Answer to question 1.1:
The statement is interrelated to the income tax allowable deductions from the income of the taxpayer business for the expense arisen from the relocation of machine to new site.
- “British Insulated and Helsby Cables v Atherton (1926)”
- “Section 8-1 of the ITAA 1997”
Depicting the cost of relocation of machine to new site is observed as capital outlay. The provision of “Section 8-1 of the ITAA 1997” lay down that a taxpayer has the authority of the deducting the expense up to the degree where it represents that the loss or the outlay is derived from generating the taxable income (Anderson, Dickfos and Brown 2016). Noticeably, the cost of moving the machine is an expense that represents capital character under section “8-1 of the ITAA 1997” and the under the terms of the “Section 8-1 of the ITAA 1997” capital expenditure are not required to be considered as allowable deductions.
The verdict has been depicted in “British Insulated & Helsby Cables Ltd v Atherton (1926)” expenses taking place at the time of transporting is representing the nature of benefit that is in the form of continuous nature to the depreciable asset (Barkoczy 2016.). Taxation Ruling of Income Tax 2197” arguably puts forward that relocation of machine is understood as the cost of capital and allowable deductions under the purview of “Section 8-1 of the ITAA 1997” is not legally recognized.
Depicting the provision of “Section 8-1 of the ITAA 1997” cost that is possessing capital in nature will be prohibited from income tax deductions.
Answer to question 1.2:
The issue of revaluing the asset under “Section 8-1 of the ITAA 1997” can be considered for income tax allowable deductions.
- “Section 8-1 of the ITAA 1997”
Under “Section 8-1 of the ITAA 1997” cost that are associated to the business of the taxpayers business are allowed as deductions by the above stated sections if the cost is incurred in producing the taxable income. Income tax deductions are allowable under “section 8-1 of the ITAA 1997” for the cost of revaluing the asset to effect cover of insurance (Cao et al. 2015). An individual in the process of producing the income that is taxable generally incurs such kind of cost and these cost forms the part of the business. Revaluation cost is a recurring cost for the taxpayers business and this cost tends to arise in the business activities of the taxpayer for yielding the income that is assessable.
The nature of revaluing expense possess appropriate correlation with the activities of the business since such kind of cost occurs when the taxpayer indulge in regular business activities. For that reason, under “Section 8-1 of the ITAA 1997” revaluing cost will be regarded as income tax deductions costs.
Answer to question 1.3:
The issue depicts the cost involved in opposing the winding up petition are entitled for income tax deductions under “Section 8-1 of the ITAA 1997”.
- “Sun Newspapers Ltd v F C of T (1938)”
- “Section 8-1 of the ITAA 1997”
As depicted under “Section 8-1 of the ITAA 1997” expenses that are legal and forms the part of business regular activities of the business are treated for income tax deductions. Other than the cost being regarded for income tax deductions, the nature of the legal expense forms an important aspect of determination (Coleman and Sadiq 2013). An important consideration in this respect is that when the legal expense is derived from the day-to-day business functions and the expense is for producing the business income them under such circumstances the legal cost will be referred for business deductions.
Arguably, depicting the outcome of the “Sun Newspapers Ltd v F C of T (1938)” if the legal expense has occurred for structural function other than for the business purpose the such outlay will be treated as capital (Kenny 2013). As a result of this, such kinds of legal expense are prohibited under section “Section 8-1 of the ITAA 1997” for income tax deductions. The cost of opposing the petition of winding up is a structural cost and not associated to operational purpose. As a result, an income tax deduction is prevented under section “Section 8-1 of the ITAA 1997”.
The provision of “Section 8-1 of the ITAA 1997” arguably puts forward that an individual is prohibited from deducting the loss or outgoings that is not connected to business. Hence, cost involved in opposing the petition of winding up of business is not regarded for deductions.
Answer to question 1.4:
Can the taxpayer get any entitlement for gaining income tax deductions for the outgoings or expense that is incurred legally for daily business functions under “Section 8-1 of the ITAA 1997”.
- “Herald & Weekly Times v F C of T (1932)”
- “Section 8-1 of the ITAA 1997”
Any kind of legal outlay or the outgoing that has been incurred by the taxpayer in the process of business functions with the objective of gaining or producing assessable income are allowable as deductions under section 8-1 of the ITAA 1997 unless the outgoings carries the characteristics of domestic or private (James 2016). The depiction noted in “Herald & Weekly Times v F C of T (1932)” legal outlay are taken into the considerations for deductions if they are generated from the every business activities of the taxpayer for the purpose of deriving taxable income.
Income tax deductions are only allowable when the given the fact that such kind of expenditure is more directly related in the income producing activities of the taxpayers (Pyrmont 2014). As depicted from the problem statement legal expense incurred taking the service of the solicitor in discharge of the business functions would be regarded as income tax deductions. According to the explanation of the “section 8-1 of the ITAA 1997” the service of the solicitor in respect of numerous business matters is regarded as the daily business expenditure (Grange et al. 2014). Taking note of the deductions it has been discerned that legal expense for the service of the solicitor has more than peripheral association with the business and it is has direct association with the business of the individual taxpayer. As a result of this income tax deductions will be allowed in this context.
In reference to the analysis performed regarding the legal cost incurred for the service of the solicitor is representing a daily business cost and such cost are incurred in generating the taxable income of the individual. In context of the section 8-1 of the ITAA 1997 allowable income tax deductions will be allowed for such expenditure.
Answer to question 2:
Can the taxpayer be considered to the entitlements of the input tax credit relating to the financial supplies that has been made in “New Tax System of Goods and Service Tax Act 1999”.
- “Goods and Service Tax Ruling of GSTR 2006/3”
- “GST Act 1999”
- “Ronpibon Tin NL v F C of T”
From the following case study of Big Bank ltd it is found that the bank provided financial service to the customers and the branches of the bank have been found to be spread across 50 branches around the country (James 2015). On a recent note it has been noticed that Big Bank Ltd introduced a new policy of insurance and home content in the market apart from providing loans and deposits to the individual over the years.
The extent and the degree of the creditable purpose have been explained under the “Goods and Service Tax Ruling of GSTR 2006/3” for those companies that offers financial supplies (Jover 2014). An important aspect that has been defined under the ruling is that there are definite methods of computing the input tax credit under the system of new taxation that has been made for the financial supplies. Taking the further note of the “Goods and Service Tax Ruling of GSTR 2006/3” the degree surrounding the creditable purpose has been defined under the “division 11-5 of the GST Act 1999”.
The case study puts forward that Big Bank has a budgeted fund of $1,650,000 from which $550,000 is devoted for the purpose of advertisement of home content and insurance product as a result of this only a 2% of the total amount of revenue of Big Bank is produced. The amount that has been left over of $1,100,000 is devoted relating to the purpose of advertisement so that Big Bank can promote other service and products that is also inclusive of the GST amount. As noted in the “Goods and Service Tax Ruling of GSTR 2006/3” companies making financial supplies exceeding the defined limit are necessarily required to get themselves registered under the “GST Act 1999” (Krever 2013).
On noticing that the entities are registered or engaged in the process of obtaining getting themselves registered them the GST amount incurred by them from the financial supplies are required to be paid by them (Morgan, Mortimer and Pinto 2013). Depicting the scenario of Big Bank $1,100,000 has been incurred for the purpose of promotion that is related to the product and service offered by the company.
As defined under the “Goods and Service Tax Ruling of GSTR 2006/3” an entity will be officially permitted to gain input tax credit for the amount of financial supplies that has been made by the commercial entity inclusive of GST (Woellner 2013). As evident from the fact that the commercial entity making financial supplies that goes past the prescribed threshold limit of the financial acquisition then those commercial firms will not be officially entitled for claiming input tax credit. The commercial entity would be able to recover a portion of the GST that has been incurred by the company from the financial supplies made by it.
Big bank in the present situation will be able to claim input tax credit since the amount of financial supplies that has been made by the company includes the amount of GST. From the contemporary context of Big Bank, it has been noticed that an expense of $1,100,000 has been occurred by Big Bank for the purpose of promotion of products and service. Those products and service constituted a major amount of revenue deriving tool for Big Bank Ltd and the amount of $550,000 would be treated as the capital expenditure.
As depicted in the case of “Ronpibon Tin NL v F C of T” the assessment of the expression is defined by the Australian Income Tax together with the principles that are considered in respect of the interpretation of the GST legislation (Robin 2017). The legislation defines that the method of apportionment of GST should be reasonable for every enterprise. In respect of Big Bank it is noticed that the bank has gone past the prescribed threshold boundary. Under such circumstances Big Bank would be able to recover a part of the GST that is levied upon on the bank.
Under the provision of “Section 11-5 and 15-10” of “Goods and Service Tax Ruling of GSTR 2006/3” Big Bank qualifies for the entitlement of the financial acquisition threshold limit and will be able to claim input tax credit for the financial supplies of the product and service (Russell 2016). The advertisement expense of $1,100,000 was for creditable purpose and under “Goods and Service Tax Ruling of GSTR 2006/3” Big Bank can claim input tax credit.
The discussion conducted above denotes that Big Bank will be able to claim input tax credit for the advertisement expenditure that is made by the company. However, the total amount of $550,000 will entirely not be allowed for input tax credit but a portion of such expense can be claimed for input tax credit.
Answer to question 3:
Computation of Taxable Income of Angelo
Answer to question 4
Computation of Net Income from the Partnership
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