Question 1: Discuss the deductibility of the $70 000 expense for Paper Co.
1. Discuss the deductibility of the $70 000 expense for Paper Co.
2. Explain, citing sections, whether or not the following expenses can be incurred in the cost base for each of the following situations. Note that all assets are post CGT.
3. Showing workings, calculate Claude’s net capital gain or loss (assuming he has no other CGT events).
4. Calculate the highest deduction for depreciation available for Matthew for the financial year ended 30 June 2017. Please ignore the small business immediate write off for the purposes of this question.
5. Discuss briefly, citing sections, whether the following are deductible
6. Showing workings, calculate Lucy’s net capital gain or loss for House A (assuming she has no other CGT events).
7. Consider whether the $50 000 is deductible for the taxpayer.
8. For the following transactions sate for the taxpayer the CGT event, whether there is a capital gain/loss, and whether the Division 115 discount is available (2 marks each).
9. Discuss the deductibility of the $1 000, $4 000 and $450 amounts for Joey.
10. Showing workings, calculate Steph’s overall net capital gain or loss (consider both the house and the shares but assume she has no other CGT events).
As defined under the section 8-1 of the ITAA 1997 an individual is allowed to claim an allowable deductions for the expenditure that is associated in gaining the assessable income only to the extent that the it is related in the derivation of taxable income or the expenditure is relevant and incidental in deriving taxable income. Referring to the case of “Federal Commissioner of Taxation v Herald and Weekly Times” the court denied the taxpayer with the deductions relating to the cost that were capital in nature (Woellner et al. 2014). Similarly in the case of Paper Co the cost incurred in legal expenditure was entirely laid out for the purpose of production therefore a deductions is allowed in this respect.
Answer I:
Referring to “section 108-70” the cost that is associated with repairing the damaged drainpipe line of the rental property that are caused because of the storm can be considered into the cost base since it is capital costs and it is held as capital improvement to the property.
Answer II:
According to the section 110-25 (2) the expenses that is incurred relating to the payment of the auctioneer relating to the sale of the property would be incurred in the cost base of the taxpayers property (Pinto 2013).
Question 2: Explain, citing sections, whether or not the following expenses can be incurred in the cost base for each of the following situations.
Answer to III:
As defined under the section 110-25 of the ITAA 1997 the cost associated to land tax that was incurred at the time of acquisition and selling the same for the loss will not be included in to the cost base of the property (Basu 2016).
Answer to IV:
As defined under section 104-10 any form of transfer of title or gifting of the property is not included into the cost of property. The gifting of apartment at no considerations shall not incur into the cost base of the apartment.
Computation of Capital Gains Tax:
|
Calculations of Capital Gains Tax |
|
|
in the Books of Claude |
|
|
Particulars |
Amount ($) |
|
Selling Cost |
$ 6,00,000 |
|
Add: Cost of Selling |
|
|
Legal Charges |
$ 12,000 |
|
Total Sale Cost |
$ 5,88,000 |
|
Purchase Price |
$ 3,00,000 |
|
Add: Cost of Purchase |
|
|
Legal Costs |
$ 10,000 |
|
Total Acquisition of Costs |
$ 3,10,000 |
|
Capital Gains |
$ 2,78,000 |
|
Taxable Capital Gains |
$ 1,39,000 |
|
Capital Tax Payable |
$ 41,842 |
|
Decline in Value = |
Cost of the Asset x |
Total No. of Days Held x |
100% |
|
365 |
Effective Life of Asset |
|
$8,000 |
365 days |
100% |
$1,333.33 |
|
365 days |
6 years |
It can be stated that the declining value of the projector was $1,333.33
Total percentage of Business use = 90%
The total amount of deductions that can be claimed by Matthew is reduced to $1,2000 as the projector was used by Matthew for 90% of the business use.
Answer I:
According to the section 32-10 of the ITAA 1997 the cost that is occurred by the accountant relating to the golf membership club in order to take his client for a golf game is held as the recreational business expenditure (Robin and Barkoczy 2018). With reference to section 32-10 of the ITAA 1997 the cost will be held as allowable deductions.
Answer II:
As evident in the case of “FCT v. Collings (1976)” the expenses that was occurred by the taxpayer relating to the travelling amid the home and the work place was out of the usual day to day journey (Robin 2017). The expenditure was held as the special circumstances in the current case and the court of law explained that the expenditure was occurred for generating assessable income. The high court held that the expenses was not private in nature. With reference to “section 51 of the ITAA 1936” the expenses was allowed for deductions purpose.
Answer III:
As stated under the section 8-1 of the ITAA 1997 the long service leave is held as the allowable deductions.
Answer to IV:
With reference to section 25-25 of the ITAA 1997 the expenditure incurred by the taxpayer relating to the borrowing for financing the purchase of the factory premises will be held as the allowable deductions (Blakelock and King 2017).
|
Computation of Capital Gains Tax |
|
|
For the year ended 2017 |
|
|
Particulars |
Amount |
|
Selling Price |
$597,000 |
|
Less: Advertisement Costs |
$3000 |
|
Purchase Cost |
$450,000 |
|
Capital gain/loss |
$147,000 |
|
CGT Under the Old Regime |
|
|
Indexed capital gain/loss |
$147,000 |
|
Tax payable under old regime (marginal tax rate x indexation factor x capital gain) |
$58,675 |
|
CGT Under the New Regime |
|
|
Tax payable under new regime (marginal tax rate x half capital gain) |
$23,028 |
As stated under the section 8-1 of the ITAA 1997 a business is allowed to claim expenditure that is occurred for the purpose of advertisement or relating to the sponsorship. The primary reason for considering the expenditure as the allowable expenditure because the expenditure is occurred in running the business of the taxpayer (Schenk 2017). The sum paid in lump sum to the Victorian government will be regarded as the allowable business expenditure and the same will be held deductible under the section 8-1 of the ITAA 1997. This is because the expenditure is occurred in producing the taxable business income.
Question 3: Showing workings, calculate Claude’s net capital gain or loss (assuming he has no other CGT events).
Answer I:
As per the division 115 capital gains tax discount is only made available to the individual taxpayers, trusts or the entities that complies superannuation (Epstein 2017). Hence, in the situation of Century Pty Ltd division 115 discount is not applicable for the compensation payment that is received from the insurance payment.
Answer II:
As evident in the situation of Marcia there is an occurrence of capital gains event G1 following the receipt of the relinquishing the right of not working within the 300 kilometre as the practicing tax account for three years time period. Therefore, the receipt of $120,000 by Marcia qualifies as the CGT discount capital gain based on subsection 115-25 (1) of ITAA 1997 as the criteria of division 115 was satisfied.
As defined under the “taxation ruling of 93/30” a taxpayer is not allowed to claim deductions relating to any expenses that is related to home since these expends forms the part of the private or domestic in nature (Samansky and Smith, 2017). However an exception to this rule is that a taxpayer is allowed deductions if any portion of the room is employed for generating income and holds the nature of place of business.
The expenditure incurred from such place of business is allowed for deductions. Referring to the case of “Swinford v Federal Commissioner of Taxation” a taxpayer was allowed deductions for using the part of the room in the form of business place (Bankman et al. 2016). Joey in this regard would be entitled to claim allowable deductions for cost of $1,000 relating to internet, $4,000 cost associated to interest and the $450 for the payment of accountant fees.
|
Computation of Capital Gains Tax |
|
|
Particulars |
Amount |
|
The 12-month ownership rule |
Yes |
|
Selling Price |
$700,000 |
|
Purchasing Cost |
$500,000 |
|
Capital gain |
$200,000 |
|
Assessable capital gain |
$100,000 |
|
Capital gain tax payable |
$26,632 |
|
Less: Capital Loss from Sale of Shares |
$ 25,000.00 |
|
Net Capital gains |
$ 1,635.00 |
Reference List:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), p.18.
Epstein, R.A., 2017. Dual Sovereignty under the Constitution: How Best to Protect States against Federal Taxation and Regulation. Ariz. St. LJ, 49, p.935.
Pinto, D., 2013. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia Limited.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.), 2018. Australian taxation law 2018. Oxford University Press.
Robin, H, 2017. Australian taxation law 2017. Oxford University Press.
Samansky, A.J. and Smith, J.C., 2017. Federal Taxation of Real Estate. Law Journal Press.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation law.
Answer 3
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
