Taxation Theory, Practice and Law

Table of Contents

Introduction..

Question 1: Difference between revenue and capital expenditure.

Identification of issue.

Analysis of the law relevant to the issue.

Application of the tax law..

Conclusion.

Question 2: Travelling between two places of work.

Identification of issue.

Analysis of the relevant tax law..

Application of the relevant tax law..

Conclusion.

Overall summary.

Reference list

Introduction to Taxation Theory, Practice and Law

Income tax applies to the rate of income of an individual within the domain of a nation. It depicts providing a suitable share of the individual income to the economy of the country. It assists in the improvement of the economical condition for facilitating the development and growth of the country. The current study will be involved in the analysis of two different situations based on the tax law of Australia. Each of the situations will be described based on the Australian Tax Law alongside depicting relevant solutions for each of the cases.

Question 1: Difference Between Revenue and Capital Expenditure

Identification of Issue

Capital and revenue expenditure involves the expenditure included in a business. As depicted by Burton (2017), capital expenditure reflects the spending of the business in terms of managing and maintaining the fixed assets within a business. On the other hand, revenue expenditure tends to imply in the fixed assets of the business. However, as argued by Hodgson et al. (2019), revenue expenditure can also be reflected as expenses that the company holds in terms of maintaining the operations with proper ease. Nonetheless, in the case of John, it can be observed that John gained two types of license for the operation of his recent casino business. One of the two licenses includes a 10-year license for the operation of the casino in Melbourne and the other includes a license of 90 years for the building of a casino. Further, in the case, it can be noticed that John received instruction from the agency of the government for paying $180 due to the approved licence that has been received from the administration of Australia.

Conversely, it can be noticed that $80 million was charged as a prepaid rent for the 10 years of the rent of the casino. However, it was being negotiated by John for the paying of $400,000 for the remaining of the 80 years among the 90 years. Hence, the issue, in this case, relates to the paying of rent. Consideration of the prepaid rent by John as a capital expense or revenue expense is the main concern of the case.

Analysis of The Law Relevant to The Issue

The law of tax seems to get imposed for the management of the tax duty within the domain. As per the observation of Datt and Keating (2018), imposing certain laws of tax on the citizen helps in abiding the tax policies while providing a suitable contribution to the economy of the nation for further development. The Income Tax Assessment Act 1936 involves the calculation of the tax and its amount for the citizens to be paid living within the domain (Australian Government, 2020). As per the act and the Australian Taxation Office, capital expenditures related to the cost of the building and other assets used for the development of the business. Conversely, revenue expenditure is considered to be the price that is being paid after putting their fixed asset into working condition. It is the price that is being intended to maintain the fixed assets for the business or other aspects.

Application of The Tax Law

Income Tax Assessment Act1936 as mentioned in the previous section of the study depicts capital expenditure as a cost that is being paid for the fixed assets of the resources within the business. As per the opinion of Arnold et al. (2019), fixed assets mainly define the land or property and other things that are used for long accessibility within the business. It is mainly depicted as the long term expenses of the business for proper operations. On the other hand, the act classified the revenue expenditure as the maintenance cost of the business. It is mainly carried by employers for enjoying the proper services of the established assets within the domain (Australian Government, 2020). However, in the current case, it can be seen that John was demanded to pay $80 million for the first 10 years of the lease. Nonetheless, John seems to be negotiating an amount of $400,000 for the rest 80 years mentioned in the lease after the payment of $80 million for the first 10 years as prepaid rent.

From the case of John and as per the mentioned act it can be depicted that the $80 million that is intended to be paid by John as a prepaid rent for the first 10 years of the business can be considered as the capital expenditure of the business. It is because, as per the act, capital expenditure involves the fixed assets that in John case can be considered as the building of a casino. Besides, from the leash of 90 years, it can be depicted that the casino building for John is a long term investment and assets that will eventually benefit the business. On the other hand, it can be seen that after 10 years John came into an agreement of paying $400,000 every year for the remaining period of the leash that is 80 years. In this respect, the $400,000 that will be paid yearly can be considered as the revenue expenditure as it will be paid for the maintenance of the business. In the case of AusNet Transmission Group Pty Ltd v, Federal Commissioner of Taxation [2015] HCA 25, it can be observed that charges that have been imposed on the appellant due to the electricity or the building are considered as the capital income (High Court of Australia, 2020). Similarly, in the case of John, the prepaid rent for the casino building will be considered as a capital expense.

Conclusion on Revenue and Capital Expenditure

Based on the above-mentioned facts and laws it can be observed that the prepaid rent of $80 million that was paid by John is considered to be capital allowance as per the law of taxation, it is because the prepaid rents that are being paid by John are classified as the payment for long term assets. It can also be inferred to long term investment for the proper operations and deriving the desired accomplishment. Hence, the prepaid investment of John falls under the category of capital expenditure.

Question 2: Travelling Between Two Places of Work

Identification of Issue

Travelling between the work hours is likely to be considered in the expenses of an individual. As opined by Tucker (2019), travelling for work is considered to be part of the expenses. As per the case study, it can be seen that Alex is involved with two businesses simultaneously owning a property in Dandenong. Besides working as a mechanical engineer, Alex also seems to be engaged in a home business of food catering. The business of food catering of Alex provides food for school canteens and residents. However, the main issue that seems to be prevailing within the case of Alex is that he needs to travel a lot to manage the two workplaces.

The medium of Alex travelling from his office to his home business involves a car and sometimes it also involves travel. From this, it can be analysed that Alex spends a large sum of money on his travel expenses. This tends to consume most of the profits that are being earned by Alex. As a result of this, Alex has requested a tax deduction for the amount that is being consumed for travelling. Hence, the foremost concern that underlies the case of Alex is applicable to tax deduction allowance on the travel expenses for the job.

Analysis of The Relevant Tax Law

Tax laws are implemented within the citizens of the nation to maintain a stable economic position. As opined by Bentley (2019), the proper law of tax helps in deciding the contribution from the population of the nation based on the income. Income Tax Assessment Act 1997 accounts for the calculation, imposition, alongside calculation of the commonwealth taxes of the income (Australian Government, 2020). It further aims at relating to the administration regime by the Taxation office of Australia. As per the act, the deduction of the tax allowance is limited to certain criteria. It mainly includes house rent, standard deduction, mobile reimbursement, home loan medical insurance, food, transport and others. The transportation deduction that is being provided by the mentioned law involves the facility of the cab that is being provided by the employer (Trad and Freudenberg, 2018).

On the other hand, Section 8 of the Income Tax Assessment Act 1997 incurs to the expenses that are accessed during earning (Australian Government, 2020). Moreover, section 25 of the act infers to the deduction of the income that is being used for the management of taxation within the domain. It is because the management expenses are not considered within the income and it gets easily deducted. As opined by Smith et al. (2016), the expenses used by management helps in smooth operations and hence are being deducted. Henceforth, the deduction that is mentioned under the law of taxation generally adheres to the business principles.

Application of The Relevant Tax Law

Income Tax Assessment Act 1997 indicates the deduction of tax under section 25. The section imposes certain criteria for gaining liability in terms of tax deduction allowance (Australian Government, 2020). As per the act, there is an allowance of a deduction for the cost of transportation upon the criteria regarding employer contribution. However, in the case of Alex, the transportation expense that Alex bears is considered to be his own expense. It is not considered among the expenses that Alex bears based on duty in his office or his home business. Travelling is not part of Alex business. It is the activity that Alex has to perform to maintain both the business properly. Hence, transportation is not a contributor from his employment or is required within the home business.

Based on the analysis of the law along with the case that is being faced by Alex it can be stated that deduction of the tax allowance is based on the income activities. As per the illustration of Storm and Coetzee (2018), it is not applied to the criteria of personal expenses that an individual bears due to the performance of the business activity. In the case of Commissioner of Taxation v Day [2008] HCA 53, it can be observed that Mr Day was excused from the tax that was used and reported legally. In this case, Mr Day also used transport for personal use to save expenses (High Court of Australia, 2020). Hence, company transport is not to be used for official work. Travelling to the office or back from the office is considered under the office expense of transportation. Hence, from this analysis, it can be inferred that the mentioned case law of tax can be applied in the current case for the determination of the tax deduction allowance factor for Alex.

Conclusion on Income Tax Assessment Act

From the above analysis, it can be stated that the transportation cost that Alex bears to maintain the job alongside the home business does not fall under the category of tax allowance deduction as per the Australian law. It is because, as per the taxation law of Australia, tax deduction allowance is only applicable for the activities that are being performed for the business, not for maintenance and management of two businesses simultaneously. Hence, it is not tax deduction allowance is applicable in this case.

Overall Summary of Taxation Theory, Practice and Law

Considering the case of John, it can also be termed as a capital expense. It is because the prepaid rent that was applicable for John was only for the 10 years within the mentioned leash. Therefore, the amount that will be paid by John after the 10 years can also be considered as a capital expense as it will help John in sticking to the fixed assets of the business. Therefore, as per the Income Tax Assessment Act1936, it can be mentioned as the capital expenditure in the case of John. On the other hand, as per the Income Tax Assessment Act1997, transportation cost in the case of Alex will also not be considered under the tax allowance deduction.

Reference List for Taxation Theory, Practice and Law

Arnold, B.J., Ault, H.J. and Cooper, G. eds., 2019. Comparative income taxation: a structural analysis. Kluwer Law International BV.

Australian Government, 2020. Draft Taxation Ruling, Australian Government. Available at: https://www.ato.gov.au/law/view/document?docid=DTR/TR2019D7/NAT/ATO/00001 [Accessed on 15 May 2020]

Australian Government, 2020. Income Tax Assessment Act 1936, Australian Government. Available at: https://www.legislation.gov.au/Details/C2017C00242/Controls/ [Accessed on 15 May 2020]

Australian Government, 2020. Income Tax Assessment Act 1997, Australian Government. Available at: https://www.legislation.gov.au/Details/C2017C00336/Controls/ [Accessed on 15 May 2020]

Australian Government, 2020. Income tax: application of paragraph 8-1(2)(a) of the Income Tax Assessment Act 1997 to labour costs related to the construction or creation of capital assets, Australian Government. Available at: https://www.ato.gov.au/law/view/pdf/pbr/tr2019-d006.pdf [Accessed on 15 May 2020]

Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience Eleven Years On. Journal of Malaysian and Comparative Law, 23, pp.13-36.

Burton, M., 2017. A Review of Judicial References to the Dictum of Jordan CJ, Expressed in Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes of the Australian Income Tax. J. Austl. Tax'n, 19, p.50.

Datt, K.H. and Keating, M., 2018, April. The Commissioner’s obligation to make compensating adjustments for income tax and GST in Australia and New Zealand. In Australian Tax Forum (Vol. 33, No. 3).

High Court of Australia, 2020. AusNet Transmission Group Pty Ltd v Federal Commissioner of Taxation [2015] HCA 25, High Court of Australia. Available at: http://eresources.hcourt.gov.au/showCase/2015/HCA/25 [Accessed on 15 May 2020]

High Court of Australia, 2020. COMMISSIONER OF TAXATION v SHANE DAY, High Court of Australia. Available at: http://www.hcourt.gov.au/assets/publications/judgment-summaries/2008/hca53-2008-11-12.pdf [Accessed on 15 May 2020]

Hodgson, H., Castelyn, D. and Marriott, L., 2019. Income equalisation: is all fair in primary production and tax law?. In Australian Tax Forum: a journal of taxation policy, law and reform (Vol. 34, No. 2).

Smith, F., Smillie, K., Fitzsimons, J., Lindsay, B., Wells, G., Marles, V., Hutchinson, J., O’Hara, B., Perrigo, T. and Atkinson, I., 2016. Reforms required to the Australian tax system to improve biodiversity conservation on private land. Environmental and Planning Law Journal, 33, pp.443-450.

Storm, A. and Coetzee, K., 2018. Towards Improving South Africa's Legislation On Tax Evasion: A Comparison Of Legislation On Tax Evasion Of The USA, UK, Australia And South Africa. Journal of Applied Business Research (JABR), 34(1), pp.151-168.

Trad, B. and Freudenberg, B., 2018. A Dual Income Tax System for Australian Small Business: Achieving Greater Tax Neutrality. J. Austl. Tax'n, 20, p.93.

Tucker, J., 2019. Tax files: The meaning of'sufficient influence'under income tax assessment acts. Bulletin (Law Society of South Australia), 41(6), p.38.

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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