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A discussion whether the following are allowable deductions under the s 8-1 of ITAA97
Section 8-1 of ITAA 97 deals with general deductions from any entitys assessable
income as seen in the work of Smith and Richardson (1999). It states that one can deduct from
their assessable income any loss (or outgoing) to the limit that it is incurred in the process of
producing or gaining the assessable income or if its incurred necessarily in the course of
conducting a business for the sake of gaining a given assessable income. Its important to note
that division 35 of the same Act prevents entities from preventing losses from their non-
commercial activities that may lead to a loss getting offset against their assessable income.
In the same breadth, s 8-1(2) of ITAA97 advises against deducting loss or any form of
outgoing under this act to the extent that such as loss is;
i. Of capital nature
income, or
iv. It touches on a provision of ITAA97 such as division 35 that prevents an entity from
deducting it.
or other loss or outgoing recoupment that is deductible under this section, then such an
The cost incurred when moving machinery from a given site to the other is classified as a
capital expense and should therefore not be classified as a deduction under s 8-1 of ITAA97.
Instead, the expense could increase the general cost of the machinery for the sake of calculating
depreciation
The cost of asset revaluation for the sake of insurance cover is an expense related to fixed
assets in this case. The determination of the costs deductibility is appropriate in this case if the
expense is deemed to be a recurring one. Therefore, under s 8-1, this should be a deductable
item.
In this scenario, deductibility would depend on whether the given expenditure is related
expenditure relates merely to its operations. If the eventual outcome of the petition is the erosion
of the companys ability to generate income, then such an expense is considered a capital
expense. On the contrary, if the cases relate more to the clarification on the business operating
processes then it is regarded as revenue affecting one and is therefore covered by the s 8-1 of
ITAA97 deductibles.
d) Legal expenses incurred for the services of a solicitor in respect of a number of matters,
clients business operations. (The solicitors account doesnt separate the costs of the
various matters)
Even though there s a general need for additional information on the nature of business
expenses, the fact that there activities being paid for are related to the business operation and are
recurrent means that they are not capital expenses. They are therefore deductable under s 8-1 of
ITAA97.
Q2.
In this scenario, Big Bank has certainly exceeded its Financial Acquisition Threshold
(FAT). All acquisitions that relate to financial supplies of both loan and deposit facilities
(otherwise known as input taxed supplies) would not in this case be regarded as acquisitions that
are creditable. On the other hand, all acquisitions relating to the making of taxable supplies such
as content and home insurance would be regarded as creditable acquisitions. This question
however concentrates on the treatment of the advertisement spend. The TV adverts for both
home and content insurance would be treated as creditable items. The input tax credit pegged at
$50,000 would be deemed available. When it comes to general advertising, it would be use a
reasonably fair methodology. One of the techniques would be the attribution of 2% of total
expenditure to cover the taxable supplies and the remaining 98% to cover input taxed supplies
thereby reflecting both the actual and forecasted business line split. This would end up leaving a
total input tax credit of about $2000. The scenario would leave no reduced input tax credit that
Q3.
Angelo would calculate the foreign income tax offset limit as sown below;
income. The tax on the A$62,000 (considering that all medical expenses are not tax deductible):
This would bring the tax payable on his taxable income to $12,627 (this amount includes the
Medicare levy).
a) His assessable income excludes any amount in respect of the specific foreign income tax
paid as long as such a tax counts towards his foreign income tax offset as well as any other
applicable non-Australian source amounts are considered as shown in the table below;
Total (A$)24,000
Even though Angelo ahs clearly not paid any form of foreign income tax on his
Australian source.
b) Amy expenses relating to amounts that are included in his assessable income on which his
foreign income tax has been paid, as long as that tax adds up towards his foreign income tax
offset in this scenario, or to other amounts deemed to be of non-Australian origin and are all
considered to be all part of his assessable income with an express exclusion of his debt
deductions.
Nature of expense Amount
UK
Its important to note that the amount of debt collections of A$200 relating to the
UK dividend as well as interest income are never disregarded since Angela does not
have a permanent oversees address. This also applies to the A$400 thats for the gift
thats made to a deductible gift recipient which does not in any way relate to the
Calculations
assumptions
This therefore, is Angelos foreign tax offset limit. Since he has paid a foreign tax
income of $4,400, Angelo is entitled to a full tax offset of the same amount.
Q4.
Entry Amount
ITAA97
Deductions calculation:
to s.25-45 of ITAA97
deductible
ITAA97
s.70-35 of ITAA97
s. 8-1 of ITAA 97
Section 8-1 of ITAA 97 that deals with general deductions from any entitys assessable
income was the most significant provision. As noted earlier, it states that one can deduct from
their assessable income any loss (or outgoing) to the limit that it is incurred in the process of
producing or gaining the assessable income or if its incurred necessarily in the course of
conducting a business for the sake of gaining a given assessable income. These provisions were
considered for various scenarios in the partnership its important to note that division 35 of the
same Act prevents entities from preventing losses from their non-commercial activities that may
lead to a loss getting offset against their assessable income. These were indicated as non-
In order to accurately preset the scenario, the following elements were excluded and were
iii. - travel expenses of one partner (Johnny) between home and office: classified as a
expenses:
v. - business lunches: This is not deductible if we assume that the expenses are not in any
vi. - net partnership loss last income year: This amount is not deductible, since the amount
They were deemed non-deductibles according to s 8-1(2) of ITAA97 that advises against
deducting loss or any form of outgoing under this act to the extent that such as loss is; Of capital
nature, ff domestic or private nature, incurred in the course of producing an exempt income, non-
that prevents an entity from deducting it (Woellner et al, 2011). As noted earlier, subsection 20-
A prescribes that if an individual receives any amount of indemnity, insurance or other loss or
outgoing recoupment that is deductible under this section, then such an amount must be
The other sections of the Australian tax law that were applicable in this scenario were as
follows;
s. 20-300 of ITAA97
This section of the Australian Tax Code provides a table of all deductions for which
various recoupment are treated as assessable. In this scenario, all bad debts were treated as
It was used appropriately in the determination of the amount of assessable income that the
partnership had.
These two sections provide a prescription for the determination of amounts under the
Smith, D., & Richardson, G. (1999). The readability of Australia's taxation laws and
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2011). Australian Taxation Law