Taxation Assignment: Deductions, GST, Foreign Tax Offset Analysis

This taxation assignment delves into various aspects of income tax, GST, and foreign tax offsets, providing detailed calculations and explanations. It begins with an examination of deductible expenses under section 8-1 of ITAA 1997, differentiating between capital and revenue expenses. The assignment then assesses Big Bank's ability to claim advertising expenses, including GST implications for their new insurance product and traditional loan services. Furthermore, it determines Angelo's foreign tax offset through a three-step process, calculating taxable income, tax liability, and the final offset amount. Finally, the assignment concludes by calculating the net income for a partnership, considering various income sources, deductible expenses, and partner salaries, providing a comprehensive overview of taxation principles and their practical application.

Taxation

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
(A)................................................................................................................................................1
(B)................................................................................................................................................2
(C)................................................................................................................................................2
(D)................................................................................................................................................2
QUESTION 2..................................................................................................................................3
Assessing Big Bank’s ability to claim in relation to advertising expenses.................................3
QUESTION 3..................................................................................................................................4
Determining foreign tax offset.....................................................................................................4
QUESTION 4..................................................................................................................................6
Calculating net income for the partnership..................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Section 8-1 of ITAA 1997 consists various deductions from the assessable income of
assesses. Furthermore, expenses which are incurred by person can be deduct from their income
tax amount and they are not able to pay them at the time of payment of tax. Income tax has been
imposed on every person or firm as well and they are responsible to pay amount equal to the
mentioned under law (Mete, Dick and Moerman, 2010). Present report based on payment of
compulsory amount which is mentioned under law. In case company established in order to
provide services to people then it have to pay GST up to the rate imposed on them. Foreign tax
offset has been calculated of any person according to his income, expenses and rate of tax as
well. Also two partners name called Johnny and Leon who run partnership firm. So that, their net
income needs to be calculated on the basis of their income and expenses also they are bound to
pay the same.
QUESTION 1
(A)
According to rules of section 8-1 of ITAA 1997 it has been stated that machinery
considered as fixed assets for the company. If it moved from one site to another than expenses
should be considered as capital expenses. Various types of rules and procedures mentioned under
this section which is imposed on assesses and bound them to follow the same also try to comply
with them as well (Tran-Nam and Evans, 2011). The expenses of moving of fixed assets from
one site to another no deduction will be provided because it is considered as expenses of capital
nature. These are able to increase cost of the goods and services for the purpose of depreciation.
This expenses has not been paid in case but it can reduce cost of fixed assets every year. But this
is not the reason for provide deduction amount. Tax liabilities must be imposed on person whose
income higher then limited amount of income which is mentioned under. Profit which is earn by

companies in through fixed assets are considered as capital profit on which no firm can receive
deduction (Butler and Skandakumar, 2014).
(B)
Cost of asset revaluation is the process which incurred expenses related to fixed assets.
So that, as per the rules of law, such expenses can be deduct from assessable income of assesses.
As they are bound to pay remaining amount which is imposed on them. It is deductable item as
per the rule of law (Joseph, 2014). If expenses are related to fixed it should be considered that it
must be deductabe in nature which is beneficial for people because it is able to enhance income
earning capacity of them which can be protect as well as preserve it. If the expenses should be
recurring in nature than should be deductible according to rules of law. Expenses which are
incurred upon asset revaluation than it should be deemed to be recurring in nature. Certain rules
mentioned under this rules which is imposed on people and they are bound to fulfil the same in
order to comply with law.
(C)
If the legal expenses incurred by a organization in order to opposing a petition for the
purpose of winding up then amount should be deductible in nature (Harrison and Keating, 2010).
As per this scenario, deductibility of expenses is totally depends on the structure which is given
as related to structure or it can depend on the income generation capacity of above mentioned
company. Or expenses can be related to with operational activities of the organization. In case
uncertain outcomes on the petition is able to reduce ability of firm and through which it is not
able to enhance their level on income then expenses are considered as capital expense. If the
cases related to the operation functions of the company then it should be related with the revenue
which is covered under section 8-1 of ITAA 1997. Expenses related to process of operation of
business has been considered as revenue in nature. Furthermore, such amount is able to
deductible in nature. On the basis of that capital expenses can be deduct from amount of payment
of tax.
(D)
Legal expenses which are incurred for the purpose of providing services of solicitor
which is related to several numbers of matters involving legal advice to various client related to
their business operation, conveyancing and much more. In this scenario, the account of solicitor

is not able to separate from costs of different matter (Passant, McLaren and Silaen, 2014). As per
the rule expenses which are incurred in this scenario are not able to charge amount of deduction.
Such amount should not be deductible in nature. Amount of dividend and interest has been
considered as income of the person which are added in income.
QUESTION 2
Assessing Big Bank’s ability to claim in relation to advertising expenses
Issues
Given case situation entails that Big Bank is offering loan and deposit facilities from
several years. In addition to this, in the previous year, Big Bank introduced new product namely
Big Bank home and contents insurance policies. Cited case presents that Big Bank home is
registered for GST purpose. Hence, as per the taxation rules and regulations GST will be
applicable on the new product of Big Bank Ltd such as insurance policies. From the given
scenario, it has been found that expenditure budget in relation to the promotional aspect of
services such as loan and insurance accounted for $1650000. Further, it is mentioned in the case
situation insurance business accounts for 2% of the entire operations. On the other side, 98%
amount of advertisement expense was related to the traditional loan and deposit facilities
business. In this, advertising consultant issued tax invoice related to the amount of $1650000
respectively.
Law
Goods and services tax called as GST it should be imposed on most of the items approx.
10% or more which needs to paid by assesses. It must be registered by them if-
 Companies having annual turnover of 75,000 dollars or more, Non profit making firm annual turnover 1,50,000 dollars or more (Income Tax
Assessment Act 1997, 2009)
Application

From assessment, it has been identified that in Australia, 10% GST is charged on most of
the goods or services. On the basis of legislation, it is highly required for Big Bank ltd to charge
GST from customers. In addition to this, firm has also right to claim for the business expenses
and other inputs. As per the aspects of Income Tax credit at the time fulfilling obligations in
relation to output business unit has authority to reduce the liability to the amount that have
already paid on inputs. On the basis of such aspect, tax is paid by the firm on balance figure. In
accordance with such aspect, 10% of $550000 comes under the category of input tax credit.
Thus, Big Bank can claim for input tax credit amounted to AUD $55000. Along with this, in the
remaining expenses such as $1100000, 2% are related to advertisements. Hence, in relation to
insurance business additional input tax credit accounted for $2200 respectively. On the other
side, advertisement expenses pertaining to loan and deposit facilities offers by Big Bank Ltd
account for AUD $1078000. Thus, it can be said that input tax credit for the business of Big
Bank such as loan and deposit accounts for $107800 significantly.
Conclusion
From the cited case and as per ITAA (1997) it has been concluded that input tax credit
for Big Bank Home and content insurance policies related to the amount of AUD $57200
respectively. In contrast to this, tax liability pertaining to the business of loan and deposit is
$107800. Thus, it can be stated that Big bank can claim regarding input tax credit for each
business as per GST rules of ITAA, 1997.
QUESTION 3
Determining foreign tax offset
For the determination of Angelo’s foreign tax offset three step process is considered such
as:
Step 1: Calculation of taxable income and associated liability
Particulars Amount (in
AUD $)
Gross income
Employment income (EI) from Australia 44,000

EI from US 12,000
Earnings from UK 8,000
Rental income from property in UK 2,000
Dividend income from UK 1,200
Interest income from UK 800
Total gross income 68,000
Expenses $
Medical expenses 5,000
Expenses incurred (EI) in deriving employment
income from Australia
4,000
Expenditures pertaining to employment income from
US
900
Expenses incurred in deriving rental income from UK 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 expenditure 11,000
Taxable income (Income – allowable deductions) 57,000
Tax payable 10,072
Step 2: Working out tax
Assessable include of the individual does not
include following aspects Figures (in $)
Employment income from United States 12,000
Employment income from United Kingdom 8,000
Rental income from property in United Kingdom 2,000
Dividend income from United Kingdom 1,200
Interest income from United Kingdom 800
Total 24,000
Disregarded expenses Figures (in $)

Expenses incurred in deriving employment income
from United States
900
Expenses incurred in deriving rental income from
United Kingdom
500
Total expenditure 1400
Assessing taxable income
Particulars Amount (in $)
Taxable income (68000 – 24000) 44,000
Less: allowable deductions (11000 -1400) 9,600
Assessable income (Income – deductions) 34,400
Tax 3078
Step 3: Determination of tax offset
Particulars Amount (in $)
Tax liability (Referring step 1) 10,072
Tax obligation as per step 2 3078
Tax offset (Calculating and claiming your foreign
income tax offset, 2016) 6,994
Interpretation: Table depicted in step 3 clearly shows that Angelo’s foreign tax offset
limit accounts for AUD $6994 respectively. Given case situation clearly presents that foreign tax
that has already paid by Angelo implies for AUD $4400. Hence, it can be said that amount
difference which takes place between foreign taxes paid by Angelo and offset is negative that
cannot be refunded.
QUESTION 4
Calculating net income for the partnership
Particulars Amount (in AUD
$)
Sales of sporting goods 397,000
Less: COGS 3,000

GP 394,000
Interest on bank deposits 10,000
Dividend franked to 60% received from an Australian resident
company 21,000
Bad debts recovered 10,000
Capital gain from the disposal of shares acquired in 2009 and
sold in June this income year 15000
Total income 450,000
Payments ($):
Salary to Johnny 10,000
Salary to Leon 15,000
Fringe benefits tax 16,000
Interest on capital provided by Johnny 2,000
Interest on loan made by Johnny to the partnership 4,000
Johnny's travelling expenses from home to work and return
3,000
Legal fees for the renewal of lease of the office building 2,000
Legal expenses for preparation of a partnership agreement 1,200
Legal expenses for preparation of new lease of business premises 700
Debt collection expenses paid to a solicitor 500
Council rates on business premises 500
Staff salaries 20,000
Purchase of sporting goods supplies 30,000
Rent on retail shop 20,000
Provision for doubtful debts 30,000
Business lunches 10,000
other expenses (Theft by an employee) 3000
Total deductions or expenses 167,900
Taxable or assessable income 282,100
CONCLUSION
In present report, it has been discussed that several types of deductions are available for
the assesses. Amount which is incurred by person can be deducted from their assessable income
which is calculated for assessment year. But such deduction are only available in specific cases

only like no deduction available for capital expenses related to fixed assets but it should be
provide in revenue expenses. Organization which are incorporated and providing its services to
people than it should be responsible to pay amount of GST or income tax which are imposed on
them. In present report Angelo’s foreign tax offset has been calculated on the basis of his
income, expenses and foreign tax paid by him. Also two partners collectively selling sporting
goods and services. So that, their income has been calculated on the basis of information about
their further income and expenses which are available excluding GST.

REFERENCES
Books and Journals
Butler, D. and Skandakumar, K., 2014. TR 2013/D7-apportioning SMSF expenses. Taxation in
Australia. 48(8). p.455.
Harrison, J. and Keating, M., 2014. The deductibility of Sarbanes-Oxley costs incurred by
Australasian companies. Accounting Research Journal. 27(1). pp.52-70.
Joseph, S.A., 2014. The polluter pays principle and land remediation: A comparison of the
United Kingdom and Australian approaches. AJEL. 1. p.24.
Mete, P., Dick, C. and Moerman, L., 2010. Creating institutional meaning: Accounting and
taxation law perspectives of carbon permits. Critical Perspectives on Accounting. 21(7).
pp.619-630.
Passant, J., McLaren, J.A. and Silaen, P., 2014. Are returns received by householders from
electricity generated by solar panels assessable income?.
Tran-Nam, B. and Evans, C., 2011. Tax policy simplification: An evaluation of the proposal for
a standard deduction for work related expenses. Austl. Tax F.. 26. p.719.
Online
Calculating and claiming your foreign income tax offset, 2016. [Online]. Available through:
<https://www.ato.gov.au/individuals/tax-return/2016/in-detail/publications/guide-to-
foreign-income-tax-offset-rules-2016/?
anchor=Calculating_your_offset_limit#Calculating_your_offset_limit> [Accessed on 14th
September 2017].
Income Tax Assessment Act 1997, 2009. [Pdf]. Available through:
<https://lawlex.com.au/tempstore/consolidated/5495.pdf> [Accessed on 14th September
2017].