MIT BA317 Taxation Law Assignment: Income, Deductions & Expenses

This assignment solution delves into various aspects of taxation law, specifically focusing on income, deductions, and allowable expenses as per the Australian Taxation Law. It addresses scenarios related to repairs, depreciation of assets (like ovens and refrigerators), and expenses incurred in generating assessable income. The solution refers to relevant sections of the ITAA 1997 and ATO IDs to justify the treatment of different expenses, such as those related to long service leave, parking fees, and superannuation contributions. Additionally, it discusses the non-allowability of certain expenses like fines and preliminary feasibility study costs. The document provides detailed calculations and explanations for each scenario, offering a comprehensive understanding of taxation principles. Desklib provides more solved assignments and past papers for students.

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

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question A:................................................................................................................2
Answer to question B:................................................................................................................2
Answer to question C:................................................................................................................3
Answer to question D:................................................................................................................4
Answer to question E:................................................................................................................4
Answer to question 2:.................................................................................................................4
Answer to question A:................................................................................................................4
Answer to question B:................................................................................................................4
Answer to question C:................................................................................................................5
Answer to question D:................................................................................................................5
Answer to question E:................................................................................................................5
Reference List:...........................................................................................................................6

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Answer to question 1:
Answer to question A:
As stated under the “section 25-10 of the ITAA 1997” a person can claim allowable
deductions for the expenses that are occurred relating to repairs on the premises or any form
of depreciating assets that is held by them for producing income. Repairs that are performed
just after acquiring the property is regarded as initial repair. It means that the property was
not in better conditions when purchase or was not suitable for using in income generating
activities as they way intended. The court of law in “W Thomas and Co Pty Ltd v FCT
(1965)” held that the cost that is incurred by the taxpayer for the purpose of repairing and
repainting the building in the year when it was bought were held as capital expenses which
was not allowed for deductions(Woellner et al., 2016). Similarly in case of Bhavraj the
expenses occurred in repainting the building is regarded as initial repair and the expenses
occurred is capital expense which is non-allowable deductions.
Answer to question B:
As stated in “division 40-25 (1) of the ITAA 1997” a taxpayer is allowed to claim
deductions relating to the amount which is equal to the “decline in value” of the depreciating
asset held by the taxpayer throughout the year (Barkoczy, 2016). Similarly in the situation of
Bhavraj a new system of oven was installed that costs $10,000. Bhavraj also incurred
additional expenditure of $1,000 in relation to transportation and further $1000 for
installation purpose. Based on the rules of simpler rules of depreciation for small entity a
taxpayer is permitted to immediately write off the entire cost of asset during the year in which
it was bought given the cost of the asset is lower than $20,000. The cost of assets also
comprises of the cost of transportation and the installation costs. As evident in the situation of
Bhavraj the cost that is incurred in the purchase of new oven can be depreciated by using the

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diminishing value method as this would enable the taxpayer to claim maximum amount of
deductions.
Particulars Amount ($)
Cost Price of Oven 10000
Transportation Costs 1000
Installation Costs 1000
Floor strengthening costs 2000
Total Costs 14000
Diminishing Value Method = Assets costs x Days held / 365 x 100% / Effective Life
14000 365 x 200%
365 5
= (14000)*365/335 = 15253.7
= 15,253.7 x 200 / 5 = 6101.49
Therefore, based on the calculations performed above Bhavraj can claim $6,101.49
as the maximum amount of deductions.
Answer to question C:
As stated by the Australian taxation office an asset that has been written off earlier on
the basis of instant write-off method or the low value and sales proceeds obtained from such
methods must be included in the taxable income (Basu, 2016). By referring to “section 40-25
(1) of the ITAA 1997” Bhavraj can claim allowable deductions relating to the sum that is
equivalent in the decline in value of the asset for the year of income relating to the
refrigerator that was held during the year.

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Answer to question D:
As defined under the “section 8-1 of the ITAA 1997” a person can claim allowable
deductions from their taxable income for expenses that are occurred in generating assessable
income. However under the “section 8-1 (2) of the ITAA 1997” a person is not allowed to
claim deductions for expenses that are capital or private in nature (Tan et al., 2016). As
evident in the situation of Bhavraj the expenses reported on resealing of car park is not
allowed for deductions because it is not related to income producing activities of the
taxpayer. Referring to “section 8-1 (2) of the ITAA 1997” the cost incurred in resealing the
car park is non-allowable deductions because it is not related to the income producing
activities of the taxpayer.
Answer to question E:
A person while working out their depreciation can refer using cents per kilometre or
may use log book method for claiming deductions (Miller & Oats, 2016). As understood from
the situation of Bhavraj the car was purchased entirely for business related purpose hence,
deductions can be claimed for running cost that are occurred during the course of business.
Answer to question 2:
Answer to question A:
As per the “ATO ID 2004/489” a deductions is allowed to employer under “section
8-1 of the ITAA 1997” for long service leave contributions of the worker entitlement fund
(Fleurbaey & Maniquet, 2017). With reference to “section 8-1 of the ITAA 1997” the
payment made by Raj for $10,000 that is made relating to the long service leave of his
employees would be allowed for deductions. The expenses are occurred in producing taxable
income.

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Answer to question B:
As stated in Section 26-5 of the ITAA 1997” a person is prohibited from claiming
allowable deductions for fines or penalties imposed in the form of breaching Australian law
(Murphy & Higgins, 2016). This also includes the parking fees that is occurred for work
purpose travel. Similarly the parking fees of $5000 that is occurred by the staff of Raj while
delivering food represents a business fines would not be allowed as deductions under
“Section 26-5 of the ITAA 1997” .
Answer to question C:
For an expense to qualify as deductions under “section 8-1 of the ITAA 1997” it
should be incurred in producing the assessable and must be relevant to that end (Feld, 2016).
As held in “W Neville & Co v FCT” payment made to agreeing the managing director for
resign was allowed as deductions. Similarly, payment by Raj to restaurant manager would be
allowed as deductions under “section 8-1 of the ITAA 1997”.
Answer to question D:
As stated by the ATO a person is allowed to claim allowable deductions for super
payment made to the employees in the income year (Schenk, 2017). Likewise for Raj, the
contribution to superannuation made in the complying superannuation fund would be allowed
as allowable deductions.
Answer to question E:
Losses or outgoings that are preliminary to the income generating activities are not
allowed for deductions under “section 8-1 of the ITAA 1997”. The court of law in “Softwood
Pulp & Paper v Federal Commissioner of Taxation (1976)” denied the taxpayer from
deductions since the cost were preliminary to the revenue producing activities (Pope et al.,

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2016). The cost of feasibility study incurred by Raj is a pre-commencement cost and no
deductions is allowed in this case because it does not relates to revenue generating activities.

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Reference List:
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Basu, S. (2016). Global perspectives on e-commerce taxation law. Routledge.
Feld, A., (2016). Federal Taxation of State Tax Credits.
Fleurbaey, M., & Maniquet, F. (2017). Optimal income taxation theory and principles of
fairness. Journal of Economic Literature.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Murphy, K. E., & Higgins, M. (2016). Concepts in Federal Taxation 2017. Cengage
Learning.
Pope, T. R., Rupert, T. J., & Anderson, K. E. (2017). Pearson's Federal Taxation 2018
Corporations, Partnerships, Estates & Trusts. Pearson.
Schenk, D.H., (2017). Federal Taxation of S Corporations. Law Journal Press.
Tan, L. M., Braithwaite, V., & Reinhart, M. (2016). Why do small business taxpayers stay
with their practitioners? Trust, competence and aggressive advice. International
Small Business Journal, 34(3), 329-344.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.