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HI6028 Taxation Theory Practice And Law 2018

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Question:

Some of the creditors were paid directly from the cash receipts account. Overall, $31,155 of stock was purchased in this method. Additionally, $5,600 in cash has been used for private purposes.

The owners have taken $3,200 from Bottle Shop items for private use. There was a $3,000 reduction in the loan repayment, as this was the loan principal. The business loan repayment was $8,500.

The business has two cars: a van used 90% for business purposes and a SUV used 60% for business purposes. The cost of maintaining the van was $1,260 and the SUV $2,050.

Aniel and Olivia live on the business properties, but 90% of mobile bills, 80% of electricity expenses and 60% of council rates relate to the Brekkie and Lunch and OZ Bottle Shop. The insurance premium paid is completely related to their business. Daniel and Olivia have a separate insurance for their personal goods.

John is a senior executive with a printing company. As part of his remuneration package his employer pays for his child’s school fees at a private school costin $15,000. His employer also provides him with accommodation in a Sydney apartment throughout the FBT year. John must pay $100 of rent per week for the apartment. The market value rent for the apartment is $800 per week.
 

Answer:

Introduction

The fundamental problem to this instance is linked to estimate the net sum of earnings that is grossed by the partners all over the year of assessment and to conclude the dispersal of incomes amongst the partners.

Rule:

“Division 5 of the ITAA 1936” commence with the “section 90”, that explains partnership is not the separate legal company within the purview of genera law and do not pay taxes. It must be noted that the imposition of levy is only made when the earnings are allocation amongst the partners. A noteworthy description has been made in the standing of s-91, where there is a mandatory lodgement of tax to correctly reflect the allocation of incomes between the partners (Polsky 2015).

 Furthermore, “section 995-1, ITAA 1997” states that the partners perform the business activities with the ultimate objective of earning profit. The partners generally perform the business activities for earning the ordinary or statutory income.

It is worth mentioning that gains that originates from performing the business activities are regarded as the ordinary income under “section 6-5, ITAA 1997”. The characterisation of receipts is normally reliant on determining whether the taxpayer is performing the business and whether the considerations received amounts to normal proceeds of the business activity (Dodge 2014).

The legislative position of s8-1 says that there is the positive limbs which provides the permission to the persons for being entitled to the deduction in taxation originating from the taxation income given the outlays has been occurred for earning the taxable earnings. In the event of “FCT v Amalgamated Zinc Ltd (1935)” there is an imperative elucidation of the proceeds which embraces that the outlays should be happened by taxpayers while grossing revenues (Hirschfeld 2016).

The legislative position of (s-8-1(2)) evidently provides an elucidations that the criteria for being entitled to income tax is not met if the outlays amounts to private spending. The principal reason is that these outlays barely embraces any relationship with revenue proceeds.   

The legislative position that has been made in “(s25-10, ITA Act 1997)” is that eligibility for income tax deduction associated to maintenances is made when the assets is engaged for originating chargeable incomes (Lincoln and Andrew 2017). Maintenance work such as painting of business premises for rectifying further deterioration is termed as repairs. There is also the elucidation that has been made that when the effort carried out on the asset is only amounting to mere replacement of the longstanding component that only reinstating the usefulness of the denigrating asset then it is characterised as the repairs.

The taxation body of ATO clarifies the position of claiming instantly the write-off worth of asset procured for a lesser amount of $AUD 20,000.

 

Application:

The taxpayer here Daniel and Olivia are partners within the meaning of “section 90, ITAA 1936”. By adhering with the statutory standing of s-91 there should be filing of tax return as the means of demonstrating the apportionment of earnings concerning the partners in the current case study (Henry, Plesko and Utke 2018). The partners here are perform the business activities with the ultimate objective of earning profit. The cash receipts from the sales proceeds and debtors payment represents gains that has originated from performing the business activities jointly by Daniel and Olivia and which is regarded as the ordinary income under “section 6-5, ITAA 1997”.

The partnership reported expenses such as union fees, electricity bill, mobile bill, insurance etc. Most notably the outlays cited here is meeting the nexus with the legislative standing of s8-1 so it is permitted for entitlement of tax deduction (Strobel 2018). The standing of Daniel and Olivia here makes it eminent that the jurisdictional verdict of “FCT v Amalgamated Zinc Ltd” is ideal as the outlays were the part of making chargeable proceeds.   

The partnership also reported drawings made by Daniel and Olivia such as cash withdrawn and drawing of goods from bottle shop. As per the explanations that has been manifestly mentioned above in the rule, the partnership drawings is failing to satisfy the nexus under the legislative position of s8-1(2) as they do not hold any link with the income producing act.

The legislative standing of s25-10 can be referred here to say that the painting is amounting to permissible repairs. There should also be noted that the outlays that is reported in the current case by the partners on the installing air-condition is failing to fall within the deductibility rule of s25-10 because they are capital outlays (Borden and Lee 2018). But the replacement effort that has been made for the motor of refrigerator is the effort that is carried out on the asset is only amounting to mere replacement of the longstanding component that only reinstating the usefulness of the denigrating asset and hence it is characterised as the repairs.

Working Paper:

The analysis that has been presented evidently defines that the partnership has made the total amount of earnings of $44,199 and they should file the tax return of the partnership based on the provision of S-91, ITAA 1936.

The issues in this case is centrally focussed on understanding the fringe benefit tax consequences for the employer relating to the expense payment fringe benefit and housing fringe benefit provided to employee during the year FBT year.

Rule:

It is important to note that the expense payment fringe benefit under “section 20, FBTAA 1986” arises when the employer reimburses the employee for any kind of expenditure they occur. Alternatively, the expenses payment fringe benefit arises when the employer pays the third party in order to satisfy the expense that is occurred by the employee. One is required to denote that the circumstances for imposing tax happens within the position of S-23 when the provider of such benefit returns or wages the amount (McCurry and Solomon 2018).

As it has been elaborated in the S-25, that the fringe benefit for a house happens for the presently employed employee that is working in the company only when the organization or the employer is giving the benefit for the living. There is also the noteworthy standing of the provision of S-25 that the levy for the benefit relating to housing is only applied when the house has the market value and the member of staff is contributing any sum of formal rent for the house (Kleinbard 2018).  

There is an evident scenario that the current circumstances of John represents that he is getting the imbursement by the employer that amounts to a sum of $15,000. This current standing imbursement is for shouldering the schooling expenses for John. The imbursement amounts to benefit within the statutory standing of S-20, FBT Act 1986 as the expense payment benefit.

The payment made by the employer is in satisfaction of the third party obligation occurred by John. There will be the application of the taxation for the employer within the statutory position of S-23 of the fringe benefit act of 1986 (Lang et al. 2018).

On the other hand, evidences obtained from the case study also contributes that the John was given an apartment in Sydney for accommodation purpose. The legislative standing of S-25, there is a fringe benefit for John because he is paying the AUD $100 so that he can live in the house but the weekly accommodation costs stands $800. The below listed table provides that the yearly fringe benefit tax stands here AUD $51400. A tax rate of 47 per cent has been implemented for paying the tax while the sum of $45,851 has to be shouldered by John. The employer will paying the tax on the market value of accommodation by referring to the legislative position of S-27.

Conclusion:

The calculations provides that the total amount of tax that should be paid here for the employer is amounting to $51,400

 

References:

Borden, B.T. and Lee, S., 2018. Quantitative Prediction Model of Tax Law's Substantial Authority.

Dodge, J.M., 2014. theories of tax Justice: ruminations on the benefit, Partnership, and Ability-to-Pay Principles. Tax L. Rev., 58, p.399.

Henry, E., Plesko, G.A. and Utke, S., 2018. Tax Policy and Organizational Form: Assessing the Effects of the Tax Cuts and Jobs Act.

Hirschfeld, M., 2016. Enhanced Partnership Tax Audit Rules: New Challenges That Require Consideration. Prob. & Prop., 30, p.8.

Kleinbard, E.D., 2018. Perversion of the Tax Policymaking Process.

Lang, M., Rust, A., Owens, J., Pistone, P., Schuch, J., Staringer, C., Storck, A., ESSERS, P., Smit, D. and Kemmeren, E. eds., 2018. Tax Treaty Case Law around the Globe 2017: Schriftenreihe IStR Band 108 (Vol. 108). Linde Verlag GmbH.

Lincoln, I.V. and Andrew, C.E., 2017. What are the Implications for Partnerships and Partnership Taxation Under the Republican Proposals for Tax Reform. Int'l Fin. Law Prof Blog (Tuesday.

McCurry, P.J. and Solomon, T.A., 2018. Tax and Benefits Considerations for Service Providers for Family Offices. Tax Executive, 70, p.82.

Polsky, G.D., 2015. Deterring Tax-Driven Partnership Allocations. Tax Law., 64, p.97.

Strobel, C.D., 2018. New Tax Law Takes Effect in 2018. Journal of Corporate Accounting & Finance, 29(2), pp.166-168.

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