Taxation Law Assignment: Deductions, Credits, and Income Calculations

This taxation law assignment delves into several key areas of Australian tax law. Question 1 evaluates Section 8-1 of the ITAA 1997, identifying deductible expenses such as machinery transfer costs and law proceeding expenses. Question 2 examines the GST implications for Big Bank Ltd's advertising expenses, distinguishing between promotional activities and new product promotions to determine eligible tax credits. Question 3 calculates Angelo's assessable income, both including and excluding foreign income, and determines his income tax payable. Finally, Question 4 analyzes the income of a partnership firm, Johnny and Leon, detailing revenue, deductions (including partner salaries, interest, and various business expenses), and the calculation of net partnership income after setting off previous year losses. The assignment utilizes tables to present financial data and provides references to relevant tax legislation and literature.

Running head: TAXATION LAW
Taxation Law
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1: Evaluating Section 8-1 of ITAA 1997....................................................................2
Question 2: Big Bank Ltd..........................................................................................................3
Question 3: Angelo’s income.....................................................................................................5
Question 4: Johnny and Leon.....................................................................................................7
Reference and Bibliography:......................................................................................................9

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Question 1: Evaluating Section 8-1 of ITAA 1997
The main aim is to evaluate section 8-1(1) of the ITAA 1997 and identify the relevant
deductions that could be used by taxpayers. These relevant deductions would eventually
allow the taxpayers to reduce the assessable income and retain more cash. The Section 4-15
of the Income Tax Assessment Act mainly indicates the relevant exemption that could be
used by the taxpayers for reducing its overall taxable income. Hence, the overall deductions
rules that is been laid down in the overall product mainly helps in identifying the ways in
which overall assessable income of the individual could be reduced. Fry (2017) mentioned
that with the help of overall sections the expenses that is conducted by individual could be
deducted, which might help in reducing the overall tax liability on the individual. Moreover,
deductions provided by section 8-1(1) of the ITAA 1997 can directly be posted on the
assessable income calculation.
1. Under the cases “Smith v Westinghouse Brake Company (1888) and Granite Supply
Association Ltd v Kitton (1905)” overall expenses on transfer of machinery from one place to
another is identified to be deductible expenses. The situation directly portrays that the
relevant expenditure is been conducted on transferring the machinery from one place to
another. Therefore, under the section 8-1 of ITAA the expense of transferring machinery is
deductible in nature (Barkoczy 2017).
2. Deductions on revaluation of property or asset is not calculated under the section 8-1 of
ITAA 1997. Therefore, the situation directly states that no relevant adoption will be provided
for revaluation of assets is conducted by the organisation under the section 8-1 of ITAA
1997. The overall deduction on the revaluation could not be conducted, as it is not an actual
expenses, whereas it is just a revaluation of the assets that is been conducted by the

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organisation. Therefore, the decline in overall assets value could not be considered an
expense and no deductions are allowed as per 8-1 of ITAA 1997.
3. Section 8-1 of ITAA 1997 mainly indicates that any kind of expenses that are conducted
for law proceedings are mainly deductible in nature. Section directly indicates that law
proceeding expenses can be reduced by the assessable income.
4. The section 8-1 of ITAA 1997 directly mentioned that any kind of expenses that has been
conducted on solicitor is mainly deductible in nature.
Question 2: Big Bank Ltd
The situation directly indicates that Big Bank Limited has paid for advertisements,
which could indicate the relevant GST tax credit that needs to be provided to the bank for its
expenses. According to the GST 1999 Act, overall expenses that have GST can be used as a
tax credit by the organisation, which provide them extra lineage and increase retained
earnings. The relevant evaluation of the situation that is currently been faced by Big Bank is
relatively considered regarding GST tax credit that is mentioned in GST Act 1999. The
overall expenses that is been conducted by the bank could provide relevant tax exemption to
the company, which could help in increasing its retained income. The overall tax credit
increment is mainly beneficial for the company, which could directly help in reducing any
kind of ax obligations of the organisation.
Rules regarding GST:
There are relevant settings and ruling about GST, under the chapter 2, GST Act 1999,
where companies conducting expenses inclusive GST is relevantly deductible in nature as tax
credit. GST paid in the expenses are mainly tax deductible, where relevant access of your
organisation it with you while increasing its retained income (Fry 2017). The relevant rule
regarding GST is that any kind of payments that is been conducted by the organisation for its

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activities can be considered under this rule. Hence, the GST paid on the expenses can be
deducted from taxes or considered a tax credit, which reduces the overall taxable amount of
the organisation. Furthermore, the ruleing alo states that any kind of expenses that is not an
activity of the organisation cannot be considered under this ruling and no tax credit will be
allotted.
Issues faced by Big Bank:
The main issue is needed to segregate the expenditure on an advertisement that is
conducted by Big Bank. The $1,650,000 expenses on advertisement that is being conducted
by the organisation for supporting its promotional needs. The main aim is to identify whether
the expenditure on advertisement GST is tax deductible or not (Ismer and Jescheck 2017).
Therefore, there are two types of expenses, which is been conducted through advertisements,
firstly the expense on promotion of expecting activities and second promotion of new
activity. Therefore, whether the expense is considered under the GST rule or not is mainly
identified, this could help the Big Bank get the required tax credit.
Analysing the situation of Big Bank:
The evaluation of the situation mainly indicates that the Big Bank Company has high
infrastructure, which has allowed them to operate smoothly and conduct adequate operation.
Therefore the expenses on advertisement conducted by Big Bank are segregated in two
segments, where the first expenses are conducted on current promotional needs and other
expenses is conducted on promotion of new product. Hence, expenses of $1,100,000 and that
GST is mainly deductible in nature under GST Act 1999. However, expenses conducted for
the new product is not considered to be under GST. Therefore, only 2% of the expense of
$550,000 is considered under GST Tax credit (Williamson et al. 2017).
Conclusion:

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Hence, from the evaluation of case study it could be understood that GST tax credit is
mainly provided on advertisement expense of $1,100,000, while providing only 2% on the
other expenses on advertisements. Therefore, the rule regarding GST can be utilised by Big
Bank and reduce its overall tax liability and increase retained income.
Calculation of Input Tax credit
Particulars Amount ($) Amount ($)
Total spending on advertisement and promotional activities 1,650,000.0
0
GST input credit 100% eligible for: 1,100,000.0
0
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
Table 1: Big Bank input credit allowed
(Source: created by author)
Question 3: Angelo’s income
Assessable income of Angelo inclusive of foreign incomes
Particulars Amount Amount
Gross total income without any deductions $ 68,000.00
Available deductions:
Medical expenditures $ 5,000.00

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Expenses for deriving employment expenses disallowed for
deduction
-
Expenses incurred in UK for generating Rental income $ 500.00
Interests expenditures for generation of dividend income $ 140.00
Expenses for generation of interest income $ 60.00
Total amount of deductions $ 5,700.00
Net income after deductions $ 62,300.00
Income tax payable $11,794.18
Medical levi $ 1,246.00
Total taxable income $ 13,040.18
Table 2: Inclusive method used in identifying assessable income
(Source: created by Author)
Assessable income of Angelo exclusive of foreign incomes
Details ($) ($)
Gross total income without any deductions 44,000.00
Available deductions:
Medical expenditures 5,000.00
Expenses for deriving employment expenses disallowed for
deduction
-
Expenses incurred in UK for generating Rental income -
Interests expenditures for generation of dividend income -

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Expenses for generation of interest income -
Total amount of deductions 5,000.00
Net income after deductions 39,000.00
Income tax payable 4,221.68
Table 3: Exclusive method depicting the income tax payable
(Source: created by author)
With the help of figure 2 and 3 all the relevant taxable income that needs to be paid by
Angelo is mainly depicted. Moreover, both Income Tax payable inclusive and exclusive
method has been provided in the figure 2 and 3, which could help in deriving minimum tax
that is to be paid by Angelo (Braithwaite 2017). In addition, (13,040.18 – 4,221.68) =
$8,818.51 is mainly identified in overall tax that needs to be provided by Angelo for the
current fiscal year.
Question 4: Johnny and Leon
Statement showing Calculation of Income from Partnership
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 -
Income from capital gain $ 30,000.00
The amount of gross total income $ 458,400.00
Expenses eligible as deduction:

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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
Income of the partnership firm for the income year before setoff of loss $ 297,700.00
Less: Setting off loss incurred in the previous year $ 40,000.00
Net income of the partnership in the income year $ 257,700.00
Table 4: Mentioning about the total income generated from partnership
(Source: created by Author)

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