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Answer I

Under Taxation Ruling under TR 1996/6, benefits accrue under the standard program of frequent flier are not added with the assessable income of the member as the benefits accrue from the personal relationship that is contractual that is not the productive under the assessable income. The deductions is subjected to the following provisions –

  • The membership is restricted exclusively for the natural persons
  • Points can be redeemed only for services or goods

However, as per the ruling, the amount shall be treated and will be taxable as Fringe benefit tax if the following conditions are satisfied –

  • The employees are entitled to the rewards owing to some special arrangements
  • The employer and employee is related as family member and he is entitled to the point owing to his employment with the airline company

As per the given situation the employees are getting the points with regard to their employment with the company and therefore the amount will be treated as business expense for the employer. Therefore, the reward points received by the employees will be allowed for deduction as it will not come under fringe benefit tax

Compensation paid on account of damaging the capital asset of the service provider the amount will not be added to the assessable income of the service provider who will receive the amount. However, the received amount to be qualified as deduction some specific conditions are required to be met. These conditions are –

  • The asset offered for providing service shall be of capital nature and exclusively used by the service provider for business purpose only
  • Depreciation must be provided for the asset and the depreciation must be recorded in the books of accounts
  • The amount received for damage must be used solely for repairing the part that was damaged
  • The asset must be damaged during the time period under which the asset was using for providing the service

From the above discussion, it can be concluded that the amount received by crane Hire Company on account of damage of their asset shall not be included as assessable income for tax if the above mentions conditions are satisfied.

As per TR 1999/10, Para 71 to 78, gifts received by any person will not form part of the assessable income for tax if the gift is received due to personal reasons and it is no way connected with the person’s work related activities. However, if the gift is received with respect to or in consideration with the work-related activities of the person, the gift will be added under the assessable income for tax. Further, the gift can be transformed into money or kind or cash, however the assessable nature of gift will not alter. Therefore, holiday package offered by alcohol supplier to the night club manager will be treated as income under the assessable income for tax.

Additional fund if raised and then returned to the persons from whom the money were received will not be treated as taxable in the hand of the recipient as the amount were raised for a specific purpose and it was never been the income in hands of the receiver. It is just the error in forecasting the requirement. Therefore, extra amount raised from purchasing additional canoes that were subsequently returned to the members will not be treated as income.

Any amount received by any sportsman on account of his involvement in any sport will be treated as income for the purpose of calculating the assessable income. Here in the given case the Australian sportsman received money from a television channel for performing as the best and the fairest player in AFL. As per the TR 1999/17 of Taxation ruling, the amount will not be qualified for deduction and will be included under income as the money received in connection with the sports.

Answer II

When the employer incurs any expenses with regard to construction of the apprentice or trainees, the amount will be qualified as deduction. The TR 95/22 of Taxation ruling deals with the treatment of reimbursement and allowance by the employer for building the employees. However, the below mentioned persons will be regarded as building of the employees –

  • Trainees, carpenter and apprentice
  • Overseer or the project administrator for any under construction building
  • Labours who are engaged for building construction
  • The project administrator or supervisor engaged under the site of construction

Therefore, expenses with regard to construction of qualification or the apprentice will be considered as construction of the employees and thus will be qualified for deduction.

While the taxable income is calculated some specific expenses that are spend for the purpose of undertaking any short-term course related to art the amount will be qualified for deduction. However, the deduction allowance is limited with the following conditions

  • Any expenses required to be incurred on food
  • Training cost incurred for various modules and software
  • Course fee paid for undertaking the course
  • Cost spend for going to and coming back from the institution

Further, the above mentioned cost will be allowed if and only if the expenses incurred for the course exclusively. Moreover, if out of the total expenses only a part is spend for the course, that part only will be considered for deduction. In absence of sufficient information, it is assumed that the expenses incurred for the course only and will therefore be allowed for deduction.

The expenses in association with the performing of an artist will be allowed as deduction under the ATO ruling provided the expenses incurred by the person can be considered as performing artist. ATO mentioned following persons as performing artist –

  • The musician who performs music will be considered as performing artist
  • The actor who acts will be considered as performing artist
  • The singer who sings will be considered as performing artist
  • A person who dance will be considered as performing artist
  • A person who performs in circus will be considered as performing artist

In absence of sufficient information, it will be assumed that the expenses are incurred with regard to the performing artist’s dresses and make-up and therefore will be allowed as deduction.

As per the Australian Tax Office the amount of expenses incurred for going to the office and coming back from the office is not allowed as deduction. However, the amount is allowed for deduction if the expenditure is incurred solely for travelling for official purposes. Further, if out of the total expenses only a part is spend for the office purpose travel, that part only will be considered for deduction. In absence of sufficient information, it will be assumed that the expenses are incurred with regard to the travelling of official purpose and therefore will be allowed as deduction.

The amounts of travelling expenses are allowed for deduction if the expenditure is incurred solely for travelling for official purposes. Further, deduction is allowable for travelling to two workplaces, provided both the workplaces are under the control of one employer. Therefore, in the present situation, travelling to tow workplaces will not be allowed as deduction as the two workplaces belong to two different employers.  

The taxable scenario of an individual is determined on the basis of the nature of the citizenship of an individual that is whether the concerned individual is foreign resident or Australian. For taxation purpose, a foreign student, enrolled in any Australian institution’s course, of more than six months duration, is considered tobe a resident of the country. In this context, Manpreet also will e considered as an Australian resident. Manpreet had a part time job as an office assistant in an Australian firm, with a salary of $45000 per month. The self-educational expenses, which are of worth o $18000 cannot be allowed for deductions, as deductions can only be claimed in this context, if the concerned individual gets a bonded scholarship which is taxable. The courses, in this case should be related to the current employment and:

  • Lead to or is expected to lead to an increase in the income of the individual from the present employment.
  • Improve or at least maintain the level of necessary knowledge and skills that the individual needs to have in the current employment.

Deductions cannot be claimed by the individuals, for expenses on self –education for a course with no substantial connection to the current employment of the individual even though the course:

  • May allow the individual to get new job, or,
  • Maybe associated in general with it.

As stated in Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; (1958), to meet test under section 8-1 of the ITAA 1997, an expenditure should mandatorily have the characteristic of an outgoing one, which is incurred to gain accessible income. As held under section 8-1 of the ITAA 1997 for an expenditure to be deductible, there should be adequate relation between the activities that generate income and the expenses, such that its feature is not domestic in nature and is related to the work.

Ronpibon Tin NL v. FC of T (1949) supports this, where it is stated that there should be a nexus between taxable and outgoing income such that outgoing is important to gain an accessible income. Deduction for self-education expenditures are not allowed if the course helps in opening up new avenues for employment or income generating activity. This implies that the expenses of Manpreet shall not be allowed for deductions.

The expense should not only be considered as a pre-requirement for generation of assessable income, they should also have relevance to the activities resulting in generation of income. Manpreet has incurred expenses on computer, printer and a new phone, which is related to her work purpose. This can be considered under section 8-1 of the ITAA 1997, where a sufficient nexus is present between the income generating capacity and the expenses, such that it has the characteristics of work essentially. Referring to section 8-1 of the ITAA 1997 the expenses on new phone is relevant t gain assessable income which implies Manpreet is allowed to claim deductions. The FC of T v. M I Roberts 92 ATC 4787 shows that by the principles of Maddalena, the federal court gave allowance to deduct MBA related expenditure to a mine manager.

References

Ato.Gov.Au/ (2017) Ato.gov.au https://www.ato.gov.au/

Berg, Chris, and Sinclair Davidson. "Submission to the House of Representatives Standing Committee on Tax and Revenue Inquiry into the External Scrutiny of the Australian Taxation Office." (2016).

Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching." Proctor, The 37.6 (2017): 18.

Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major Australian taxes." Treasury WP 1 (2015).

Chartered Accountants Australia & New Zealand (2017) CAANZ https://www.charteredaccountantsanz.com/

CPA Australia (2017) Cpaaustralia.com.au https://www.cpaaustralia.com.au/

Karin Simon, Sara McDonald, Accident Investigation - Databases - Library Guides At Cquniversity (2017) Libguides.library.cqu.edu.au https://libguides.library.cqu.edu.au/content.php?pid=166733&sid=2668174

Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms." Journal of International Accounting, Auditing and Taxation 22.1 (2013): 12-25.

The Tax Institute (2017) Taxinstitute.com.au https://www.taxinstitute.com.au/

Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016.

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