HI3042 Taxation Law T2 2017 Individual Assignment Case Studies

This document presents a comprehensive taxation law assignment, meticulously analyzing four case studies. The first case study assesses the deductibility of various expenses under section 8(1) of the ITAA 1997, covering capital and revenue expenditures. Case study two examines the entitlement of Big Bank to input tax credits for advertising expenses, considering GST provisions related to financial supplies. The third case study focuses on calculating a foreign offset for an individual with income from multiple countries, detailing the application of foreign income tax offset rules. The final case study involves computing the taxable income of a partnership, incorporating assessable income, deductions, and relevant legal provisions, including considerations for salaries, fringe benefits tax, and various business expenses. Each case study includes a detailed analysis of the issues, relevant legal provisions, and their application, complete with calculations and conclusions.

HI3042 Taxation Law
T2 2017 Individual Assignment

TABLE OF CONTENTS
Case study 1...............................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Application of cited provisions..............................................................................................3
Conclusion..............................................................................................................................3
Case study 2...............................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Application of cited provisions..............................................................................................3
Conclusion..............................................................................................................................3
Case Study 3...............................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Application of cited provisions and calculations...................................................................3
Case study 4...............................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Application of cited provisions and calculations...................................................................3
References..................................................................................................................................4

CASE STUDY 1
Issue
The present case situation is based on analysis of given four expenses to determine whether
they are allowed for deductibility under section 8(1) of ITAA 1997.
Legal provisions
According to the provisions of ITAA97 s 8-1, a “general” deduction is kind of loss or
expenditure incurred that has a connection with activities related to income generation like
personal exertion, investment or business activities and also is not of private, domestic or
capital nature. Under ITAA97 s 8(5), a “specific” deduction is a deduction or an amount that
a provision other than the general deduction provision. Provisions of deduction are also cover
denial provisions that prevent deductions for some amounts.
According to the Income Tax Assessment Act 1997 Section 8-1 General deductions
 Any loss or outgoing can be deducted from the assessable income to the extent
 In gaining and producing assessable income it has been incurred or
 In carrying on business for the purpose gaining and producing assessable income it
has been incurred (Newnham, 2012).
According to the Income Tax Assessment Act 1997 Section 8-1(2) following loss or expenses
cannot be deducted:
 It is a loss of capital nature or outgoing of capital or
 It is a loss of private or domestic nature or outgoing of a private or
 In gaining or producing exempt income or non-assessable non-exempt income it has
been incurred or
 The acts provision prevents from deducting it.
Application of cited provisions
Scenario Allowable
as
deduction
Reason
Cost of moving machinery to
a new site
No No as it is a capital expense.
Cost of revaluing assets Yes Due to lack of information it is assumed that
advantage is recurring in nature and incurred

for business purpose.
Legal expenses for wind up No In this case, occurred legal expenditure will
help the business in its wind up so it is in
capital nature.
Legal expenses incurred on
services of a solicitor.
Yes Yes because incurred expense mentioned is
of revenue nature and incurred for business
purpose.
Conclusion
According to application of cited provisions only cost of revaluing assets to effect insurance
cover and Legal expenses incurred on services of a solicitor is deductible.
CASE STUDY 2
Issue
The present case situation is based on analysis whether Big Bank is entitled to take allowance
of input tax credit of advertisement expenditure.
Legal provisions
Input tax credit is not provided for the expenses which are related to input-taxed sales.
According to Australian Taxation provisions there is no GST in the price of financial supplies
as same is considered as input-taxed sales (Coleman and et.al. 2017). Financial supply
considered following activities:
 Lending or borrowing money.
 Customer is granted credit.
 Buying or selling shares or other securities
 Under, a superannuation fund creating, transferring, assigning or receiving an interest.
 Under a hire purchase agreement, providing and receiving credit into before 1 July
2012 (CCH Australia Staff, 2012).
Still GST credit may be claimed for a purchase that is to make a financial supply if any of the
following provision applies:
 The financial acquisitions threshold should not exceed.
 The amount borrowed is related to the purchase and is used to make a supply of non-
input- tax (McCouat, 2012).

 Entitlement of reduced input tax credit is there if purchase qualifies as a reduced
credit acquisition.
Application
If or if not the Big Bank meet the terms with eligibility to claim input tax credit, is
enumerated as below:
 Registration: Business is entitled for GST.
 Commercial Transaction – advertising expenses are held with regard to the
management and have an open communication with the business. The price of
purchases are inclusive of GST and the transaction is more than $82.50
 Tax invoices –bank had sufficient invoice as a proof for the expense incurred and
payment of tax is available.
Conclusion
By considering the legal provisions regarding GST input credit and the application of this on
the cited case, it can be stated that the Big Bank is entitled to do claims for its input credit for
the expenditure on advertisement on home and content insurance division. On the other hand,
Big Bank is not allowed to make claim input credit for the remaining amount of 1,100,000, it
is because banking principle does not fall under the purview of this deduction, but insurance
do allows. Thus, any of the expense based on insurance associated goods or services are also
allowed to make claim on input credit.
CASE STUDY 3
Issue
The present case situation is based on foreign off set for Angelo as he is earning income from
home country as well as from foreign countries.
Legal provisions
Maximum limit of foreign off set is difference of tax payable on total income and tax payable
on home country income (Australian Government, 2017).
Application of cited provisions and calculations
=Tax payable on total income - tax payable on home country income
=$12867.00 -$4731.00
=$8136.00

Working note 1: Tax payable on total income
Particulars Amount
Gross income $62000.00
Taxable income $11697.00
Medicare levy $1240.00
Less: Low Income Tax Offset $70.00
Total amount of tax $12867.00
Number 1: Working Notes
Calculation of Gross income Amount
Employment income earned Australia $44,000
Employment income earned US $12,000
Employment income earned UK $8,000
Total rental income from property rented UK $2,000
Dividend income earned UK $1,200
Interest income earned UK $800
Total Gross income $68000
Expenses
Amount paid for deriving employment income Australia $4,000
Amount paid for deriving employment income US $900

Amount paid for deriving employment income UK $500
Gift to a deductible gift recipient $400
Interest expense for earning dividend income $140
Expense for earning interest income $60
Total allowable deductions $6000
Taxable income $62000
Working note 2: tax payable on home country income
Particulars Amount
Gross income $39400.00
Taxable income $4352.00
Medicare levy $788.00
Less: Low Income Tax Offset -$409.00
Total amount of tax $4731.00
Calculation of Gross income Amount
Employment income earned $44,000
Expenses
Amount paid for deriving employment income $4,000
Gift to a deductible gift recipient $400

Interest expense for earning dividend income $140
Expense for earning interest income $60
Total allowable deductions $4600
Taxable income $39400
CASE STUDY 4
Issue
The present case situation is based on computation of taxable amount by considering
partnership business transactions of Johnny and Leon.
Legal provisions
For computation of taxable income of partnership business transactions of Johnny and Leon
provisions of ITAA 1997 will be applicable
Application of cited provisions and calculations
Table 1: Taxable income for partnership business
Particulars Amount
Assessable income
Sales Sec 6-5 $40,000
Interest by bank Sec 6-5 $10,000
Dividend Sec 44 $21,000
imputation gross-up Sec 207-20 $5,400
recovery of bad debts Sec 20-30 $10,000
Exempt income (not assessable) Sec 6-20
Gain on capital Sec 106-5 -

Total income $86,400
Deductions
Sales proceeds stolen by employee Sec 25-45 $3,000
Capital loss of $15000 Sec 8-1
Salary to Johny and Leon N 1
Fringe benefit tax N 2 $16,000
Interest on loan N 3 $4,000
Interest on capital N 4
Johnny's travelling expenses $3,000
Legal fees for the renewal of lease $2,000
Legal expenses for partnership
agreement $1,200
Legal expenses for lease of business
premises $700
Debt collection expenses $500
Council rates on business premises $500
Staff salaries N 5 $20,000
Purchase of sporting goods supplies $30,000
Rent on retail shop $20,000
Provision for doubtful debts N 6
Business lunches N 7 $10,000
Total deductible expenses $110,900
Taxable Loss 24,500
Notes

1
The salaries of partners is disallowed as it form of distribution of
profit.
2
Expense related to Fringe Benefits Tax is allowed to employers as
business expense
3 Loan is taken for partnership business so it is deductible.
4 Loan is taken for partnership business so it is deductible.
5
The interest paid by partners is for loan used for personal purpose, so
same will be disallowed.
6 Provisions is not an actual loss of business so it is not deductible.
7
It is deductible business expense so cost will does not affect its
allowance.
8 Previous year losses can’t be set off.