allowed
to the bank $ 103,000.00
Calculation of Input Tax credit
Answer to Question 3
The taxpayer is allowed to claim tax offset for foreign tax paid under section 770-
10(1) of the ITAA 97. The calculation is provided below:
The first step:
calculation of Taxable Income
Particulars Amount Amount
Gross Income
Employment income from Australia $ 44,000.00
Employment income from United States $ 12,000.00
Employment income from United Kingdom $ 8,000.00
Rental income from property in United Kingdom $ 2,000.00
Dividend income from United Kingdom $ 1,200.00
Interest income from United Kingdom $ 800.00
Total Assessable Income $ 68,000.00
Less:
Allowable Deduction
Expenses incurred in deriving employment
income from Australia
4,000
Expenses incurred in deriving employment
income from United States
900

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Expenses incurred in deriving rental income from
United Kingdom
500
Gift to a deductible gift recipient 400
Interest (debt deductions) incurred in deriving
dividend income
140
Expenses (debt deductions) incurred in deriving
interest income
60
Total Allowable expenses $ 6,000.00
Total taxable Income $ 62,000.00
The second step
Angelo’s
Computation of Tax payable and Medicare Levy
Particulars Amount
Tax Payable on Income $11,697.00
Medicare Levy payable on taxable income $1,240.00
Total Tax and Medicare Levy/ Tax Payable $12,937.00
The third step
Computation of Average Australian tax
Particulars Amount
Tax payable $12,937.00
Taxable Income $62,000.00
Average rate of tax 21%
The fourth Step
It can be seen that the taxpayer has more than one class of foreign income so the
calculation will be done separately.
The fifth Step
Computation of passive foreign Income
Particulars Amount Amount
Gross Foreign Rental income $ 2,000.00

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Expenses incurred $ (500.00)
Net Foreign rental income $ 1,500.00
Gross Foreign Dividend Income $ 1,200.00
Expenses debt deduction not allowed $ -
Net Foreign Dividend income $ 1,200.00
Gross foreign interest income $ 800.00
Expenses debt deduction is not allowed $ -
Net Foreign interest income $ 800.00
Net Passive Foreign Income $ 3,500.00
Computation of other foreign Income
Particulars Amount Amount
Gross income from Employment USA $ 12,000.00
Expenses incurred for generating income $ (900.00)
Net employment income front USA $ 11,100.00
Employment income from United Kingdom $ 800.00
Net other Foreign income $ 11,900.00
The sixth step
Calculation of Adjusted ANFI for each class of foreign income
Particulars Passive Income Other income
Net Foreign income $ 3,500.00 $ 11,900.00
Taxable Income $ 62,000.00 $ 62,000.00
Taxable Income (including donation) $ 62,400.00 $ 62,400.00
ANFI $ 3,477.56 $ 11,823.72
The seventh step
Calculation of Australian tax payable on each class of foreign income
Particulars Passive Income Other income
Net Foreign Income $ 3,477.56 $ 11,823.72
Average Tax Rate 21% 21%
Australian Tax on each class of income $ 725.63 $ 2,467.15

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Deduction that can be claimed
Particulars Passive Income Other income
Australian Tax on each class of income $ 725.63 $ 2,467.15
Foreign tax paid $ 800.00 $ 3,600.00
Allowable Foreign Tax Offset $ 725.63 $ 2,467.15
The total foreign tax offset that can be claimed is $3192.79.
Answer to Question 4
Particulars Amount Amount
Revenue from sporting goods sales 400,000.00$
Interests incomes on bank deposits 10,000.00$
Un-franked portion of dividend 8,400.00$
Amount of Bad debts recovered 10,000.00$
Incomes exempt -
Net Income from capital gain 15,000.00$
The amount of gross total income 443,400.00$
Expenses eligible as deduction:
Partners’ salaries 25,000.00$
Fringe benefit tax 16,000.00$
Interests on capital 2,000.00$
Interests expenses on loan 4,000.00$
Johnny’s travelling expenses 3,000.00$
Office building renewal fees 2,000.00$
Documentation related expenses 700.00$
Expenses on debt collection 500.00$
Council rates 500.00$
Salaries of employees 20,000.00$
Cost of goods sold {(Opening stock +
purchases) – Closing stock} 34,000.00$
Retail shop rent 20,000.00$
Bad debt losses 30,000.00$
Expenses related to business lunches -
Pilferage 3,000.00$
160,700.00$
282,700.00$
40,000.00$
242,700.00$
Statement showing Calcuation of Income from Partnership
Income of the partnership firm for the income year before setoff of loss
Less: Setting off loss incurred in the previous year
Net income of the partnership in the income year

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Reference
Douglas, H., Bartlett, F., Luker, T. and Hunter, R. eds., 2014. Australian feminist judgments:
Righting and rewriting law. Bloomsbury Publishing.
Forsyth, P., Dwyer, L., Spurr, R. and Pham, T., 2014. The impacts of Australia's departure
tax: Tourism versus the economy?. Tourism Management, 40, pp.126-136.
Gale, W.G. and Samwick, A.A., 2014. Effects of income tax changes on economic growth.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Gurran, N. and Phibbs, P., 2013. Housing supply and urban planning reform: The recent
Australian experience, 2003–2012. International Journal of Housing Policy, 13(4), pp.381-
407.
McCluskey, W.J. and Franzsen, R.C., 2017. Land value taxation: An applied analysis.
Routledge.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance
structures: Evidence from Australian firms. Journal of International Accounting, Auditing
and Taxation, 22(1), pp.12-25.