Detailed Report: Australian Taxation Laws, Deductions, and Credits

This report provides a detailed analysis of Australian taxation laws, focusing on various aspects such as income tax calculation under ITAA 1997, general deductions, and GST credits. The report examines specific scenarios, including the deductibility of expenses related to business relocation and legal costs. It also delves into the calculation of GST credits for businesses launching new products and services. Furthermore, the report includes a comprehensive calculation of a taxpayer's gross income, expenses, and foreign tax offset, providing a step-by-step breakdown of the process. The report concludes with an overview of the key takeaways from each section and the implications of the tax laws.

Taxation Laws

Table of Contents
Question 1........................................................................................................................................1
Introduction............................................................................................................................1
Critical Analysis.....................................................................................................................1
Supporting Evidences.............................................................................................................2
Conclusion..............................................................................................................................3
Question 2........................................................................................................................................3
Critical Analysis.....................................................................................................................3
Supporting Evidences.............................................................................................................4
Conclusion..............................................................................................................................4
Question 3........................................................................................................................................4
Q.4..........................................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................8
Books and Journals.................................................................................................................8

Question 1.
Introduction
ITAA 1997 expanded as Income Tax Act 1997 made by the Parliament of Australia.
Through it income tax can be calculated and was taken from Income Tax Assessment Act 1936
and in this new amendments was done in year 1997. Section 8-1 of this act details about the
deductions for expenses included in getting assessable income. Section 25-5 shows tax
deductibility of overheads on managing tax affairs. It is not related to above provision as this
expenditure does not have to do with producing income 1. Stock or the shares information is
described from the Section 70-40 which highlights the buying and selling of the shares. There are
also other provisions like Section 104-5, 104-145 and 116-30. There can be deductions from the
the assessable income which has been gained for the aim of gaining net income. In the same
provision there should be a business activity. No losses can be deducted if it is of the capital
nature or domestic nature. On the other hand if the losses are incurred during gaining some sort
of income. All the losses which can be deducted in the whole section will be refereed to as
general deduction.
Critical Analysis
In the situation given where cost of moving to a new site is a expense which is done for
the business purpose so that they can get better business environment thus increasing their profit
margins. According to this they have to look at the deductions as mentioned in the Section 8-1 of
ITAA 1997. Cost of moving fixed assets from one site to another can be called as expenses & no
deduction are available under Section 8-1 of ITAA 1997. In this case expenses can increase the
cost of the item for purposes of depreciation 2.
On the other hand in the case of cost of revaluing assets to effect insurance cover the
expenses are related to fixed assets. In determining deductibility it is relevant whether the
expenses enhance or enlarge income earning capacity or are faced just to protect it. If the end and
1 Woellner, R and et. al., 2011. Australian Taxation Law Select: legislation and
commentary. CCH Australia.
2 Olatunji, O. A., 2011. A preliminary review on the legal implications of BIM and model
ownership. Journal of Information Technology in Construction (Itcon). 16(40). pp.687-696.
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if the benefit is likely to be temporary and normally the expenses is likely to be come again then
it should be deductible under Section 8-1.
In the legal expenses comes over by the firm opposing a petition for winding up is a issue
which shows whether the expenditure is related to the infrastructure and income earning capacity
of the business or just its operations. It looks that if the result of a case would be outcome in the
extinction of profit making ability as in the case then the expense will be regarded as capital in
nature. But if the case has more to do with the procedure of operating the business, then it will be
considered as revenue in nature 3.
In the legal expenses which come over for the services of a solicitor in respect of a
number of matters, including conveyancing, discharge of a mortgage and general legal advice
considering to client's business operations. This cannot be cleared out till more information can
be provided. It is necessary to know the nature or type of the expenses, apportionment and any
other.
Supporting Evidences
A general deduction can be called as the loss or certain which has to be deduced under
the general principles of deductibility. It is the part of the Section 8-1 of ITAA 1997 and they
need the loss or current to have the suitable coordination with assessable income or carrying on
of an enterprise given that they not have a capital, private or domestic nature. In the case of
moving machinery loss occurred in the case of capital, private and domestic nature will not be
included 4. A tax payer is eligible for the general abstraction which is part of the section 8-1 with
including current loss or outgoing convince any single or double positive limbs in the subsection
8-1(1).
If the money received is in the form of insurance so whatever the money is received than
the party have to pay the tax because that amount will come in assessable income. This is shown
in Subdivision 20-A.
3 O'Connell, A., Martin, F and Chia, J., 2013. Law, policy and politics in Australia's recent
not-for-profit sector reforms. Austl. Tax F. 28. p.289.
4 Brandon, G., 2016. Mid market focus: Tax treatment of consumables and stores. Taxation
in Australia. 50(7). p.374.
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Legal expenses are non commercial business operations which may give its contribute to
a tax loss as it is not a assessable income. This is briefed by Division 35 of Income Tax
Assessment Act 1997.
Conclusion
Tax is to be paid or not it depend upon the activities which is carried out by the firm. If
the activity is a commercial activities and is done with purpose of profit making then they have
to pay the tax. In the case of legal activity they does not have to pay the taxes 5.
Question 2.
Introduction
Anyone can request a credit for GST added in amount of any particular goods and
services that he purchase for their enterprise 6. It is referred as GST credit or an input tax credit
fro the taxes which has added in the amount of the enterprise inputs. GST is applied to the sale of
particular property like vacant lying land new residential places and the commercial areas. For
this the person need to have registration. In the scenario Big Bank Ltd is going to launch home
and contents insurance policies and they estimated that this will constitute 2% of the total
enterprise. They had been successful in estimating about this and the rest 98% of the business is
made up of their traditional loans and deposit businesses 7. In previous month, the advertising
advisor issued their tax invoice for $1,650000. This will deal with that how the bank with claim
GST credits.
Critical Analysis
The bank can claim it in their activity statement and to claim GST credits they they are
able to apply four conditions:-
5 Buchanan, R and Consett, E., 2016. Section 974-80 ITAA97: The current state of
play. Tax Specialist. 19(5). p.217.
6 Gitman, L J., Juchau, R and Flanagan, J., 2015. Principles of managerial finance.
Pearson Higher Education AU.
7 Schenk, A., Thuronyi, V and Cui, W., 2015. Value added tax. Cambridge University
Press.
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 If they have intention to buy solely in transmit their business and purchase does not have
to do with input taxed supplies.
 To include the purchase price with GST
 They give payment for the product which they have purchased
 Have tax invoice from suppliers
Big Bank cannot claim input tax credits for the amount $1,100,000 as this was an older expense
and was used for basic advertising campaigns which included television, radio and the print
promotions. The reason of this is that they have not done promotion for the new product and this
was not part of this campaigns 8. For the new product they have launched new promotional and
advertising campaigns and spent around $1,650,000. So for this they can claim input tax credits
as it is the recent business operations which are done to promote their new service among people.
Supporting Evidences
It can be claimed for creditable acquisitions and a acquisition will not be creditable to the
extent that is related to making supplies that would be input taxed. There might be a negotiations
between a firm that has manufacturing operations and a prospective purchaser of the activity.
Both the parties have to face sustainable cost which can happen diligence, take advice of the
lawyers who will help them in knowing certain necessary requirements 9.
Conclusion
So the bank have to pay the GST for the normal advertising not for the new product
promotional campaigns.
Question 3
Gross Income $
Income generated from Australia 44000
Income acquired from USA 12000
Employment income from the country UK 8000
8 Mirrlees, J. A., 2010. Dimensions of tax design: the Mirrlees review. Oxford University
Press.
9 Mullins, P., 2010. 13 International tax issues for the resources sector. The Taxation of
Petroleum and Minerals. p.378.
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Property rental income which is in UK 2000
UK's dividend income 1200
Income of the interest from UK 800
Overall Gross Income 68000
Expenses $
Expenses incurred from medical 5000
Cost came in taking out employment income from Australia 4000
Expenses which incurred while taking employment income generated
from USA
900
Cost of the expenses which came while deriving rental income from
UK
500
Deductible gift recipient 400
Interest (debt deductions) came in taking out dividend income 140
Expenses (debt deductions) in knowing interest income 60
Overall expenses 11000
Overseas tax paid $
USA employment income 3600
Dividend income which came form UK 120
UK's income of interest 80
Income of rent of UK 600
Overall foreign tax paid 4400
Angelo can calculate his foreign tax offset through following:
Taxable Income= Total Gross Income – Total Expenses
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68000-11000= 57000
Tax which needs to paid on taxable income defined
Tax on $57000= $10072
In assessable income overseas amount income will not be calculated. So those expenses
will not be considered and they are the expenses that are include in his assessable income in
which the foreign income has been paid 10.
Kinds of Expenses Incurred i.e., which happened in taking employment income from US
is 900 and expenses happened in taking rental income from UK is 500. The overall expenses will
be the sum of these i.e., is 1400. Debt dedications and interest income of $200 are not included
as he is not permanent resident of those overseas countries 11. In the same there will be disregard
of deduction of $400 for the gift recipient.
Calculation:
Taxable income excluding the foreign tax paid i.e., $68000 – $4400= $63600
Less allowable deduction excluding expenses i.e., $11000-4400= $6600
So the taxable income= $63600-6600
$57000
Tax on $57000 is $10,072
11000-10072= $928
$928 will be the overseas income tax offset of Angelo but he has paid foreign tax of $4400 and
his foreign tax is limited to $928. So, the difference of both cannot be refunded.
10 Genschel, P and Schwarz, P., 2011. Tax competition: a literature review. Socio-Economic
Review. 9(2). pp.339-370.
11 Garnaut, R., 2010. Principles and practice of resource rent taxation. Australian Economic
Review. 43(4). pp.347-356.
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Q.4
Conclusion
From the above report it can be concluded that taxes are the one of the key way through
which government of any country earns income. In Australia Income Tax Assessment Act 1997
shows the various aspects of taxes and guides citizens about the various provisions. Under the
Section 8-1 of ITAA 1997 various deduction are defined and when a firm can claim tax credits is
also briefed in it. In the last two questions Foreign tax offset and new income of the partnership
is calculated.
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