BFA714 Taxation Law Assignment: Omega Pty Ltd Case Study

This assignment analyzes the taxation law implications for Omega Pty Ltd, focusing on the financial year ending June 30, 2019. It addresses whether Omega qualifies as a small business entity based on its 2017/18 turnover of $9 million, which is below the $10 million threshold. The assignment then examines various income items, including sales revenue, interest, rent, royalties, and an insurance claim, determining whether each is assessable and calculating the assessable amount. It references relevant sections of the Income Tax Assessment Act 1997 (ITAA 97) and other rulings to justify the tax treatment of each income component. The analysis considers cash basis accounting where applicable and explains the rationale behind the assessability or non-assessability of each item, along with the applicable laws and regulations. The assignment provides a comprehensive overview of how different types of income are treated for taxation purposes, specifically within the context of an Australian small business entity.

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

1TAXATION LAW
Table of Contents
Question 1:.................................................................................................................................2
Income........................................................................................................................................3
References:.................................................................................................................................6

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Question 1:
Omega Pty Ltd: Explain why Omega (turnover for 2017/18 was $9 million which is
less than $10 million) is small business entity.
Answer:
To meet the requirements under the small business concessions, a taxpayer is required
understand whether their business is regarded as the SBE throughout the income year
(Douglas and Pejoska 2017). The taxpayer is also required to review their eligibility each
year. In order to decide the suitability of the SBE concessions, the taxpayer at the initial
stages is required to determine if they are SBE throughout the income year.
An entity is considered as the SBE if they are considered as the sole trader, enterprise,
and corporation or trust that is conducting the business either partly or wholly for the income
year and has the aggregate turnover of lower than $10 million. As noticed in case of Omega
Pty Ltd for the year 2017/18 the company has reported the yearly turnover of $9 million
(Chardon, Freudenberg and Brimble 2016). The company will be treated as small business
entity because its turnover is less than the threshold limit of less than $10 million and has
been carrying on the business activities for full portion of the income year. As a result it can
avail the SBE concession as and when required.
Income
Item Assessable
or not
Amount
assessable
Reasons/Law
Sales
revenue
$8,500,000
Assessable $8,500,000 s 6-5 ITAA 97
The sales revenue constitute business gains that
has resulted from carrying the business activity.

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As it has been explained in the “sec 6-5, ITAA
1997” characterizing business receipts normally
involves the income that is earned from the
business activities. Similarly, the receipt of
$8,500,000 is an ordinary business receipts.
(Freudenberg et al. 2017).
Interest
(Note 2)
$83,000
Partly
assessable
$33,000 TR 97/7
Cash basis
Under the cash basis the taxpayer is only
required to consider what has been actually
received by the taxpayer. The point of deriving
the income is considered important because it is
useful in ascertaining when the income will be
required to pay tax (Barkoczy 2016). The sum
of $33,000 will be assessable on the cash basis
only this is because the sum of $33,000 was
received in the current tax year only.
Rent
(Note 3)
Partly
assessable
$60,000 S 6-5 ITAA 97
Assessable income, less refunded amount

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$70,000 $10,000
Rent should be considered as the price paid by
someone to use an individual’s property.
Receipt of rent is considered as ordinary income
under “sec 6-5, ITAA 1997”. In the present year
only a sum of $60,000 will be considered for
taxation purpose because a sum of $10,000 was
refunded to the tenant by Omega Pty Ltd.
Royalties
(Note 4)
$$85,000
Assessable $100,000 s 6-5 ITAA97 & s 15-20 ITAA97 & s 26(f)
ITAA36
$85,000 is net amount. Assessable income needs
to add back 15% tax.
Royalties received are considered taxable under
“sec 15-20, ITAA 1997” (Barkoczy 2016).
Similarly the sum of $100,000 will be
considered taxable under “sec 15-20” as the
statutory income for Omega Pty Ltd. The
withholding tax of 15% that is paid by Omega
Pty Ltd will be added with the gross amount of
royalty received.

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Insurance
claim
(Note 5)
$30,000
Assessable $0 S 70-115 ITAA 97
Assessable income but not ordinary income.
Cash basis in taxable income calculation
The compensation received by Omega Pty Ltd
for the loss of trading stock by way of insurance
will be contained within in the assessable
income on the cash basis. The compensation
receipts cannot be considered taxable on the
basis of the ordinary concepts under “sec 6-5,
ITAA 1997”.

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Douglas, J. and Pejoska, A.L., 2017. Regulation and small business. Economic Round-up,
(2017), p.1.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.