Practical Use of Australian Tax Law - Assignment Example

Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Taxation Law Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Taxation Law Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Instructor Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Submitted (i) In this case, the high court made an observation that there was no relevant definition of the term “income” in the cases that it was being used. The used of the term was being restricted to its use in the business affairs. The term as often used in the ordinary sense refers to the flow of cash or any other resources that is normally detached from the actual capital. Thus, it has always been left out to the courts to determine the real definition of the term income by determining the boundaries that have been left open. This is done by case to case basis. This implies that the courts have proceeded in the ‘traditional way of stating what positive factor or factors in each given case led to a decision assigning the expenditure to capital or to income as the case might be. This lead to the improvisation of a principle that was to aid in the determination of outgoings and receipts are to be considered as capital account or revenue1. The ruling of the case has an effect on how consolidated group’s tax and other liabilities are affected by the history rule. Through the case we identify that a consolidated group often inherits the tax history of the subsidiary members who are joining the group. The history rule purposes to ensure that all that happened before the new subsidiary members joined the consolidated group is assumed to have occurred in respect to the head or original firm to ensure that the calculations of the future income liabilities and tax of the head company are up to date. According to section 701-5 of the Income Tax Assessment Act 1997, the taxation liabilities that relate to the head company’s pre-consolidation periods have no effect on the responsibilities of the new entities2. It was thus agreed that the income in the hands of the receipts are the determining factor of whether it qualifies to be income or not. This simply meant that receipts that are in the hands of the payee may be classified as income even if they were intended to be capital expenditure in the payer’s nature. Generally, the principle stated gave a direction that prepaid income for services which have not been provided is only derived after the purported services have been rendered. This can only be an exception if the income being paid on the services to be provided is non refundable. This principle according to the taxation ruling TR 93/11 is to be extended to prepaid income on goods that have not been delivered. it is also vital to note that the income that has been recognized on the basis of accruals can only be derived ordinarily after the tax payer has done all the necessary to become entitled to the payment. This is in regardless of when the payment will be provided and provided that this payment is non-contingent3. Deductions for expenditure that the head company may be entitled to that are incurred by the new entities before they join the group include gift deductions, borrowing expenses, water, electricity and internet connection costs. In addition, the firm may also be entitled to be deducted for debts that have brought into the consolidated group if it goes bad in accordance with subdivision 709-D of the Explanatory Memorandum to Tax Laws amendment Bill 2004. From the case we are also we aware that income is derived and assessed only after the services at are to be made for the payments are carried out. The services are the head company is to make an inclusion of relevant amounts as assessable income to cover the period through which are to be provided. The Division 716 of the ITTA 1997 gives direction for the cases where specific Acts require that some assessable deductions or incomes are to spread over 2 or more periods. This also gives specifications of how the history of income in relation to assessable deductions or income that has been inherited under the history entry rule4. Moreover, there are other areas where the history rule will have to apply which among others include the status on the assets in regards to the pre-CGTwhich have been acquired into the group through the subsidiary members and the private rulings that have been issued on the entity before they joined the company or the consolidated group. in this case, the Arthur Murray principle will have to apply as the it will help in the determination of whether the income to be derived is in the form of accruals or receipts5. (ii) a) RIP’s taxation of the services has to be in accordance with section 6-5 of the Income Tax Assessment Act 1997 at the exact time it is derived. Since the company gets paid under a net 30 days invoice thus receipts that are in the hands of the payee are to be classified as income even if they were intended to be capital expenditure in the payer’s nature. The firm has to pay tax on the income it receives from the Rippers Finance Pty Ltd, which it normally pays in instalments. The firm is also to pay tax on the in amount of income it receives from the funeral plans in which the clients pay in anticipation that the firm will offer them funeral services in the near future. In addition, the firm is expected to pay tax on the income from the receipts that are credited to a Deferred Income Liability Account6. b) The Arthur Murray principle does not apply in both cases as the services to be provided have not been prepaid. The services are to be paid after the firm has either submitted 30 day net invoice or 30 day arrangement pay agreement plan7. c) The commissioner has no other option as the income derived by the company is on the basis of accruals that are appropriate depending on the specifications of the firm. The derivational time for the accruals are not however very clear. The only clear mode through which the provision of the firm’s reflex is substantially correct. Since the income is derived from the services that are provided on as and is based on accruals thus each case will depend on the facts8. iii) Despite the services not being provided in this case, the Arthur Murray principle will apply. The amount received by the firm is non refundable in practice and contractually. the taxation will thus be derived from the amount payable in the Funeral Plan 1 of $225,000 but not on the Funeral plan No.2 as the services will not have been provided thus, the firm is not entitled to be paid the amount9. d) Income in the accrual basis is only attained from debts that can be recovered. The amount in question cannot be recovered thus; the amounts will not be entitled to taxation. The income is only assessable upon happenings10. b) i) The caskets and other range of accessories do not qualify to be trading stock for tax purposes as they are to be used to get the assessable income that will be liable for taxation. The assets are not liable for taxation as the purchase of the stock attracted a percentage tax per item. The $25,000 will have to attract taxation as this is meant to acquire assets that are yet to be delivered11. ii) The profit that the firm will acquire from the sale of the stock will be subject to capital gains tax. The firm will however be expected to get an exemption per year. If the firm will not have any other capital gains from the then the firm will not be able to gain any other capital gains. The firm has to declare the profit returns as they are made per item or stock sale on the tax return as the total sales proceed the $36,000 for all the items. This will be able to determine the tax equivalent for the specific items12. iii) Under s8-1, Div 40 or Div 43 the amounts that will be expected to be taxable in the assessable income will would be on increasing adjustments. This will be relevant for the firm not to have exclusions from the income that is attributable. The firm will have to keep the account of all the other stock profit amounts for tax recording purposes. This is a departure from the normal treatment of tax exemptions from the derived income. This are part of the modifications put in the adjustments of the normal operations of the taxation act is normally used in the calculation of the attributable income. The draft legislations are to use the tax value contained in the subdivision 45-D to arrive at the tax value of the interest that has been acquired from the profits13. iv) Taxable income $ 2.5 m Added further assessable amounts from the income derived in advance $300,000 Less further deductions on expenses from borrowing and or bad debt $250,765 Rental fee $329 000 Taxable income $64007.83 Read More