University Taxation Law Assignment: Analysis and Solutions

This document presents a comprehensive solution to a tax assignment, addressing various aspects of taxation law. The assignment covers key concepts such as calculating taxable income by deducting allowable expenses from assessable income, with references to relevant sections of the Income Tax Assessment Act 1997. It includes a detailed analysis of GST input credit, explaining the rules for claiming input tax credits on advertisement expenses for a business. The solution also provides calculations for partnership income, including the determination of gross total income, eligible deductions, and net income after setting off losses. Furthermore, the assignment offers insights into tax offsets for foreign income and relevant legal cases. The document includes tables summarizing calculations and provides references to academic sources. This resource is designed to help students understand and apply tax principles.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1.................................................................................................................1
Answer to Question 2.................................................................................................................2
Answer to Question 3.................................................................................................................4
Answer to Question 4.................................................................................................................6
Reference....................................................................................................................................7

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Answer to Question 1.
The section 4-15 of the Income tax Assessment Act 1997 states that taxable income is
calculated by deducting allowable expenses from the assessable income. A taxpayer is
permitted to claim deduction under section 8-1(1) of the ITAA 1997 for expenses that are
incurred on:
i. For producing or gaining assessable income;
ii. For carrying on the activity related to business.
Thus,
1. Section 8-1 provides that expenses incurred to move a machinery will be considered
for deduction only if that machinery is used to earn an income that is taxable. In the
case of Granite Supply Association Ltd v Kitton (1905) and Smith v Westinghouse
Brake Company (1888) it was held that the expenses incurred for relocating plant and
expenditure will not be allowed as deduction as the expenses are of capital nature.
2. Section 8-1 of ITAA 1997 states that cost of revaluation of an asset is not considered
as deductible expense1.
3. Section 8-1 provides that any expenditure relating to lawful proceedings is suffered to
oppose company’s winding up then it will be considered as deductible expenditure.
4. Under section 8-1 in order to earn business income, if any solicitor expenditure is
experienced then such expenditure shall also be treated as permissible deduction.
Answer to Question 2.
On any purchase by a business organization, GST input credit is permissible only if
appropriate documents relating to such transactions are properly kept. As per GST Act 1999,
1 Gitman, Lawrence J., Roger Juchau, and Jack Flanagan. Principles of managerial finance. Pearson Higher
Education AU, 2015.

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any business organization operating to earn business income have the right to take input
credit for GST payments that involves purchase of materials or assets.
Issue:
Big Bank Limited have spent $1,650,000 including GST on advertisement expenses.
The bank now wants to ensure that the amount of advertisement expenses will be allowed as
input credit or not as the expenses was including GST.
Rules:
According to Chapter 2 of the Goods and Service Act 1999, it states that an
organisation or a firm will be permitted to take input tax credit of GST on such expenses that
are spent by the firm during the normal course of the business provided if such expenses are
inclusive of GST2.
Application:
Big Bank Limited is giving finance related services to the people and have over 50
branches all around the country. Its headquarters is held on a 10 storey apartment. Recently
the bank has introduced insurance policy and home content in the market besides proving
loans and deposits to the people over the years3. For the purpose of advertisement the bank
has kept aside a budget of amount $1,650,000 out of which $550,000 is dedicated for
advertisement of home and insurance product from which only 2% of the total revenue of the
2 Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's departure tax: Tourism
versus the economy?." Tourism Management 40 (2014): 126-136.
3 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view." Procedia-Social and
Behavioral Sciences 109 (2014): 1069-1075.

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company is generated. The remaining amount of $1,100,000 is for the purpose of
advertisement for promoting Big Bank’s other services and products which also includes
GST.
Thus as it is found that the bank had incurred $1,100,000 for the promotion of its
service and products from which the company’s majority of the revenue is generated and
amount of $550,000 will treated as capital expenditure as the newly launch product is yet to
contribute towards company’s income generation.
Conclusion:
Thus from the above discussion it is clear that the amount of $1,100,000 which the
company incurred on advertisement of its existing product and services will be permitted to
take input credit. On the other hand, the entire amount of $550,000 will not be prohibited to
take input credit as 2% of such expenditure contribute toward company’s income generation.
Calculation of Input Tax credit
Particulars Amount
($)
Amount
($)
Total spending on advertisement and promotional activities 1,650,000
.00
GST input credit 100% eligible for: 1,100,000
.00
Portion of advertisement expenditures ineligible for input credit
in respect of GST
550,000.0
0
100% GST input credit 100,000.0
0
Add: For 2% contribution in revenue 3,000.00
Amount of input credit allowed to the bank 103,000.0
0
Table 1: Input tax credit
(Source: Created by Author)

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Answer to Question 3
The taxpayer is eligible to receive the tax offset for the tax paid on the foreign
income. In step 4 the foreign income is classified into passive income and the other income.

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Step 1
Particulars Amount Amount
Gross Income
Employment income from Australia 44,000.00$
Employment income from United States 12,000.00$
Employment income from United Kingdom 8,000.00$
Rental income from property in United Kingdom 2,000.00$
Dividend income from United Kingdom 1,200.00$
Interest income from United Kingdom 800.00$
Total Asseessable Income 68,000.00$
Less:
Allowable Deduction
Expenses incurred in deriving employment income
from Australia
4,000
Expenses incurred in deriving employment income
from United States
900
Expenses incurred in deriving rental income from
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 expenses 6,000.00$
Total taxable Income 62,000.00$
Step 2
Particulars Amount
Tax Payable on Income $11,697.00
Medicare Levy payable on taxable income $1,240.00
Total Tax and Medicare Levy/ Tax Payable $12,937.00
Step 3
Particulars Amount
Tax payable $12,937.00
Taxable Income $62,000.00
Average rate of tax 21%
Step 5
Particulars Amount Amount
Gross Foreign Rental income 2,000.00$
Expenses incurred (500.00)$
Net Foreign rental income 1,500.00$
Gross Foreign Dividend Income 1,200.00$
Expenses debt deduction not allowed -$
Net Foreign Dividend income 1,200.00$
Gross foreign interest income 800.00$
Expenses debt deduction is not allowed -$
Net Foreign interest income 800.00$
Net Passive Foreign Income 3,500.00$
Particulars Amount Amount
Gross income from Employment USA 12,000.00$
Expenses incurred for genearting income (900.00)$
Net employment income fron USA 11,100.00$
Employment income from United Kingdom 800.00$
Net other Foreign income 11,900.00$
Step 6
Particulars Passive Income Other income
Net Foreign income 3,500.00$ 11,900.00$
Taxable Income 62,000.00$ 62,000.00$
Taxable Income (including donation) 62,400.00$ 62,400.00$
ANFI 3,477.56$ 11,823.72$
Step 7
Particulars Passive Income Other income
Net Foreign Income 3,477.56$ 11,823.72$
Avearge Tax Rate 21% 21%
Australian Tax on each class of income 725.63$ 2,467.15$
Particulars Passive Income Other income
Australian Tax on each class of income 725.63$ 2,467.15$
Foreign tax paid 800.00$ 3,600.00$
Allowable Foreign Tax Offset 725.63$ 2,467.15$
Sttaement showing Deduction that can be claimed
Calcuation of passive foreign Income
Calcuation of other foreign Income
Calculation of Adjusted ANFI for each class of foreign income
Calcuation of Australian tax payable on each class of foreign income
Angelos
Statement showing calcuation of Taxable Income
Angelo’s
Statement showing Tax payable and Medicare Levy
Calcuation Showing Average Australian tax

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Answer to Question 4
Statement showing Calculation of Income from Partnership
Particulars Amount Amount
Revenue from sporting goods sales $ 400,000.00
Interests incomes on bank deposits $ 10,000.00
Un-franked portion of dividend $ 8,400.00
Amount of Bad debts recovered $ 10,000.00
Incomes exempt -
Income from capital gain $ 30,000.00
The amount of gross total income $ 458,400.00
Expenses eligible as deduction:
Partners’ salaries $ 25,000.00
Fringe benefit tax $ 16,000.00
Interests on capital $ 2,000.00
Interests expenses on loan $ 4,000.00
Johnny’s travelling expenses $ 3,000.00
Office building renewal fees $ 2,000.00
Documentation related expenses $ 700.00
Expenses on debt collection $ 500.00
Council rates $ 500.00
Salaries of employees $ 20,000.00
Cost of goods sold {(Opening stock + purchases) –
Closing stock} $ 34,000.00
Retail shop rent $ 20,000.00

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Bad debt losses $ 30,000.00
Expenses related to business lunches -
Pilferage $ 3,000.00
$ 160,700.00
Income of the partnership firm for the income year before setoff of loss $ 297,700.00
Less: Setting off loss incurred in the previous year $ 40,000.00
Net income of the partnership in the income year $ 257,700.00
Table 5: Net Income from partnership
(Source: created by Author)

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Reference
Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's
departure tax: Tourism versus the economy?." Tourism Management 40 (2014): 126-136.
Gitman, Lawrence J., Roger Juchau, and Jack Flanagan. Principles of managerial finance.
Pearson Higher Education AU, 2015.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.