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  • Subject Name : Taxation Theory, Practice and Law

Taxation and Law

Table of Contents

Week 1

Different functions of taxation

Relevant legislation

Case Law

Week 2

Amandeep’s situation

Relevant Legislation

Case Law

Week 3

Tax Treatment and relevant legislation

Case Law

Week 4

John’s Situation and Relevant Legislation

Case Law

Week 5

Value of Machinery

References

Week 1

Different functions of taxation

1. Fiscal function

2. Allocation function

3. Regulatory function

4. Controlling function (Ferreira, & Ferreira, 2016)

5. Incentive function

Relevant legislation

Section 51(ii) of the Australian Constitution grants the Commonwealth the power to impose taxes, and to impose laws regarding the collection and administration of taxes. Local Government Act 1993 (NSW), Local government is guaranteed by the Constitution Act 1902 (NSW) s 51. The Company tax return instructions 2015 (Gashenko, Zima & Davidyan, 2019).

Case Law

The Celadon Club's financial statements and the calculation of its taxable income. The Celadon Club has determined its taxable income for the year ended 30 June and is ready to complete its 2015 company tax return. For guidance in completing its tax return, the club uses the Company tax return instructions 2015 (Saez & Stantcheva, 2018).

Week 2

Amandeep’s situation

Amandeep is not an Australian resident for tax purposes. Amandeep does not need to pay full income tax on his salary and investment income to Australian government. Although, he must be paying to some extent.

Relevant Legislation

They are a few basic tasks that all new migrants to Australia should endeavor to get completed as soon as practicable. Setting up a bank account, Medicare card, Australian Tax File number etc. The Australian Government Department of Home Affairs' website has general information on settling in for new migrants (Breunig & Sainsbury, 2020). www.ato.gov.au, the Australian taxation Office also provides the complete details on such scenarios.

Refer to Guide to foreign income tax offset rules. If you are an Australian Government agency employee (and not a member of a disciplined force), you now pay tax on income from delivering Australian official development assistance (ODA). Members of a disciplined force delivering ODA are still eligible for exemption.

Case Law

Gerhardt migrated from Sweden to Australia with his family. He had to return to Sweden to see out a performance contract that had two years to go. He departed one month after arriving and settling the family here. In Sweden he stayed in the family house that they had been living in before moving to Australia. He also retained the family car so that he could travel around for his work in Sweden. He used to play tennis with a local club in Sweden and, on his return, resumed his association with the club (Bentley, 2019). Although he intends to join his family in Australia for good at the end of his contract, he is leaving his options open in case he is able to secure another contract. In the nine months that he has been back in Sweden, he has only visited his family in Australia once. From the above facts, Gerhardt is a foreign resident for income tax purposes.

Week 3

Tax Treatment and relevant legislation

This Ruling explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the Income Tax Assessment Act 1997 ('the ITAA 1997') - formerly contained in section 53 of the Income Tax Assessment Act 1936 ('the ITAA 1936'). It consolidates most prior Taxation Rulings and Taxation Determinations on repairs. The Ruling deals with:

  • the meaning of the word 'repairs' in subsection 25-10(1), and in the former subsection 53(1);

  • repair expenditure of a capital nature;

  • the distinction between repair and either renewal or reconstruction - what is meant by an 'entirety';

  • the distinction between a repair and an improvement (Li, & Tran, 2019);

  • expenditure to remedy defects, damage or deterioration in existence at the date of acquisition of property (that is, an initial repair);

  • some specific issues in construing section 25-10 and the former section 53;

  • expenditure for repairs before property is held, occupied or used for income producing or business purposes;

  • expenditure for repairs to property previously used for non-income producing purposes;

  • expenditure for repairs to property used for the purpose of providing non-deductible entertainment; and

  • expenditure for repairs to property used only partly for income producing purposes during a year of income.

Case Law

William Infelix purchases a house that was ostensibly in good repair. To make it more attractive to prospective tenants, minor repairs and renovations are undertaken. The minor repairs and renovations are initial repairs. Their cost is of a capital nature and not deductible. During the course of these repairs and renovations, William discovers that the woodwork is seriously affected by the ravages of white ants. Substantial expenditure is incurred to remedy the problems caused by the white ant infestation to restore the property to a state in which it is suitable for occupation by tenants (Hobson, 2019).

The expenditure incurred in these circumstances to fix the white ant problem existing at the date of purchase is also of a capital nature. It is therefore not deductible under section 25-10. The fact that William was unaware of the problem when he purchased the house, and the fact that he would have paid a lower purchase price if he had known of the need for repairs, do not alter the capital nature of the expense: Case 64 (1944) 11 TBRD (OS) 202 and the W Thomas & Co case.

Week 4

John’s Situation and Relevant Legislation

In case of John situation, when a legal expense is incurred in relation to the operation of a business to produce assessable income, it is generally allowable as a deduction. Exceptions are when the legal fee is capital, domestic or private in nature, if it is specifically excluded by another section of income tax legislation, or is incurred in earning exempt and non-assessable non-exempt income (Blunden, 2016).

Deductions are specifically denied for fines or penalties (however described) that are imposed as a consequence of a breach of any Australian or foreign law. This rule does not apply to administratively imposed penalties such as the general interest charge (which the ATO applies to unpaid tax liabilities) and penalties for underestimating GST instalments. However, while the fines and penalties may be specifically disallowed, the costs incurred in defending an action may be deductible.

Case Law

In August 2005, Nikki started NSS. NSS provides secretarial services to small businesses around the Geelong area (O’Connell, 2017). When she was setting up her business Nikki incurred $6,000.00 worth of legal expenses, including legal fees for establishing her business. These fees consisted of registration charges and incorporation. NSS is housed in a building in Geelong purchased by NSS in October 2005. In December 2005, NSS received a fine from the Geelong Fire Service for not complying with the relevant fire safety standards.

Given that Nikki started her business after 1 July 2005, under the provisions of section 40-880 she will be able to claim a deduction for the expenses that relate to the startup of her business. The costs will be allowed to be deducted across the next five years. Accordingly, Nikki will be able to claim a 20% deduction in her 2005/2006 return for the costs associated with starting her business. Nikki will be unable to claim a deduction for the fees associated with the purchase of the NSS office, as the expenditure is capital in nature and is excluded under section 40-880(3). NSS will be able to include the legal expenses of acquiring the property in the cost base when it disposes of the asset. Nikki is unable to include the fine from the Geelong Fire Service as deductions for fines are specifically excluded by section 25-6 of the ITAA97.

Week 5

Value of Machinery

Prime cost method of machinery = 14.2% = 15620 per year

Prime cost method of car = 20% =12600 every year

Diminishing Value method of machinery = 37.5% = 41250 in first year

Diminishing Value method of car = 37.5% = 23625 in first year

Relevant Legislation and Case Law From 12 March 2020 until 30 June 2020 the instant asset write-off:

  • threshold is $150,000 (up from $30,000) (McClure, Lanis & Govendir, 2017)

  • eligibility range covers businesses with an aggregated turnover of less than $500 million (up from $50 million).

From 12 March 2020 until 30 June 2021 the Backing business investment measure provides a time-limited (15-month) investment incentive to support business investment and economic growth, by accelerating depreciation deductions (Taylor, 2018). The key features of the incentive are as follows:

  • The benefits are either
  1. Deduction of 50% of the cost or opening adjustable value of an eligible asset on installation. Existing depreciation rules apply to the balance of the asset’s cost.

  2. If you are using the simplified depreciation rules for small business you can claim 57.5% of the cost of the asset in the first year you add the asset to the small business pool.

  • Eligible businesses — businesses with aggregated turnover below $500 million.

  • Eligible assets — new depreciating assets (for example, plant, equipment and specified intangible assets, such as patents). The assets must be first held, and first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021. Some exclusions apply.

References

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

Blunden, H. (2016). Discourses around negative gearing of investment properties in Australia. Housing Studies, 31(3), 340-357.

Breunig, R. V., & Sainsbury, T. (2020). The Australian Tax Planning Playbook: Volume 1. Tax and Transfer Policy Institute-Working paper, 1.

Ferreira, F. A., & Ferreira, F. (2016). Environmental taxation: privatization with different public firm’s objective functions. Applied Mathematics & Information Sciences, 10, 1657-1661.

Gashenko, I. V., Zima, Y. S., & Davidyan, A. V. (2019). The Notion and the Essence of Taxes and Taxation. Functions of Taxes. In Optimization of the Taxation System: Preconditions, Tendencies and Perspectives (pp. 3-12). Springer, Cham.

Hobson, K. (2019). 'Say no to the ATO': The cultural politics of protest against the Australian Tax Office. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University.

Li, E., & Tran, A. (2019, May). The Australian dividend imputation system and corporate tax avoidance. In Australian Tax Forum (Vol. 34, No. 2).

McClure, R., Lanis, R., & Govendir, B. (2017). Investigation into the Petroleum Resource Rent Tax and Debt Loading in Australia–2012 to 2016.

O’Connell, A. (2017). Australia. In Capital Gains Taxation. Edward Elgar Publishing.

Saez, E., & Stantcheva, S. (2018). A simpler theory of optimal capital taxation. Journal of Public Economics, 162, 120-142.

Taylor, M. (2018). Model of the Australian tax and transfer system.

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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