Income Tax Law and Practice - Assignment Example

Income Tax Law and Practice Name University Course Tutor Date Income Tax Law and Practice Module 1 i) It is ideal for Chesters to return for tax purposes on accrual ground. As explained in the case, Chesters does not only make sales on cash basis. Indeed, apart from cash, there are clients who make their payments via credit card and such external financing options as chattel mortgage and personal loan. Notably, Chesters is characteristic of an in-house financing program via which customers are capable of using periodic installment to pay for furnishings that they have already selected from the catalogue or showroom of Chesters. ii) Submission for taxation of payments done via Homemakers club ought to be done after the final installment. Otherwise, Chesters may suffer losses in cases when customers default. This has the implication that, in case of defaulting, consequences are that deductions will only be made on billed transactions since the defaulted agreements are considered to still be in progress (Collins, 1999). Thus, it is said that in such a case as the Homemakers club of Chesters the assessable transaction for taxation is only that which has been billed. iii) For the Homemakers’ Club the trading stock will only be taxed after it has been billed. According to the law, businesses are only taxed on the assessable income (Cooper, 2000). This has the implication that stock owned by the business but is yet to be billed cannot be taxed since it is not part of the assessable income. Indeed, stock of a business is not part of the tax equation. Module 2 i) The issue being brought up in this module surrounding the program of granting customers annually. Ideally, the business provides customers, who use the ChesterCard™ system with free credit on the anniversary of the customers’ card issue. The credit is provided on grounds of what the customer has spent in the previous one year. In this program customers get 2% for any amount used up to the first $5000, with the credit rate for the proceeding $5000; any amount after the second $5000 is awarded 4%. The ChesterCard™ system is a means via which the amount to be paid by customers for purchasing from Chesters can be reduced. ii) According to Tax offsets law, tax ought not to be imposed on sales that have been made by Chesters with customers using the freely awarded credit (D’Ascenzo, 2000). Notably, this is not a tax deduction considering that the credit granted by the sellers to the company cannot be referred to as taxable income. The law further states that apart from credits, tax offsets also apply on low incomes. It will thus be unlawful for Chesters to be taxed on all its sales revenue with no consideration of purchases that had been done by customers using the freely awarded credit (D’Ascenzo, 2001). This prompts appropriate financial records showing all payment arrangements that have been used by customers, prior to the imposition of tax. iii) In this case, the company ought to heed the advice that taxation can only be imposed on sales made by cash, external financial programs (on accrual basis), Homemakers Club (on accrual basis and after completion of all payments), and credit that has been purchased by the customer (Credit granted annually by the company to customers may never make part of the taxable income). The company can easily solve these issues (regarding what and what not to be taxed) via the use of strategic, financial team comprising of experts in taxation law and practice (D’Ascenzo, 2002). Module 3 $223,000 worth of receivable bonus and $215,000 worth of granted credit do not qualify as assessable income for the year ended 30 June 2015. These two categories can also be referred to as non-exempt income. Another example of such categories of income is GST that is normally collected by a supplier. Assessable income or non-exempt income does not fall any where in the tax equation meaning that the money cannot be taxed (Department of the Treasury, 1999). With respect to taxation purposes, these two amounts would be treated with tax –offsets. The law defines assessable income, ordinary income, grants, alongside other forms of income to enable tax institutions determine the categories of income that are available for taxations and the ones that are not. Module 4 i) The issue raise here regards whether the company ought to compensate customers for faulty goods that have been purchased. There is also the issue of the consequences in case such compensations are done. Indeed, there cases that see the customers return to Chesters faulty goods that do not have warranty from the supplier. ii) The law provides that compensation received by the company from the supplier is a capital receipt with taxation being applied in the form of business income. This has the implication that the funds resulting from the 60% supplier warranties are subject to taxation (Australian Taxation Office, 2001). iii) It is advisable for the company to stick on the “no questions asked” refund policy with respect to the return of faulty goods. Notable, the refunds from suppliers are taxable implying that the 60% refunds will be deducted. However, there are some cases in which customers return faulty goods which do not have warranties from the supplier (C. L. Jr., 1986). In such a case, the company could suffer losses if does not adhere to the “no questions asked” refund policy. Module 5 i) The issues brought up in this case surround the treatment of timber under conditions that are not ideal in Chesters Company. There are thus issues about the consequences of making workshop extensions worth $380,000. However, the construction of the various extensions did not place at the same time. Therefore, the main issue is the taxation consequence for the supplier of materials used for the extension. On the side of Chesters, the main issue regards whether the company can be compensated in the case of faulty materials. ii) The law stipulates that, since the purchase of the extension materials was step-wise, monthly tax can only be imposed on items that have already been billed. iii) It is advisable for the supplier to seek taxation on accrual grounds in order to have tax imposed on only billed items (Australian Taxation Office, 2001). On the other hand, it is advisable for Chesters to procure only warranted material in order to ensure compensation in case of faulty materials. Module 6 i) The issue in this case surrounds a rival company that had come up with a product line identical to Chesters’. There is thus issue of whether Chesters ought to be compensated for this damage. ii) Legal provisions for this issue are included in the section 28 of the Act alongside taxable income vis-as-vis compensation issues (Australian Taxation Office, 2001). iii) The company ought to separate amounts paid for legal issues from the amount expected to be paid for compensation. This is because amount paid as compensation for damage is taxable income, where else, the amounts to be refunded as costs for legal issues ought not to be taxed. Module 7 There are a number of issues raised regarding the November 2014 accident: The poor condition of the floor as the cause of the accident Whether the visitor ought to be compensated Tax consequences for the for medical fee The legal provision of these issues are found in medicare levy act and compensation act In case Chesters is to be refunded the legal costs by the insurance, it is advisable to pursue the income vis-as-vis act to ensure that the refund is not deductable (Bankman, 1999). Module 8 There are two principal issues arising from this case: Consequences for paying school fees for the children of the directors Whether these directors should be taxed on the additional amounts received as educational allowance for their children The legal provisions for these issues are found in Taxable income vis-a-vis Subsidies and grants Act. The directors ought to have their ordinary salary separated from this grant. This is because such a grant does not qualify as assessable income thus tax ought not to be imposed. References Australian Taxation Office. (2001). Minutes of the National Tax Liaison Group. 9 March 2001, p. 14. Bankman, J. (1999). The new market in corporate tax shelters. Tax Notes, 83, 1775-1795. Black, C. L. Jr. (1986). Law as an art. In Charles Lund Black (Ed.), The Humane Imagination. New York: Oxbow Press. Black, J. (1998). Talking about regulation. Public Law, Spring, 77-105 Collins, H. (1999). Regulating contract. Oxford: Oxford University Press. Cooper, G. S. (2001). International experience with general anti-avoidance rules. SMU Law Review, 54, 83-130. D’Ascenzo, M. (2000). Along the road to Damascus: A framework for interpreting the tax law. Journal of Australian Taxation, 3(6), 384-391. D’Ascenzo, M. (2001). A practical guide on Part IVA (of the Income Tax Assessment Act). Paper to the 15th National Convention of the Taxation Institute of Australia, Sydney, 24 March 2001. D’Ascenzo, M. (2002). Part IVA and the common sense of a reasonable person. Paper to 2002 Queensland Taxation Institute Convention, Surfers Paradise, 17 May 2002. Department of the Treasury. (1999). The problem of corporate tax shelters: Discussion, analysis and legislative proposals. Washington, DC: Department of the Treasury. Read More