Income Taxation Law and Practice - Assignment Example

Income taxation law and practice Semester ----, 2015 Title: ---------- Author names: 18 May 2018 Module 1 i) Should Chesters return for tax purposes on a cash or accrual basis? For tax purposes the sale will take place once ownership and title has been transferred to buy. In this case it occurs when the final payment has been made. This implies for tax purposes cash basis should be used for goods under financial arrangements. ii) How should the company deal with payments received under the Homemakers’ Club arrangements? What tax consequences follow if customers default or fail to make all agreed payments? GIC is tax deductible will be deducted during the first year. The company will be required to include it as GST exclusive value in their assessable income during the calculation of assessable income. The main reason why the company will treat it as GST exclusive is because it is a contribution made in sales. GST is assumed to have been paid by the store meaning that it will be double taxation if it is recognized again iii) How is trading stock the subject of Homemakers’ Club arrangements to be dealt with? Income tax consequences of trading stock. Considering the above facts I will advice Company that trading stock the subject of Homemakers’ Club arrangements will lead to the tax assessable income when ownership has been transferred. This gain or loss will be assessed as other incomes. It should be noted that Chester will recognize a loss if the returns leads to a loss thus reducing the income accessible for tax. Matching stock in store will not qualify for allowable expense for tax purposes. Since the sales has not taken place then it can not be GST inclusive in the returns of the company. Module 2 the issues raised- the issues here whether amount of this are expense related or income related. Relevant law- since it is refundable credits will only be recognized when it matures, if the amount matures then the tax deductible expense increases. The tax reduced will not relate to the grants but to sales value of the stock. However, Chester’s will pay tax on grants regardless the losses he makes on the grants. Many proposals have been advanced to grant tax relief for expenditures on loyalty grants, including a deduction from sales and- a credit against tax. Against such tax incentives, it is argued that assistance to education can be granted more equitably and efficiently via an expenditure program (Australian Taxation Office, 2015). Yet, there is one form of tax relief for loyalty grants which would have particular merit as a tax device. Advice - I will advice the company to consider only matured expenses under loyalty grants to their customer for tax purposes. Module 3 i) the bonus receivable $223,000 is assessable income for the year ended 30 June 2015. If the value of bonus receivable is reduced then the tax will reduce marginally. ii) If either amount is not assessable income, how is it to be dealt with for taxation purposes? These earnings will be taxed, although they constitute a net income only to the extent that they exceed cost. Tax from income contributes to tax returns of any corporate. Taxing procedures involve handling of a company. Therefore, accounting in taxing process is relevant to ensure transparency, and integrity. Accounting done on taxes is known as tax accounting. Tax accounting is important to give a company feedback on tax returns. The accounting process also provides a company with reliable operation documents that are acceptable to the public. Module 4 the issues raised- The amount tax to be paid whether it is $25000 or not Relevant law -Tax treatment of provision to customers depends on the nature and in the case, it is provisions. This is because only a policy of the company has been used to determine amount of provision for warranties (Australian Taxation Office, 2015). The company will be required to declare the cost of the provision. They will apply for Business Activity Statement which will enable them make GST tax payable in liability. This makes it a fringe benefit which should be quantifiable to determine the amount of tax that should be paid. Under taxable tax assessment cost of made to improve income in relations to vessel cannot be considered taken in the process of production is allowable expense to the extent that it is necessary Advice - the amount is a provision which is not allowable expense for tax purpose. When it matures the tax on income will be will be reduced not because of the provision but on cost. If the value is considered then the tax will reduce marginally. Module 5 Identification of the issues rose - The issue in this case is whether the cost of Extensions is tax allowable since the law requires businesses to be subjected to all applicable taxes except on deductible expenses. Therefore the question is, is it possible for the workshop to have extensions costing being treated as an expense that is tax allowable according to the taxation law? Relevant provisions/case law - The issues and facts of this case is under extensions where it is required that a building can be extended in order to increase capacity of business. Before one changes the business premises care must be taken to ensure that there is no major business alteration. The acquisition of the materials and other services that will be used for extensions will be treated as sales where they are required to pay Goods and services Tax. The cost that will be considered under GST will include the value of the materials and services. Both the cost of the materials and labor will be considered as allowable expense for taxation. They will be required to declare the cost of the goods, transport, insurance and duty made to customs department. This GST payable is made at the port of entry. They will apply for Business Activity Statement which will enable them make GST tax payable in liability. The extension cost will be treated as an expense thus reducing taxation will first subjected GST. This makes it a fringe benefit which should be quantifiable to determine the amount of tax that should be paid. It is also subject to GST tax. Under taxable tax assessment cost made to improve income in relations to vessel can not be considered taken in the process of production is allowable expense to the extent that it is necessary (Australian Taxation Office, 2015). Advices - the cost will lead to be reduced assessable income not because of the costs of repair but on cost of purchasing the materials fixed on the sales. If the value of purchase is considered then the tax will reduce marginally (Australian Taxation Office, 2015). The tax reduced will not relate to the repairs but to reduced purchase value of the fixtures. It is important that in the event that the income becomes more than the expenses that cost is recovered. Module 6 The issue/issues - Legal expenses is an allowable expense on the company, but what amount, is it $1,500, $24,000 or $25,500? Thus, the issue is the amount of expense that will be deductible during year. As per the section the company should report the Legal expenses totaling $ 25,500 but only $1,500 and she does not need to pay tax on $24,000. Relevant provisions- the law relates to deductible expenses for tax purposes. The issue legal expenses for a case that still in court can not be treated as being an expenditure transaction especially id not expensed. It should be noted that the date of commencement and completion of the case is critical in determining tax consequences. Advise - The amount that is assessable/deductible deductable is $1500 while the provision of $24,000 will not be deductible during the current year. For any amount to be deductible there should be evidence supporting the expense. The company will be required to include it as GST exclusive value in their assessable income during the calculation of assessable income. The main reason why the company will treat it as GST exclusive. GST is assumed to have been paid by the store meaning that it will be double taxation if it is recognized again Module 7 Issues identified The issue here is whether the legal expenses incurred should be recognized as an expense to the company. Relevant law - the case the action has not been settled meaning that the expense has not been validated. The amount of $4,000 will not be recognized as an expense because the case might be thrown out of the court if the court finds that out that the visitor had contributory negligence. The court may also rule against the company. If the ruling against the company is made then it will be recognized as a legal expense. Advice – I will advice the company to deduct $4000 not during the current but the following year when the case is concluded. The company can not have reduced tax by recognizing the legal cost it is not allowable. The company will be required to include it as GST exclusive value in their assessable income during the calculation of assessable income. Module 8 Issues identified The issues involved in this case is whether the school fees paid by the company for the directors children is a tax allowable expense on part of the company or a benefit to the director. The argument that the children are future directors of the company is not legal. Relevant provisions/case law The law will require the business to be subjected to all applicable taxes but can allow the business to avoid as much tax as it can provided it is legally affirmed and not under tax evasion. According to Australian taxation office all tips allowances to the director or to his family is deemed to be income to the director. Therefore the company should recognize it as earnings to the director. Upon receipt the director should recognize it as income that is taxable because payments made are not related to business management. Advice I will advice the company to recognizer school fees paid to director’s children as the director’s benefit or remuneration which the director will be taxed upon as income. Anything beyond this will be treated as misappropriation of the company’s fund by the bonds of directors. I will also advice them to do away with the policy because it does not comply with the loss of the land. References Apps, P., & Rees, R. (2010). Australian Family Tax Reform and the Targeting Fallacy. Australian Economic Review , 43 (2), 153-75. Australian Taxation Office (2015). Stocks under financial arrangements Everest-Phillips, M. (2010). State-Building Taxation for Developing Countries: Principles for Reform. Development Policy Review, 28(1), 75-96. Fattah, C. (2010). Déjà Vu all over Again: Reexamining Fundamental Tax Reform and Evaluating the Feasibility of a Transaction Tax in the 111th Congress. Harvard Journal on Legislation , 47 (2), 327-57. Gravelle, J. (2009). Tax Havens: International Tax Avoidance and Evasion. National Tax Journal , 62 (4), 727-53. Read More