Taxation Law Assignment: Analysis of Deductions and Assessable Income

This document is a taxation law assignment solution that analyzes various scenarios related to income tax assessment. The assignment addresses key concepts such as lease surrender receipts, insurance proceeds, work-related expenses, and deductible business expenses, referencing the Income Tax Assessment Act 1997 (ITAA 1997) and relevant taxation rulings. It examines the tax implications of capital gains, indemnity payments, and research and development expenses, providing detailed explanations and applying legal provisions to specific case studies. The assignment also covers the tax treatment of expenses related to starting a new business and outlines the criteria for claiming tax offsets for research and development, including eligibility requirements and threshold expenditure tests. References to relevant legal databases and rulings are included to support the analysis.

Running head: TAXATION LAW
Taxation Law
Student Name
University Name

2TAXATION LAW
Table of Contents
Question 1 a.....................................................................................................................................3
Question 1b......................................................................................................................................3
Question 1c......................................................................................................................................4
Question 1d:.....................................................................................................................................4
Question 1e: Launching a new business..........................................................................................5
Answer to Question 2......................................................................................................................5
References........................................................................................................................................7

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Question 1 a
As per “Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)”, a lease
surrender receipt is considered to be an assessable income, however, on the contrary a
lease surrender payment is considered to be deductible under “Section 8-1of the Income
Tax Assessment Act 1997 (ITAA 1997)”1. In the given case, the tenant pays the
landlord before the start of the lease. The amount is owning to of $15,000. In the given
case, it can be inferred that the landlord made a capital gain receipt of the amount owning to
$15,000 from CGT
Particulars Amount
Landlord Capital Proceeds $15000
Question 1b.
According to “Section 15-30 of the ITAA 1997, amount received by way of indemnity or
insurance should be treated as assessable income of the concerned entity. However, on the
contrary, insurance proceeds of capital items are not usually taxable under “Section 6-5 of the
ITAA 1997”, until and unless it is used for business performance. Sickness and income
protection can be considered as deductible expense under this section. However, it can be also
inferred that the concerned patient must have received offset in the previous year in order to
claim medical expenses as tax offset. From the given case study, it can be inferred that Cheryl
1 Law.ato.gov.au (2018) <http://law.ato.gov.au/atolaw/view.htm?locid=txr/tr9535/nat/ato>

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owned a warehouse, which was destroyed by fire and he received insurance claim for it.
However, it is not known whether he is in property dealing business. Therefore, it can be said
that it is not a taxable income for Cheryl. It can be considered as a general receipt.
Question 1c
According to Taxation Ruling TR 97/24, a person can claim $300 or less, in case of any work
related expenses. It can be inferred that there are certain rules and regulations to claim the
particular amount. These are as follows:-
 Money should not have been reimbursed
 They must have a written document for it2
From the given case study, it can be seen that Boris pays his tax agent for lodgment. Therefore, if
Boris have all the receipts of the expenses, then he can easily claim this amount and this amount
will be deducted from his taxable amount. However, only $300 will be deducted.
Question 1d:
According to “Section 40-880 of the ITAA 1997”, there are certain claims which can be
considered as deductible while assessment of taxable income. In the given case study, it has
been seen that James buys his lunch of $2000 at the hospital where he works. This can be
considered as personal entertainment expense3. As per Income Tax Assessment Act 1997 (ITAA),
there are certain provisions for deduction of entertainment expenses based on the questions why,
what, when and where the lunch has been provided. Therefore, as per ruling 38, 39, 48 morning
and afternoon lunches can be deducted from taxable income of the employer.
2 TR 95/17 - Income Tax: Employee Work-Related Deductions Of Employees Of The Australian Defence Force
(Published On 31 March 1999) (2018) Law.ato.gov.au
<http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9517/NAT/ATO/00001>
3 Claiming Work-Related Expenses? (2018) Ato.gov.au
<https://www.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Claiming-work-related-expenses-/>

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Question 1e: Launching a new business
According to “Section 40-880 of the ITAA 1997”, a taxpayer has a permission to deduct the
expenses incurred while starting up his/her small business venture. However, there are certain
causes behind it. These are as follows:-
 The business is a start-up and it was not in a business during the current income year
 It is a business which is proposed to carried on4
In the given case study, it can be inferred that, Frances started a new business and cost of hiring
was $5000. Therefore, he has imposed deductions of the following expense, while calculating his
taxable income
Answer to Question 2
According to “Subsection 73B (14C) of the ITAA 1936”, there are several terms and conditions
in order to claim exemption from research and development expenses5. There are several
eligibility criteria for the same. If the criteria is fulfilled, then only the organization can claim tax
offset.
It is the prime and sole responsibility for any organization to meet the following requirements as
per rules and regulations:-
 They are registered by Innovation Australia for that particular financial year
 Threshold expenditure test is met duly
 They themselves have incurred the expenditure and not behalf of any other person.
 The business must commenced before 30th June, 2016.
4 D15 Other Deductions - Not Claimable At Items D1 To D14 Or Elsewhere On Your Tax Return 2016 (2018)
Ato.gov.au <https://www.ato.gov.au/Individuals/Tax-return/2016/Supplementary-tax-return/Deduction-questions-
D11-D15/D15-Other-deductions---not-claimable-at-items-D1-to-D14-or-elsewhere-on-your-tax-return-2016/>
5 Legal Database (2018) Ato.gov.au
<https://www.ato.gov.au/law/view/document?DocID=TXR/TR199919/NAT/ATO/00001&PiT=99991231235958>

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 The amount must be over $20000 and it must include interest expenditure as well. 6
In order to get tax offset, it is of utmost importance for the organizations to fulfil the above
criteria. In the given case study, it can be seen that the organization Avon entered into a
$500,000 one year contract with a registered Research Service Provider. Therefore, the first
criteria has been met. Now, it is the responsibility of the organization Avon to meet the threshold
expenditure test with proper accuracy. The organization also entered into the contract in June
2016. Therefore, the forth criteria is also duly met. The amount spend is $500,000, which is well
over $20,000. From the above analysis, it can be deduced that Avon can offset this expenses
while undergoing their taxable amount. On the contrary, if this research and development
expenses is misleading, then Avon is liable for penalty under ITAA 1997.
6 Legal Database (2018) Ato.gov.au <https://www.ato.gov.au/law/view/document?docid=SAV/72215/00002>

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References
Claiming Work-Related Expenses? (2018) Ato.gov.au <https://www.ato.gov.au/Tax-
professionals/Newsroom/Income-tax/Claiming-work-related-expenses-/>
D15 Other Deductions - Not Claimable At Items D1 To D14 Or Elsewhere On Your Tax Return
2016 (2018) Ato.gov.au <https://www.ato.gov.au/Individuals/Tax-return/2016/Supplementary-
tax-return/Deduction-questions-D11-D15/D15-Other-deductions---not-claimable-at-items-D1-to-
D14-or-elsewhere-on-your-tax-return-2016/>
Law.ato.gov.au (2018) <http://law.ato.gov.au/atolaw/view.htm?locid=txr/tr9535/nat/ato>
Legal Database (2018) Ato.gov.au
<https://www.ato.gov.au/law/view/document?docid=SAV/72215/00002>
Legal Database (2018) Ato.gov.au
<https://www.ato.gov.au/law/view/document?DocID=TXR/TR199919/NAT/ATO/
00001&PiT=99991231235958>
TR 95/17 - Income Tax: Employee Work-Related Deductions Of Employees Of The Australian
Defence Force (Published On 31 March 1999) (2018) Law.ato.gov.au
<http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9517/NAT/ATO/00001