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HI6028 Taxation Theory Practice And Law 13

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  • Course Code: HI6028
  • University: Holmes Institute
  • Country: Australia

Questions:

1.

With reference to relevant legislation, case law and secondary sources, briefly explain different functions of taxation.

Week 2

Amandeep born in India and migrated to Australia. He lives in Australia permanently. He still holds Indian passport. Amandeep works with the New Zealand Princess Cruises tours and most of the income year is in New Zealand. He signed an employment contract for this position in the company’s Australian office in Sydney. Amandeep has two kids that are living with his wife Sandeep in Sydney. Three years ago, Amandeep purchased a unit apartment in Sydney. Amandeep and his wife holding dividend yielding shares in an Indian public company called Hindustan Unilever. Amandeep and Sandeep have an Australian bank account as well. Amandeep’s employer pays his salary to this bank account every fortnight.

Biannually Amandeep receives a holiday package from his employer, New Zealand Princess Cruises tours and he is using this package with his family traveling in Australia interstates or moves to India to visit his in laws.

Required:

With reference to the relevant laws, discuss whether Amandeep is an Australian resident for tax purposes and also critically discuss whether Amandeep needs to pay income tax on his salary and investment income explained above.

Week 3

Gary owns a commercial building and leased his premises to John to conduct a bakery business. Under the lease contract, John is obliged to repair any modified or damaged parts of the building after the lease term. However, John fails to repair Gary’s building, which was damaged due to machinery and fixtures’ instalments. John agreed to pay Gary $3,100 to cover the repair expenses.

Required:

With reference to relevant legislation and case law discuss the tax treatment of this payment for Gary.

Week 4

John owns a convenience shop called City Conv. The following events occurred for John during 2019-2020 financial year.

(i) John incurred legal expenses as he was sued for false advertising.

(ii) John purchased new fridge to the shop - $800. In addition, his builder added more space to the shop front. This cost him $22,000.

(iii) John ordered 1000 new T-shirts with printed City Conv’s logos for marketing purposes. These costs him $1,500.

(iv) John received a City of Sydney fine for putting his sales item for display outside his shop without a permit. He required to apply for a permit to use the footpath.

Required:

With reference to relevant legislation and case law advise John on the assessability and/or deductibility of above events.

Week 5

  1. Alex purchased a CNC machine on 1st October 2019 at a cost of $110,000 (including GST). This machinery is estimated to have a useful life of seven years.

  2. Alex purchased a Holden car on 1 May, 2019 at a cost of $63,000, estimated to have a useful life of five years.

Required:

With reference to relevant legislation and case law, discuss and calculate what amount is allowed as a deduction for the decline in value of the machinery and the Holden car discussed above, using both prime cost and diminishing value methods.

 

Answers:

1.

With reference to the principles of taxation, it is seen that it plays an important role in accomplishing the income equality within the society. Some of the important functions are given below-

Taxation redistribution function

In order to allocate proper understanding of the Australian taxation system, there are many deductions, fringe benefit tax, goods and service tax. The allocation function reveals comes up to make governmental policies, which allocate different services and cater several programs in order to provide basic amenities to the poor people. For this allocation, the government changes different income tax from different firm, and individual depending on the taxable income through effective slabs of the company (Kennedy, et al., 2017).

Taxation Allocation function aiming to manage social and political situation

The function comes up by availing equal opportunities of employment to the poor people by launching several programs (Bui, Sarath, and Ahmed, 2016). Furthermore, I tried to schedule through which it can lead to maintain economic issues and problems by increasing overall GDP, employment, and lower the inflation rate.

Economic function-

The government undertakes to make fiscal policies and monetary policies, which can help them to make budget for the fiscal year. This budget undertakes to lay down, which activities will be undertaken by government in current fiscal year. For example- incurring of capital expenditure to construct roads, bridges, schools, avail holistic programs to assist people who are aboriginals or do not have their social identity( Ling, Osman, 2016).

Control function

Control function undertakes to control personal disposable income of the people who earns higher level of income and delegate it to the people who are poor and face disadvantageous situations. It can regulate money supply in the economy so that it can create stability in the sources of the revenue and expenditure (Yee, Moorthy, 2017).

2.

The case of Amandeep positions to check whether his income is eligible for the income tax on the basis of his residential status. Amandeep stays in Australia and works for New Zealand cruise tour after signing employment contract with Australian office (Australian Taxation Office, 2020b). There are few tests as per the Australian law to determine whether Amandeep`s income is eligible for taxes. It is important to consider residential proof through residential tests. More factors to be considered such as employment.

Domicile test-

There are three important statutory tests, which can determine the residential status of amandeep. He has been working in Australia for last three years and live with his wife and kids. He has his permanent registered abode house in Australia. Hence, he is eligible for paying income tax (Oueslati, et al., 2017).

Superannuation test

These tests states that Amandeep is a registered employee of Australia, who has comes from India for better employment opportunities. Amandeep has been a contributing member of public superannuation scheme. Hence, he is eligible for income tax, which cannot be transferred to another person. Amandeep is Indian but received employment opportunities in Australia as the connection with the Australian agency (Bidin, et al., 2016). Therefore, every test identifies that Amandeep is an Australian and is liable to pay tax. According to (ITAA) the Income Tax Act Assessment, 1997 Amandeep has purchased Hindustan Unilever in the name of his spouse, the law say this capital gain in Amandeep`s account will be eligible for tax.

While entering Australia, it is seen that according to the TR98/17, which is identified as resident of same country where it considers several factors such as pre-arrangement employments, education in Australia and tourists. Amandeep has been for more than 183 days and acts as a registered employee of Australia. Therefore, Amandeep is an Australian citizen from the proof given above and Amandeep is liable to pay tax to Australia Taxation office (Fitzpatrick, 2019).

 

3.

Gary holds a building and he has leased his asset to the John to use it for building as a taxation imposition of person. It will incur taxes, which can benefit when paying taxes as incurring legal expense. This benefit can be done by the tax deductible at source. John has tried to install the necessary machines to operate (Sardesai, Irvine, Tooley, and Guthrie, 2017). Gary and John has entered in a lease agreement where Gary has allowed the John to run his business. Before the lease term starts, Gary is responsible for the entire repair in the business. Furthermore, after the lease term is conducted when John starts operating in building, it is seen that john started installation of new machine, which has led to incurring of expenses as repairs and maintenance. Furthermore, under the lease agreement, Gary allow John to use his assets only to conduct his business and receive rent as an income (Sardesai, Irvine, Tooley, and Guthrie, 2017).

On the other hand, it is seen that john had paid 3100 dollars as an expense, which will not be considering for taxing. It does not give any scope of TDS and tax benefits because it is just the reimbursement of the expense firstly incurred by Gary then reimbursed by the John. As per the income tax assessment act, it is seen that this amount is not deductible because it is not profit. Rather, it was an expense has to be incurred by John during installation of machine. Gary will also receive rental income apart from reimbursement of expense. As per the taxation law, the income generated by use of asset in form of lease and rent will be taxable (Australian Taxation Office, 2020b).

4.

John has a convenience shop who deal in selling shirts. Below are the assessment of each case and its relative implication of tax on the transaction-

Due to illegal actions, misrepresentation and false advertising, it is seen that John has to face legal expenses and penalties. This amount is not at all deductible because it is the penalty imposed on John (Australian Taxation Office, 2020a).

John has brought new fridge for nearly 800 dollars, which will need more space. The fridge costed them nearly 22000 dollars because installation of the assets is also includes in the price of the asset, which is readily included in the deductible expense of store (Australian Taxation Office, 2020a)

John purchased 100 T-shirts for the 1500 dollars for advertising purpose and it is an operating expense. Operating expenses can claim deduction as per the Australian tax assessment. He classified operating expenses include rent, interest, purchasing of trading goods, and advertising (Australian Taxation Office, 2020a). As per the taxation law, it is seen that Tax levied on operating expenses of business are generally deductible. Tax-deductible items are able to earn maximum business income. These expenses are eligible for tax deduction (Saelim, 2019).

At last, john has tried to access more space without any permission from the government to display the sales dummies. Government has the power to impose penalties, as this does not constitute any deduction. Moreover, John will also not receive any deduction based on the taxation policies.

5.

The calculation is given below for the deprecation and how it is liable to be paid according to the Australian taxation law-

For Prime cost method

Holden car

=$ 63000*100%/5= $ 12600

Total deprecation will remain same for the next seven years if it follows straight-line method $

Diminishing method of calculating deprecation-

$ 63000*200%/5

=$25200

Total depreciation will be nearly $ 25200, which will decrease year after year.

For Prime cost method 

CNC machine for the first year-

$ 100000*273/365*100%/7=

10714.28

For the first year-

$ 100000*365/365*100%/7=

14285.28

Diminishing method of calculating deprecation-

After same time, there will be same amount for next seven years. =100000*273/365*200%/2=25,234

The deprecation will decrease with the passage of time.

According to the calculation of prime cost method and minimising the balance method, it is seen that analysis of tax deductibility enacts the imposition of income tax on the assets, which will be imposed by the company after charging depreciation of the current year in the income statement of the company (Ingles, Phillips, 2019). Furthermore, if the costing of the assets is related to personal expenses and it shall not at all included in the calculating tax in the firm`s income statement.

 

References

Australian Taxation Office, 2020a. Tax in Australia: what you need to know. Available on: https://www.ato.gov.au/Individuals/Lodging-your-tax-return/In-detail/Tax-in-Australia--what-you-need-to-know/ [Accessed on: 21/05/2020]

Australian Taxation Office, 2020b. Individual income tax rates. Available on: https://www.ato.gov.au/rates/individual-income-tax-rates/ [Accessed on: 21/05/2020]

Bidin, Z., Marimuthu, M., Derashid, C., Idris, K.M. and Ahmad, N., 2016. Determinants of attitude toward proposed good and services tax among business communities in Malaysia. International Review of Management and Marketing, 6(8S).

Bui, Y.H., Sarath, D. and Ahmed, A.D., 2016. Efficiency of Australian superannuation funds: a comparative assessment. Journal of Economic Studies.

Fitzpatrick, K., 2019, February. The Australian Taxation Office's approaches to aggressive tax planning. In Centre for Tax System Integrity Third International Conference on'Responsive Regulation: International perspectives on taxation'. Canberra, 24-25 July 2003.. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University.

Ingles, D., Phillips, B. and Stewart, M., 2019. A basic income for Australia? Exploring rationale, design, distribution and cost.

Kennedy, T., Smyth, R., Valadkhani, A. and Chen, G., 2017. Does income inequality hinder economic growth? New evidence using Australian taxation statistics. Economic Modelling, 65, pp.119-128.

Ling, S.C., Osman, A., Muhammad, S., Yeng, S.K. and Jin, L.Y., 2016. Goods and services tax (GST) compliance among Malaysian consumers: the influence of price, government subsidies and income inequality. Procedia Economics and Finance, 35, pp.198-205.

Martin-Sardesai, A., Irvine, H., Tooley, S. and Guthrie, J., 2017. Organizational change in an Australian university: Responses to a research assessment exercise. The British Accounting Review, 49(4), pp.399-412.

Oueslati, W., Zipperer, V., Rousselière, D. and Dimitropoulos, A., 2017. Energy taxes, reforms and income inequality: An empirical cross-country analysis. International Economics, 150, pp.80-95.

Saelim, S., 2019. Carbon tax incidence on household demand: Effects on welfare, income inequality and poverty incidence in Thailand. Journal of Cleaner Production, 234, pp.521-533.

Yee, C.P., Moorthy, K. and Soon, W.C.K., 2017. Taxpayers’ perceptions on tax evasion behaviour: an empirical study in Malaysia. International Journal of Law and Management.

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