Issue
This issue is concerned with the deductibility of the expenditure from the assessable income of any loss or outgoings incurred by the tax payers.
“Section 8-1 of the ITAA 1997”
British Insulated &Helsby Cables v. Atherton (1926)”
“Section 8-1 of the ITAA 1997”defines that an individual taxpayer cannot deduct expenditure or outgoings that it is a loss or in the form of outgoings of capital or having capital nature or the loss or outgoings comprises of the private in nature (Barkoczyet al. 2016). As evident from the current scenario it is found that the taxpayer has incurred expenditure on relocating the machine to the new site represents an outgoing of capital in nature. Therefore, according to the provision of the “Section 8-1 of the ITAA 1997”cost incurred in relocating the machine is prevented from being considered as deductible expenditure (Coleman and Sadiq 2013).
As held in the case of “British Insulated and Helsby Cables Ltd v. Atherton (1926)”any outgoings that that is occurred in the process of transportation is characterized as the continuous advantage to the depreciable asset (Harriset al. 2013). As defined under the “taxation ruling of IT 2197”cost involved in moving the machine to the new site for the installation represents capital in nature and no income tax deductions is permitted in for such cost.
Conclusion:
Cost of relocation of Machine is characterized as capital cost therefore it is prevented from being considered as deductible.
Can the taxpayer obtain the deductibility of the outgoings comprising of revaluation of asset under “Section 8-1 of the Income Tax Assessment Act 1997”.
Section 8-1 of the ITAA 1997
The deductible nature of the outgoings consisting of the revaluation of asset to the effect of insurance cover would constitute allowable deductions under “Section 8-1 of the ITAA 1997”(Kenny 2013). The cost of revaluation of asset to affect the insurance cover is necessarily incurred by the taxpayer in carrying on the business for purpose of generating or producing the taxpayers assessable income and the outgoing does not constitute capital, private or domestic in nature under the first limb (Keyzer, Goff and Fisher 2013). The cost of revaluing represents a cost that is repetitive and the taxpayer incurred the cost in gaining or producing the taxable income. The revaluing expense has sufficient connection with the operations or activities that is more directly related in gaining and producing the assessable income and not a capital or domestic in nature.
Rule
Conclusion:
The character of revaluation of machine is usually ascertained with reference to the objective circumstances under “Section 8-1 of the ITAA 1997”. Therefore, the cost incurred here will be considered as deductible outgoings.
Whether or not the legal expense incurred by the company in opposing winding up petition are allowable under “section 8-1 of the ITAA 1997”.
“Sun Newspapers Ltd v F C of T (1938)”
“Section 8-1 of the ITAA 1997”
In ascertaining the legal expenditure deductions are considered to be allowable under “Section 8-1 of the ITAA 1997” however it is vital to take account of the nature of legal expenditure (Krever2013). The nature or the feature of the legal expenditure follows the advantage that is sought after to gain in incurring the expenditure. When the legal expenditure that originates from the regular activities of the business and the object of the outlay is devoted towards the revenue then such legal expenditure considered to be deductible.
On the other hand, in the case of “Sun Newspapers Ltd v F C of T (1938)” when the legal expenditure is devoted towards the structural instead of the operational purpose then the expenditure would be regarded as capital and such expenditure are prevented from being considered as deductible (Morgan, Mortimer and Pinto 2013). The taxpayer here incurred the legal expenditure which is structural rather than incurring the expense for the operational purpose therefore the expense is considered as capital in nature and it would not be considered as deductible.
Conclusion:
As such from the discussion it is found that legal expenditure constitute capital in nature and will not be considered deductible under the “Section 8-1 of the ITAA 1997”.
Is the taxpayer entitled for a deduction under “Section 8-1 of the ITAA 1997”for a legal expenditure incurred for day to day business activities.
- Herald & Weekly Times v F C of T (1932)
- Section 8-1 of the ITAA 1997
“Section 8-1 of the ITAA 1997”allows deductions of the legal expenses for all the losses and outgoings up to the extent to which they are occurred in producing or gaining the taxable income unless the outgoings falls under the purview of capital, private or domestic character. As held in the case of “Herald & Weekly Times v F C of T (1932)”Legal expenses are considered deductible provided that legal expenses are arising out of the concerns from day to day of the taxpayers income producing activities (Nethercott et al. 2016).
Additionally legal expenses are considered to be deductible expenditure if the expenditure has more than a peripheral association to the commercial activities of the taxpayer. In the present case of this taxpayer who incurred legal expense for the service of the solicitor in numerous matters would be considered as allowable or deductible expense. The provision of “Section 8-1 of the ITAA 1997”defines that such service forms the part of the daily business activities of the taxpayer (Sadiq2016). As such it can be bought forward that the legal expense was directly related to the income producing activities of the taxpayer and therefore would be considered as the allowable deductions.
Applications
Conclusion:
The legal expenditure arouse out of the concerns that was engaged in the day to day activities of income producing activities of the taxpayer. Therefore, being the expense directly related to the daily business activities so it would considered to be allowable deductions under “Section 8-1 of the ITAA 1997”.
Will the taxpayer would be to gain input tax credit for the financial supplies made under the “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”
The “Goods and Service Tax Ruling of GSTR 2006/3” determines the extent of the creditable purpose for those providing financial supplies (Milton 2013). This ruling provides the guidance based on the methods through which input tax credits for the financial supplies under the new system of tax. The “GST Act 1999” includes the extent of creditable purpose and the original application under the “division 11,15 and 129 of the GST Act”. In addition to this, the ruling further provides the explanation through which the reduced input tax credit provision under “Division 70” interacts with the above defined methods (Woellner2013).
As evident from the existing issue of Big Bank it is found that it incurred an advertisement expenditure that included the amount of GST for the advertisement made by the company. The “Goods and Services Tax Ruling of GSTR 2006/3” defines that the ruling is applied to all the entities which is registered or necessarily required to get registered that make or acquire the financial supplies that goes past the financial acquisition threshold limit (Woellneret al. 2014). Additionally the ruling is also applicable to the units that are to those entities that are eligible claiming input tax credit or lowered input tax credits. If the entities are registered or under obligation of obtaining the registration, GST shall be payable by the individual or the entities on the amount of taxable supplies that is made by them.
According to the“Goods and Service Tax Ruling of GSTR 2006/3”, the scheme of the GST legislation defines that an individual or firm is entitlement of claiming input tax credits for the GST supplies that is included in the price of the things that is acquired or imported by the enterprise (Anderson, Dickfos and Brown 2016.). If an organization or firm makes the financial supplies and the exceeds the threshold limit of the financial acquisition then such entity will not be under entitlement of claiming or recovering the entire amount of GST that is charged to them. However, it is worth mentioning that a portion of the GST a firm might be able to recover.
Conclusion
In the present context of the Big Bank it is found that the company is registered under the GST and GST shall be payable the company on the taxable supplies that is made by the company. therefore in respect of the GST legislation Big Bank will entitled to claim input tax credit for the amount of GST that is included in the price of the advertisement incurred for the enterprise. One of the requirements defined under “para 11-5 (a) and 15-5 (a)” of the “Goods andService Tax Ruling of GSTR 2006/3” states that an acquisition to be regarded as the creditable acquisition or creditable importation, the acquisition must be entirely or partly for the purpose of the creditable purpose (James 2016.).
The treatment of the term extent is established by the Australian income tax under the case of “Ronpibon Tin NL v F C of T” the principles are considered regarding the interpretation of the GST legislation (Miller and Oats 2016). This comprises of the requirement that the apportionment of the method should be adopted must be fair and reasonable in the circumstances of the enterprise. As it is evident in the current situation of Big Bank the financial supplies made by has passed the financial acquisition threshold limit. As a result of this Big Bank Ltd would be partly able to recover the GST that is charged to them. “Section 11-5 and 15-10” of the GSTR rulings states that an acquisition that made by Big Bank would be considered to be eligible for input tax credit for the financial supplies that is made by Big Bank ltd (Robin 2017).
In the present context of Big Bank the occurrence of the advertisement expenditure was related for the purpose of creditable acquisition. It is also found that Big Bank Ltd financial acquisition has gone past the prescribed amount of threshold limit. With reference to the “Goods and Service Tax Ruling of GSTR 2006/3” and therefore, Big Bank will be able to claim input tax credit for the supplies that is made by it.
Conclusion:
The above stated analysis on Big Bank it has been found that it will be able to claim input tax credit under the purview of the “GSTR 2006/3” for the GST amount that is included in the advertisement incurred by it.
Computation of Net Income from the Partnership
Reference List:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), pp.127-140.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G. (2016). Foundations Student Tax Pack 3 2016. South Melbourne: Oxford University Press Australia & New Zealand.
Coleman, C. and Sadiq, K. (n.d.). 2013 Principles of taxation law.
Harris, J., Graw, S., Gilders, F., Kenny, P. and Van der Waarden, N. (n.d.). 2013 Theory and law in the regulation of business.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Kenny, P. (2013). Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Keyzer, P., Goff, C. and Fisher, A. (n.d.). 2013 Principles of Australian constitutional law. Chatswood: LexisNexis Butterworths.
Krever, R. (2013). Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Milton, Qld (2013)..The taxpayers’ guide. Wrightbooks.
Morgan, A., Mortimer, C. and Pinto, D. (2013). A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.
Nethercott, L., Devos, K., Gonzaga, L. and Richardson, G. (2016). Australian taxation study manual. Melbourne: Oxford University Press.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Sadiq, K. (2016). Principles of Taxation Law 2016. Pyrmont: Law Book Co of Australasia.
Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. (n.d.). 2014 Australian taxation law.
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