• Internal Code :
  • Subject Code : BFA714
  • University : University of Tasmania
  • Subject Name : Taxation Law

(A) Explain and determine the Section 90 (ITAA36) partnership net income for the 2020 income year.

Partnership

In a layman’s language, partnership is something where two or more than two people come together to constitute any business activity in order to meet their common objective or mutual forecasted goal from the same. However, technically partnership is something where all the individuals form a relationship in view of profit and growth from the business.

In Australia partnership is carried under the Partnership Act 1895. In legal context, relationship among the individuals formed outside the Partnership Act, will not be considered as a partnership under this act.

Exempted income in context of partnership refers to the exempted income of partnership calculated if the partners are taxpayers and the residents too while on contrary in a partnership context, net income refers to the assessable income & the same has been calculated if the partner or individual is a taxpayer and a resident of Australia. In a partnership context, partnership loss, refers to the excess (if any) of the allowable deductions, other than deductions allowable under section 290-150 or Division 36 of the Income Tax Assessment Act 1997, over the assessable income of the partnership is calculated, if the partnership is a taxpayer who is a resident as well.

Self-assessment taxpayer, for a financial year, means:

  • A company.

  • The trustee of public trading trust in relation to the current year for the purposes of Division 6C of Part III.

  • The trustee of a complying approved deposit fund or a non-complying approved deposit fund in relation to the financial year.

  • The trustee of a complying superannuation fund or a non-complying superannuation fund in relation to the financial year.

  • The trustee of a pooled superannuation trust in relation to the fiscal year.

Moreover:

  • Taxpayer who is the trustee of a trust estate (other than a trustee to of public trading trust); trustee of a complying approved deposit fund, a non-complying approved deposit fund or a pooled superannuation trust), a trustee complying superannuation fund, , a non-complying superannuation fund. The ascertainment would be like:

1. The net income of the trust estate is a net income in respect of which the trustee is liable to pay tax (or if there is no net income in respect of which the trustee is so liable).

2. Tax payable on that net income (or no tax is payable)

3. The total of a taxpayer’s tax is being offset refunds for a year of income (or the taxpayer get no such refunds for the year of income)

  • If a taxpayer belongs to the public trading trust (section 102R), the ascertainment world be:

1. The net income from that trust will be considered (section 102M).

2. Either taxpayer’s tax will be offset refunds for a year of income (or if the taxpayer can get no such refunds for the year of income).

3. Tax payable on that new income (then no tax is payable).

Further ascertainment of net incomes is as below:

  • The amount of income tax payable on the no-TFN contributions income as defined by section 295-610 of the Income Tax Assessment Act 1997.
  • Interest payable under section 102AAM (and about the distributions from non-resident trust estates).

  • Subsection 276-340 (2) of that Act (trustee belongs to AMIT, taxed on trust component deficit of character relating to tax offset).

  • Subsection 276-405 (2) of that Act (trustee belongs to AMIT, taxed on shortfall in determined member components of character relating to assessable income).

  • Subsection 276-410 (2) of that Act (trustee belongs to AMIT, taxed on excess in determined member components of character relating to tax offset).

  • Subsection 276-415 (2) of that Act (trustee belongs to AMIT, taxed on amounts of determined trust component that are not reflected in member components).

  • Subsection 276-420 (2) of that Act (trustee belongs to AMIT, taxed on amounts of under of character relating to assessable income not properly carried forward).

  • Subsection 276-425(2) of that Act (trustee belongs to AMIT, taxed on amounts of over of character relating to tax offset not properly carried forward).

  • Amount payable under subsection 177P (1) (diverted profits tax) so will be considered as ascertainment of income.

  • An amount of tax under section 159GZZZZH.

  • Subsection 276-105 (2) of the Income Tax Assessment Act 1997 (trustee belongs to AMIT, taxed on amounts attributed to foreign resident members).

  • Demerger dividend, considered as a net income so it will consider under demerger allocation that is assessable as a dividend under subsection 44(1) or that would be so assessable apart from subsections 44(3) and (4).

  • Diverted profits tax, considered as a net income so it will consider under Income Tax Assessment Act 1997.

  • Insurance funds, in respect to a company, means all the Australian statutory funds of the company and all other funds maintained by the company in respect of the life assurance business of the company.

  • Interest income; refers to income consisting of interests, or the payments in the nature of interest:

1) money lent; advanced or deposited;

2) credit given;

3) any type of debt or liability; security amount which may be given or not;

4) an amount to the extent to which it is a return on an equity interest in a company; or

5) interest derived by the taxpayer from a transaction directly related to the active conduct of a trade or business; or

6) interest derived by the taxpayer from carrying on a banking business or any other business whose income is principally derived from the lending of money; or

7) interest received by the taxpayer during a year of income from a foreign company, where:

a. at any time during the financial year, the taxpayer had (or would have had, if the taxpayer were a company and a resident), a voting interest, within the meaning of section 334A, amounting to at least 10% of the voting power, within the meaning of that section, in that company; and

b. During the year of income or the preceding year of income, the company has not derived an amount of interest income exceeding 10% of the total profits derived by the company during the same year.

  • Income from personal exertion or income derived from personal exertion;

The proceeds of any business carried on; by the taxpayer either alone or as a partner with any other person, any amount received as a bounty or subsidy in carrying on a business, any amount that is included in the assessable income of the taxpayer by reason of section 393-10 of the Income Tax Assessment Act 1997.

It means income comprises of: earnings, salaries, wages, commissions, fees, bonuses, pensions, superannuation allowances, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered.

However, income from any property where that income forms part of the emoluments of any office or employment of profit held by the taxpayer, and any profit arising from the sale by the taxpayer of any property acquired by the taxpayer for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme, but other than that it does not include:

1. Interest, unless the taxpayer’s principal business consists of the lending of money, or unless the interest is received in respect of a debt due to the taxpayer for goods supplied or services rendered by the taxpayer in the course of the taxpayer’s business.

2. Rents, dividends or non-share dividends.

(B) Share of the partnership net income (or net loss) that should be included in Mary’s and John’s personal tax returns according to Section 92.

The assessable income of a partner in a partnership consists of:

  • individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was a resident;

  • The individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.

While if a partnership incurs loss then there will be allowable as a deduction to a partner in the partnership:

An individual’s interest of the partner in the partnership loss as is attributable to a period when the partner was a resident.

The partnership loss as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.

However, if the partner is a limited partner in a partnership; and if the the partnership is a VCLP, an ESVCLP, an AFOF or a VCMP during the year of income then the amount is allowable under subsection (2), in respect of the year of income, and as a deduction it should not exceed the amount worked out as follows:

Calculation statement:

Step 1. Work out the sum of the amounts that the respective partner has contributed (the partner’s contribution) to the partnership.

Step 2. Deduct the sum of all the amounts (if any) of the partner’s contribution that are repaid to the partner.

Step 3. Deduct the sum of all deductions allowed to the partner for losses of the partnership in previous years of income

Step 4. Deduct the sum of the amounts of all the debt interests issued by the partner to the extent that they are secured by the partner’s interest in the partnership.

While deductions in respect of outstanding subsection 92(2AA) amounts are as follows:

If the partner is a limited partner in a partnership and if the partnership is a VCLP, an ESVCLP, an AFOF or a VCMP during the financial year and lastly if the amount allowable under subsection 92(2) as a deduction to the partner for partnership losses incurred by the partnership in the year of income is not reduced because of subsection 92(2AA); and (d) the partner has an outstanding subsection 92(2AA) amount for the year of income; there is allowable as a deduction to the partnership an amount.

(C) Calculation of taxable income or method of the same

The eligible portion of the taxable income of a taxpayer of a financial year would be:

If the sum of amount ascertained by subtracting from the assessable primary production income of the taxpayer since it is also income to which this section applies. The deductions allowable in his or her assessment as constitutes primary production deductions and is also deductible in accordance with subsection (10) from income to which this section applies; and

The amount ascertained in accordance with the formula A, B, C, where:

A is the amount shown below:

Value of A for formula is :

  • if the primary production income is nil value for A would be Nil,
  • if production income is not more than $5,000 (but more than nil) then value for A is the difference between basic taxable income and taxable primary production income,
  • if production income is between $5,000 and $10,000 then value for A would be $10,000 taxable non-primary production income, and lastly<
  • if it is at least $10,000 then it would be Nil

B is the numeric value in dollars in the amount ascertained by deducting from the eligible portion the amount & C is the numeric value in dollars in the amount ascertained by deducting from the taxable income of the taxpayer of the year of income the taxable primary production income of the taxpayer of the year of income.

However in a case, where the taxpayer’s primary production deductions for the financial year exceeds then the taxpayer’s assessable primary production income for the respective year would be—

Value of A will be

  • If taxpayer’s production income is Nil then value for A would be nil

  • If production income is not more than $5,000 (but more than nil) than value for A is the basic taxable income

  • If production income is between $5,000 and $10,000 then A would be considered as non-primary production shade-out amount worked out under subsection 392-90(3) of the Income Tax Assessment Act 1997

  • And lastly if at least $10,000 is the production income then value for A would be nil

Where:

B is the numeric value in dollars in the eligible portion.

C is yet again the numeric value in dollars & it is taxable income for the taxpayer in financial year.

D is the number in dollars, the difference between the taxpayer’s primary production deductions for the financial year and the taxpayer’s assessable primary production income for that respective year.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Taxation Law Assignment Help

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