HI3042 Taxation Law T2 2017 Individual Assignment - Analysis

This assignment solution for HI3042 Taxation Law (T2 2017) provides a comprehensive analysis of various tax-related scenarios. Question 1 examines the deductibility of business expenses under s 8-1 of ITAA 1997, analyzing expenses like machinery relocation, asset revaluation for insurance, legal expenses for winding up, and legal expenses for various matters. Question 2 focuses on GST implications for a company's advertising expenditure, considering input tax credits. Question 3 deals with foreign tax offsets, computing tax liabilities with and without foreign income. Finally, Question 4 computes the net income of a partnership, considering assessable income, deductions, and taxable loss. The solution includes relevant regulations, applicability of legal provisions, and conclusions for each question, supported by references. The assignment is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

HI3042 Taxation Law
T2 2017 Individual Assignment

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Introduction............................................................................................................................3
Regulations.............................................................................................................................3
Applicability of legal provisions............................................................................................3
Conclusion..............................................................................................................................3
Question 2..................................................................................................................................3
Introduction............................................................................................................................3
Regulations.............................................................................................................................3
Applicability of legal provisions............................................................................................3
Conclusion..............................................................................................................................3
Question 3..................................................................................................................................3
Introduction............................................................................................................................3
Regulations.............................................................................................................................3
Applicability of legal provisions............................................................................................3
Conclusion..............................................................................................................................3
Question 4..................................................................................................................................3
Introduction............................................................................................................................3
Regulations.............................................................................................................................3
Applicability of legal provisions............................................................................................3
Conclusion..............................................................................................................................3
References..................................................................................................................................4

QUESTION 1
Introduction
Present case deals with the allowance or disallowance of certain expenses of the business in
respect to the provisions of s 8-1 of ITAA 1997.
Regulations
Under the general deduction of assessed income tax 1997 - SECT 8.1, the expense related to
income earned in manufacturing or gaining from existing assessable income of business can
be deducted, on the other hand the amount incurred necessarily by running a business with
the aim of manufacturing or gaining assessable income can also be deductible (Somers and
Eynaud, 2015). However, the act states that a business is not able to deduct any loss or
outgoing capital which is of capital nature. In addition to this, private/domestic nature loss
cannot be subtracted.
Applicability of legal provisions
The cost of moving machinery to a new site
Non-Deductible The cost of shifting of a fixed asset from one place to
another is considered to be capital expense due to which
there will be reduction s 8-1 of ITAA97. Although this
expense is entitled to make increase the “cost” of the item
for regarding the transactions related to depreciation
The cost of revaluing assets to effect insurance cover
Deductible For determination of deductibility of expenses related to
fixing assets, it is essential to determine whether the
incurred amount will make increase or improvement in
income-earning capacity or are incurred merely in reference
to protection or perseverance (Dunne, Mason and Patto,
2014). In this case; it has been assumed that the benefit is
likely to be provisional and recurring in nature thus it will
be deductible under s 8-1
Legal Expenses incurred by a company opposing a petition for winding up
Non-Deductible In this primary transaction issue is that cited expense is
connected to revenue generation efficiency or related to the
operational activity. In present transaction, it appears that

this transaction will assist business in winding up due to
which it is considered to be capital in nature.
Legal Expenses incurred for services of a solicitor in respect of a number of matters
Deductible For determination of further deductibility, information is
required such as nature of expenses, apportionment and
other related aspects. However, these expenses seem to be
in revenue in nature, so it has been assumed that it satisfies
the conditions cited under s 8-1.
Conclusion
By considering above described provisions and its applicability, it can be said that first and
third expenses cannot be deducted but second and fourth are deductible under s 8-1 of ITAA
1997.
QUESTION 2
Introduction
In accordance with the given case situation, Big Bank Ltd is having more than 50 branches
and various call centres, and it registered under GST. The company had spent $1,650,000
(inclusive of GST) on advertising campaigns for promotion of bank. In this expense;
$1,100,000 was in relation to a general advertising campaign and remaining was in respect of
specific television advertising campaign for promotion home and contents insurance policies
of Big Bank. According to forecast home and contents insurance policies constitutes 2% of
the entire business and remaining is covered by customary loans and businesses related to
deposit facilities. Now the issue is related to the ability of Big bank regarding the claim of
input tax credits for incurred advertising expenditure.
Regulations
GST guidelines state that a business can claim GST credits while meeting this
following conditions; the primary condition is that when a company tends to buy exclusively
or partially in carrying out the operations of the business, further the purchase will not
concern carrying supplies of input-tax.
Moreover, the purchase price will be inclusive of GST (Liu, Huang and Freudenberg, 2014).
The business must offer or is liable to provide payment against items purchased. The last but

not the least condition is that a business must contain tax invoices from suppliers; the
purchasing limit of supplies must exceed $82.50.
Applicability of legal provisions
Analysis of a case of the Big bank regarding satisfaction of primary conditions for making a
claim of input tax credit is as follows:
 Registration: the Big bank is registered under GST as per the given case situation.
 Commercial transaction: Transaction of advertisement is incurred in the context of
business and has a direct nexus with the same. The further purchase price is inclusive
of GST and transaction is higher than the amount of $82.50.
 Tax invoices: Banking entity has sufficient invoice to prove the occurrence of
transaction and tax paid on the same.
Conclusion
Applicability of legal provisions and case of C& E Commrs v/s UBAF Bank Ltd shows that
Big bank is entitled to make a claim for input tax credits for incurred advertising expenditure
irrespective of allocation of 2% and 98% as expenses satisfies all the conditions of input tax
credits.
QUESTION 3
Introduction
In the given case situation, Angelo is earning revenue from both national and international
sources due to which he is concerned about double taxation. Thus, this part of study deals
with provisions of foreign tax offset to determine the tax liability of Angelo.
Regulations
Provisions of foreign tax offset are applicable in a situation where individuals had earned
income from abroad and paid tax on the same (Edmonds, Holle and Hartanti, 2015). It is
because; residents of Australia are required to pay tax on their entire global income and to
avoid double taxation this has been introduced. These provisions have been introduced and
applied from 1st July 2008 (Dixon and Nassios, 2016).
Applicability of legal provisions
Step 1: Computation of tax if income from foreign sources is considered to be ordinary
income

Income from various sources Amount
Employment revenue earned in Australia $44,000.00
Employment revenue earned in the United States $12,000.00
Employment revenue earned in the United Kingdom $8,000.00
Rental revenue earned in the United Kingdom from property $2,000.00
Dividend revenue earned in the United Kingdom $1,200.00
Interest revenue earned in the United Kingdom $800.00
Total gross income $68000.00
Allowable deductions
Expenses incurred for earning employment income from Australia $4,000.00
Expenses incurred for earning employment income from the United States $900.00
Expenses incurred for earning rental income from the United Kingdom $500.00
Gift to a deductible gift recipient $400.00
Interest (debt deductions) incurred for earning dividend income $140.00
Expenses (debt deductions) incurred for earning interest income $60.00
Total allowable deductions $6000.00
Taxable income (Total gross income-Total allowable deductions) $62000.00
Tax on income $11697.00
Medicare levy $1240.00
Total tax payable (Tax on income + Medicare levy) $12937.001
Step 2: Computation of tax if income from foreign sources is not
Income from various sources Amount
Employment income from Australia $44,000.00
Allowable deductions
Expenses incurred for earning employment income from Australia $4,000.00
Gift to a deductible gift recipient $400.00
1 Low income off tax is not considered

Interest (debt deductions) incurred for earning dividend income $140.00
Expenses (debt deductions) incurred for earning interest income $60.00
Total allowable deductions $4600.00
Taxable income (Total gross income-Total allowable deductions) $39400.00
Tax on income $4352.00
Medicare levy $788.00
Total tax payable (Tax on income + Medicare levy) $5140.002
Step 3: Step 2 – Step 1
=$12937.00-$5140.00
=$7797.00
Conclusion
By considering the above case off set, the limit is $7797.00, however, tax paid by her $4,400,
so the amount of offset will be $4,400. Difference between off set limit and paid tax in
abroad will not be carry forwarded or refunded to the tax payer (King, 2016).
QUESTION 4
Introduction
This part of study deals with the computation of the net income of the partnership for the
income year by considering business transactions of Johnny and Leon engaged in the selling
of sporting goods.
Regulations
In accordance with the Australian taxation provisions, the taxable income of partnership
business is computed as per provisions of ITAA97 (Bankman and et al., 2017).
Applicability of legal provisions
Particulars Notes Amount
Assessable income
Sales to be included as per s.6-5 $40,000.00
interest received from the bank as per s.6-5 $10,000.00
Dividend income as per s.44 $21,000.00
Gross-up imputation as per s.207-20 $5,400.00
2 Low income off tax is not considered

Bad debts recovery s.20-30 $10,000.00
Exempt income as per s.6-20
Capital gain as per s.106-5 -
Total income $86,400.00
Deductions
Sales proceeds stolen by employee as per S.25-45 $3,000.00
Capital loss of $15000 as per S. 8-1 S. 8-1
Salary to Johny and Leon 1
Fringe benefit tax 2 $16,000.00
Interest on loan given by Johnny to the business 3 $4,000.00
Interest on capital provided by Johnny 3
Travelling expenses of Johnny from home to work and
return $3,000.00
Legal fees for the renewal of lease of the office building $2,000.00
Legal expenses regarding formation of a partnership
agreement $1,200.00
Legal expenses for regarding formation new lease of business premises $700.00
Debt collection expenses paid to a solicitor $500.00
Council rates on business premises $500
Staff salaries as per QC33728 $20,000.00
Purchase of sporting goods supplies $30,000.00
Rent on retail shop $20,000.00
Provision for doubtful debts as per s. 63
Business lunches 4 $10,000.00
Total deductible expenses $110,900.00
Taxable Loss (Total income - Total deductible expenses) ($24,500)
Note 1: Salary of partners is not allowed as it is the mere distribution of profit.
Note 2: provisions of fringe benefits tax states that expenses of tax paid are an allowable
expense for the employer (Tran, 2015).
Note 3: Loan is taken by business thus same is allowed (Burkhauser, Hahn and Wilkins,
2015).
Note 4: Expense is allowed as it is in reference to business benefit not for the personal use of
partners (Barkoczy, 2016).
Conclusion
By considering above calculations, it can be said that there is a loss of $24500 and same will
be carried forward for the future fiscal year with the loss of the previous financial year.

REFERENCES
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation.
Wolters Kluwer Law & Business.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
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Dixon, J.M. and Nassios, J., 2016. Modelling the impacts of a cut to company tax in
Australia. Centre for Policy Studies, Victoria University.
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Edmonds, M., Holle, C. and Hartanti, W., 2015. Alternative assets insights: Super funds-tax
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Liu, B., Huang, A. and Freudenberg, B., 2014. The impact of the GST on mortgage pricing of
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Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in
Australia?. Browser Download This Paper.