Taxation Law Assignment: Deductions, GST, and Foreign Tax

This assignment solution addresses several key aspects of taxation law. Question 1 explores general deductions under the Income Tax Assessment Act 1997, examining the deductibility of various expenses. Question 2 analyzes a GST case involving Big Bank Limited and its advertising expenditure, applying the IRAC method to determine eligibility for input tax credits. Question 3 focuses on foreign income tax offsets, detailing how to calculate the offset limit for an individual with foreign income. Finally, Question 4 examines the taxation of a partnership firm, outlining the treatment of income, deductions, and capital gains tax for partners. The solution provides detailed calculations, justifications, and references to relevant legislation and case law.

Taxation law

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Question 2..................................................................................................................................4
Question 3..................................................................................................................................6
Question 4..................................................................................................................................9
References................................................................................................................................11

QUESTION 1
As per the general deduction in income tax assessment act 1997 - SECT 8.1, the
income that is incurred in gaining or producing from current business’s accessible income
can be deducted, however, the amount which is unavoidably incurred in carrying on a
business for the purpose of gaining or producing assessable income is also subtracted from
income (Commonwealth Consolidated Acts, 2017). Nonetheless, the act shows that an
individual cannot deduct loss or outgoing of capital or loss that is of capital nature. Including
this, any loss of private or domestic nature cannot be deducted. When an amount is incurred
in relation to gaining or producing the exempted income of the business is not subtracted.
Any losses or outgoings which can be deducted under the section of section 12-5 are termed
as a general deduction.
Particular Allowed Disallowed Justification
The cost of moving
machinery to a new site
Yes _ The income or expenses done in
relation to current business are
deducted and moving a machine
to a new site is a revenue
expense, and it is not a capital
expense
The cost of revaluing assets to
effect insurance cover
Yes - The cost has been incurred in
relation to business thus same has
been allowed to business.
Legal expenses incurred by a
company opposing a petition
for winding up
Yes The kind of expenses which are
not related to current business are
deducted. However, the legal
expenses incurred for winding up
are not related to current business
are not exempted , therefore, such
kind of expenses cannot be
deducted.
Legal Expenses incurred for
services of a solicitor in
respect of a number of
Yes _ Payment paid for services of a
solicitor are related to the
operational expenses of the

matters business, therefore such kinds of
expenses are legal expenses
related to current business. Thus,
can be deducted.
QUESTION 2
The case of Big Bank Limited can be resolved using an IRAC approach
Issue
According to the given case scenario, Big Bank Limited operates at the national
platform with more than 50 branches and the company has recently registered for GST. As
per the information, the company is budgeted to spend $ 1650000 including GST on
advertisement campaign. A part of this amount was allocated to television advertising
campaign that is promoting Big Bank home and contents to the general advertisement,
including this $100000 was allocated to general advertisement campaign. The advertisement
consultants have issued their tax invoice for $1650000, so the issue is whether the company
can claim input tax credit with respect to its advertising expenditure of $1650000.
Regulation
The guidelines of GST reveal that individual can claim GST credits in case of
fulfilling the following four conditions. The foremost condition is that if a business intends
to purchase solely or partly in carrying company’s operations and the purchase does not relate
to carrying input-taxed supplies (Warren, Harding and Lloyd, 2005). Furthermore, the
purchase price must include GST. The company should provide or should be liable to offer
payment for the items that have been purchased. As per the last condition, a business must
have tax invoice from the supplier, and the purchase limit of the supplier should not more
than $82.50.
The case given herewith can be analysed using the guidelines of section 11-15. The
guidelines are showing that an individual is claiming input tax credits or a person who makes
claims for a whole range of business overhead costs, while undoubtedly acquired for general
enterprise purposes. The organisation is also entitled to claim input tax credits in a situation

where business acquisition can be linked to potentiality, and as opposed to the fact of taxable
supplies (Rametse and Pope, 2002). In such case, credit is available in full, and costs were
natural in connection with the takeover and business assets receipts. .However, such assets
must be subsequently deployed post-takeover then they are fully conjectural.
The similar situation has arisen in the case given in C& E Commrs v/s UBAF Bank
Ltd; however, it has not presented any problem under this statutory test. In such case, UBAF
Bank has acquired 3 leasing companies through initially acquiring share capital then it was
subsequently transferred to the bank’s leasing businesses (Martin, 2001). At the time when
the Bank sought out to deduct upfront the input tax that was charged on it, in the use of some
professional services associated with the acquisitions, then English Customs Department has
denied the claim by wording that the services obtained bore no relation to the taxable leasing
outputs of to UBAF. However, these services were claimed to be related to the acquisition by
UBAF of the shares and businesses of some of the companies. These companies were the part
of the general expansion of UAF's holdings. Nonetheless, some of the credits were allowable,
but most of them were not till the UBAF Bank made taxable supplies. When the case was
transferred to the English Court of Appeal, the authority has rejected the Customs
Department’s position, on the basis of various intermediate steps in the transaction. At the
time when the business was analysed at the ground of commercial, there was little doubt that
the acquisitions could be demonstrated as a link to future taxable outputs by UBAF (Martin,
2001).
Applicability
The above-discussed regulation is applied to the case of Big Bank limited. At the time
when Bank has launched home and contents insurance policies, it was forecasted that home
and contents insurance policies would constitute 2% of entire enterprise and rest 98% of its
enterprise is made up its traditional loans and deposits facilities business. The budgeted
expenditure includes GST as advertising expenditure of $1650000 includes GST;
therefore, it satisfies the guidelines of GST. Both the advertisement expenses are related to
business expenses, in respective of business categorization, thus, conditions are satisfied. As
home and contents insurance policies are expected to 2% of entire enterprise and rest 98% are
related to traditional loans and deposits facilities business. Thus both are considered as
business expenses and company can claim for input tax credit.
Conclusion

Thus, Big Bank is fulfilling all the guidelines given in latest regulation in GST;
therefore, this bank is entitled to input tax credit.

QUESTION 3
If an individual has measurable proceeds from aboard, then they must state this into
their income tax return to Australia. If an individual has made payment of foreign tax in any
other country, then they are allowed to foreign income tax offset of Australia, which will
provide aid to dual taxation (Thampapillai, 2016). These rules are applicable for proceeds
years that began on following the date of 1 July 2008. Up to 30 June 2008, various rules are
applicable for the periods of income.
An individual can declare a tax balance regarding the foreign tax they made payment
on their income, earning or profits (inclusive of capital nature gains), which will comprise of
their measurable Australian income (Cao and et al., 2015). However, in certain
circumstances, offsets are contingent to a limit.
An individual can claim foreign income tax offset in their returns of income tax.
 While claiming, offset by amount $1,000 or less than this, the individual is required to
file the real amount of paid foreign income tax, which will be measurable to an offset.
 If individual claims more than $1,000 of a foreign income tax offset, then it is must
work upon their limit to foreign income tax offset (Long, Campbell and Kelshaw.,
2016)
Before making the calculation of the total net income, one has to convert all their deductions
from foreign income and the payment of tax made to Australian dollars (Lang, 2014).
By considering these provisions calculations of Angelo’s foreign tax offset is enumerated as
below (Australian Government, 2017)
Step 1: Statement showing calculation of tax payable
Particulars Amount
Gross income $62000.00
Tax on income $11697.00
Medicare levy $1240.00
Total tax payable $12937

Working note
Gross income $
Employment income from Australia 44,000
Employment income from the United States 12,000
Employment income from the United Kingdom 8,000
Rental income from property in the United Kingdom 2,000
Dividend income from the United Kingdom 1,200
Interest income from the United Kingdom 800
Total gross income 68000
Expenses incurred in deriving employment income from Australia 4,000
Expenses incurred in deriving employment income from the United States 900
Expenses incurred in deriving rental income from the 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 deductions 6000
Taxable income 62000
Step 2 Calculation of income tax if income from foreign sources has not been added:
Particulars Amount
Taxable income (disregarding step 2(a)
amount):
$44000.00
Less allowable deduction (disregarding step
2(b) amount):
$4600.00
Taxable income under step 2 assumptions $39400.00
Tax on income $3943.00
Medicare levy $788.00
Total tax payable $5140.00

Working note
Angelo’s assessable income will not be inclusive of the following foreign degree income and
expenses:
Income Amount in AUD
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
Expenses
Expenses incurred in deriving employment income from United States 900
Expenses incurred in deriving rental income from United Kingdom 500
Such expenses are overlooked. These expenses are related to the amount, inclusive in
Angelo’s assessable income by which there will be payment of foreign income tax, given that
the tax counts to her offset of foreign income, any of the expense regarding to other amounts
of Non Australian which are the assessable income’s part (excluding of deduction in debts).
Note
The debt deduction of amount concerning UK dividend and interest on income are jot
overlooked as Angelo didn’t contained a permanent establishment on abroad. Neither will be
the deduction regarding the gift to the recipient of deductible gift overlooked, as it was not
related to the Step 2 amount of excluded measurable income.
Step 3 Take away the result of step 2 from step 1
=$12937-$5140
=$7797
However paid by her is $4,400 so this will be Angelo’s foreign income tax offset
limit. The difference of amount between the offset limit and paid amount regarding the
foreign income cannot be carried forward or refunded to a future financial year.

QUESTION 4
In situation a partnership firm does not pay income taxes then it must place a tax
return on partnership stating all earned income and all subtracted expenditures (Kenyon and
van der Eng, 2014). In addition to it also represents the distribution of P&L among partners.
Each and every partner should assert their own share in the profit and loss in the business in
their personal tax return, either they received the income or not (Pearce and Pinto, 2015). For
the purpose of CGT (capital gains tax), all partners hold a percentage of each asset of CGT
and then computes capital profit and loss on their asset share.
Table 1: Statement showing taxable income for partnership business
(Source: Commonwealth Consolidated Acts, 2017)
Particulars Amount
Assessable income
sales s.6-5 ITAA97 $40,000
interest by bank s.6-5 ITAA97 $10,000
dividend s.44 ITAA36 $21,000
imputation gross-up s.207-20 ITAA97 $5,400
recovery of bad debts s.20-30 ITAA97 $10,000
Exempt income (not assessable) s.6-20 ITAA97
Gain on capital s.106-5 ITAA97 -
Total income $86,400
Deductions
Sales proceeds stolen by employee S.25-45 ITAA97 $3,000
Capital loss of $15000 S. 8-1 ITAA97
Salary to Johny and Leon Note 1
Fringe benefit tax Note 2 $16,000
Interest on loan made by Johnny to the partnership Note 3 $4,000
Interest on capital provided by Johnny Note 4
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 Note 5 $20,000
Purchase of sporting goods supplies $30,000
Rent on retail shop $20,000
Provision for doubtful debts Note 6
Business lunches Note 7 $10,000
Total deductible expenses $110,900

Taxable Loss ($24,500)
Notes
Note 1
Salaries of partners are not considered as an expenditure of partnership
business but are assessed as a source of which profits on partnership are
distributed.
As a result, while computing profit and loss on partnership these are not
deductible for the purpose of tax (Richardson, Taylor and Lanis, 2015).
Note 2
From the viewpoint of income tax, as per ITAA97, in case of employee is
responsible for Fringe Benefits Tax, then the employee can claim the total
expense as a deduction on income tax for the GST (exclusive amount).
Note 3 It is a deductible expense as the loan is taken by the business.
Note 4 It is business loan thus same will be allowed (Braithwaite, 2017).
Note 5
Interest paid by a partner is considered as personal expense. Thus it will be
disallowed.
Note 6
The loss has not been occurred business can set off when actual loss has
occurred.
Note 7 Lunches are for business, so it will be deductible expenses irrespective of cost.
Note 8
Due to a loss in business, previous loss of partnership cannot be set off. Loss of
both years can be set off in future years (Vann, 2016).

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