HI3042 Taxation Law
Discuss whether the following are allowable as deductions under s 8-1 of ITAA 1997.
1. The cost of moving machinery to a new site
2. The cost of revaluing assets to effect insurance cover
3. Legal Expenses incurred by a company opposing a petition for winding up
4. Legal Expenses incurred for services of a solicitor in respect of a number of matters, including conveyancing, discharge of a mortgage, and general legal advice relating to a client’s business operations. (The Solicitor account does not separate the costs for various matters.)
Big Bank Ltd operates nationally with more than 50 branches, a 10-storey head office and numerous call centres. It is registered for GST purposes. Big Bank has for many years provided loans and deposit facilities to customers in Australia. Last year it launched a new product, Big Bank home and contents insurance policies. It was a significant step for Big Bank and required it to change some of its computerised accounting systems due to the fact that GST needed to be charged on the new product.
Big Bank budgeted to spend $1,650,000 (including GST) on advertising campaigns last year. Of that sum, $550,000 was allocated to a television advertising campaign specifically promoting Big Bank home and contents insurance policies. The other $1,100,000 was allocated to a general advertising campaign, including television, radio and print media advertisements promoting Big Bank to the public as the bank that is “Here for You”.
When Big Bank Ltd launched Big Bank home and contents insurance policies, it forecast that its home and contents insurance business would constitute 2% of its entire enterprise. Big Bank has been proved correct in its forecasts. The other 98% of its enterprise is made up of its traditional loans and deposit facilities businesses.
Last month, the advertising consultants issued their tax invoice for $1,650,000.
Discuss Big Bank's ability to claim input tax credits with respect to its advertising expenditure of $1,650,000.
The following are the current year details of Angelo’s income, expenses and the foreign tax he paid. All of Angelo’s foreign income amounts have been converted to Australian dollars.
Gross income $
Employment income from Australia 44,000
Employment income from United States 12,000
Employment income from United Kingdom 8,000
Rental income from property in United Kingdom 2,000
Dividend income from United Kingdom 1,200
Interest income from United Kingdom 800
Total gross income 68,000
Medical expenses 5,000
Expenses incurred in deriving employment income from Australia 4,000
Expenses incurred in deriving employment income from United States 900
Expenses incurred in deriving rental income from United Kingdom 500
Gift to a deductible gift recipient 400
Interest (debt deductions) incurred in deriving dividend income 140
Expenses (debt deductions) incurred in deriving interest income 60
Total expenses 11,000
Foreign tax paid $
Employment income from United States 3,600
Dividend income from United Kingdom 120
Interest income from United Kingdom 80
Rental income from United Kingdom 600
Total foreign tax paid 4,400
Determine Angelo’s foreign tax offset.
Johnny and Leon are adult partners in a business selling sporting goods.
The partnership records, excluding GST, for the current income year disclose the following:
400,000 Sales of sporting goods (see Note 3)
10,000 Interest on bank deposits
21,000 Dividend franked to 60% received from an Australian resident company
10,000 Bad debts recovered
50,000 Exempt income
30,000 Capital gain from the disposal of shares acquired in 2009 and sold in June this income year (see Note 4)
10,000 Salary to Johnny
15,000 Salary to Leon
16,000 Fringe benefits tax
2,000 Interest on capital provided by Johnny
4,000 Interest on loan made by Johnny to the partnership
3,000 Johnny's travelling expenses from home to work and return (see Note 5)
2,000 Legal fees for the renewal of lease of the office building
1,200 Legal expenses for preparation of a partnership agreement
700 Legal expenses for preparation of new lease of business premises
500 Debt collection expenses paid to a solicitor
500 Council rates on business premises
25,000 Staff salaries (see Note 6)
30,000 Purchase of sporting goods supplies
20,000 Rent on retail shop
30,000 Provision for doubtful debts (see Note 10)
10,000 Business lunches (see Note 11)
1. Partnership profits and losses are shared between Johnny and Leon on an equal basis.
2. The partnership is registered as a Small Business Entity (SBE).
3. On 1 January this income year the partners discovered that an employee had stolen $3,000 cash in respect of money received from sales to customers.
4. Johnny and Leon made a capital loss of $15,000 from the disposal of shares acquired in 2006 and sold in 2011.
5. Johnny often takes work home as he finds it convenient to plan the next day's work in his home study.
6. Staff salaries include $10,000 paid to Johnny's son Johnny Jr for washing the partners' cars. The Commissioner considers $5,000 to be a reasonable commercial rate for washing the cars.
7. Stock at beginning of the year was: $20,000.
8. Stock at end of the year was: Cost $16,000
(a) Market selling value $18,000
(b) Replacement $17,000
9. Johnny and Leon did not make an election under s 328-285 of ITAA97.
10. Johnny and Leon are owed $30,000 by a debtor who is bankrupt. They believe it is very unlikely that they will recover any money from the debtor, and do not take any action to recover the money.
11. Johnny and Leon spent $10,000 on business lunches with overseas buyers at expensive restaurants.
12. In the last income year, Johnny and Leon made a net partnership loss of $40,000.
13. Johnny and Leon wish to minimise their tax liabilities for the income year.
Calculate the net income for the partnership for the income year.