StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Deduction for the Purchase of Property - Assignment Example

Summary
The paper "Deduction for the Purchase of Property" discusses that capital gains tax (CGT) is applicable to assets acquired after 20th September 1985 and capital gains are made after realizing that such assets are included in assessable income and their taxing is done at ordinary rates of tax. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97% of users find it useful

Extract of sample "Deduction for the Purchase of Property"

UNSW UNSW Business School School of Taxation & Business Law LONG ASSIGNMENT COVERSHEET Taxation Law - TABL 5551 Semester One, 2016 Staple this coversheet (top left of page only) to the front of your submitted assignment answer ASSIGNMENT LODGMENT DETAILS Due Date and Time Thursday, 12 May 2016 by 12.00 noon (Late submissions not accepted) Place of Lodgment In designated box, Level 2 of Quadrangle Building STUDENT DETAILS AND ASSIGNMENT DETAILS (Compulsory, and write clearly) Surname/Last Name (Capital Letters) (Use officially enrolled name) First Name (Other Names) Student Number Official UNSW Email Address Other Email Address (Optional) Phone Number Words in Assignment Answer CHECKLIST (Answer accurately) Have You Addressed the Question Asked? Have you Proof Read for Spelling and other Writing Errors? Have you Proof Read for Assignment Presentation Issues? Have you read your Assignment out loud to yourself, or another person? Does your Answer Exceed the Word Limit? (Concentrate) STUDENT PLAGIARISM DECLARATION, ETC I hereby declare that this assignment answer is my own work, except where acknowledged, and has not been submitted for academic credit elsewhere. I acknowledge that the lecturer-in-charge may: (1) reproduce this item and provide a copy to another member of staff for the purpose of assessing the item and (2) communicate a copy of this item to a plagiarism checking service. I certify that I have read and fully understand the UNSW rules in regard to plagiarism and student academic misconduct. Signature: ________________________________________Date:__________________ Introduction Income from all trade transactions that Joan conducted is assessable. Joan will be able to claim a deduction for expenses incurred in gaining or generating the income or any expenditure that she necessarily incurred on the activity of gaining or generating the income as long as the expenditure was not capital, private or domestic in nature1. Assessable Income According to Section 25(1) of the Income Tax Assessment Act, 1936-1965 (Commonwealth), assessable income consists of “the gross income derived directly or indirectly” from all sources of income of a taxpayer2. During calculation of assessable income all amounts received from the business like selling trading stock, amounts over their written-down value when selling certain depreciating assets, grants, interests etc3. In this case, Joan’s assessable income includes the rent income the tenant paid $110 per week as from 30 April 2013 to 31 March 2014 and the $150,000 Joan received from selling the property she had bought. In the case Commissioner of Taxation v Stone (2005) 215 ALR 61, it was ruled that assessable income includes all gross earnings or proceeds including awards and grants. Therefore, Joan’s assessable income is: (110 × (4×12) + $150,000) = $155, 280. This is the only amount of money that Joan owned and as per Zobory v FCT 95 ATC 4251, for income to be assessable, the amount should be beneficially derived4. Deductibility Allowable deductions Division 8 of the ITAA 1997 includes general deductions as well as specific deductions. General deductions are loss or outgoing that can be deducted and they include any loss or outgoing to a level that the loss was incurred in gaining or production of the assessable income or the loss was incurred when performing business in order to gain or produce assessable income5. Nonetheless, a loss cannot be deducted if it is a loss or outgoing capital, loss that is private and domestic6. In this case, it is important to consider if Joan incurred the loss when gaining or producing assessable income or when doing business in order to produce assessable income because according to 8-1 of the ITAA 1997, general deductions depend on this7. Accordingly, it is vital that Joan’s assessable income was to be gained or produced. In this case, Joan incurred the loss when conducting business in order to produce assessable income. In addition, to be eligible for deduction under 8-1 of the ITAA 1997, a loss or outgoing should have been incurred. An individual incurs an outgoing when he/she owes an inescapable debt8. A taxpayer is not obligated to have paid any money to have incurred an outgoing as long as he or she is definitively committed within the income year9. Therefore, according to section 8-1a loss or outgoing can be incurred although it has not been paid as long as the taxpayer is 'entirely subjected' to the loss or outgoing. In the case Coles Myer Finance Pty Ltd v. FC of T 93 ATC 4214 at 4222; (1993) 25 ATR 95 at 105 ( Coles Myer ), it was ruled that the outgoing should be appropriately referable to the income year where the taxpayer is seeking deduction10. In this case, the deduction for Joan include the loss she incurred after selling the property, Interest incurred on the loan to Rural Bank Ltd in regard to Joan’s ownership of the rental property and council rates, a loan establishment fee by the Rural Bank Ltd on taking out the loan, paying $14,000 to the New Haven council for failure to retain the property, loan of $110,000 from the Rural Bank Ltd, as well as the lump sum of $6,000 that Joan paid in order to be granted a lease by the landlord. Positive limbs hypothesis necessities that the taxpayer should incur the expenditure that is related to the business being carried out. In this case, all the above expenditures that Joan incurred were related to the business she was carrying out11. In addition, according to s 40-880 items that qualify for deduction include: Expenses to set up the business Expenses to convert that business structure to different structure Expenses to raise equity for the business Costs incurred while stopping the business activities As far as positive limbs are involved, the items that qualify for deduction in Joan’s case include all costs and expenditures that she incurred while setting up the businesses any other cost related to her businesses To this far, the total items that qualify for deductions as per positive limbs include: Lump sum of $6,000 to be granted a lease for her business by the landlord Loan that Joan took of $110,000 from the Rural Bank Ltd Loan establishment fee by the Rural Bank Ltd of was $1,400 Loss of $10,000 after selling the property Joan paid $14,000 to the New Haven council for failure to retain the property Loan interests amounting to $20, 965 Rent of $240 per week (4×12) = 11,520 However, negative limbs that are mainly stipulated within s 40-880(5) outline that in case the expenditure falls within one of the negative limbs then deductions cannot be provided as per 40-880(2). The key negative limbs consist of: If the expenditure is a part of the cost of a depreciating asset The taxpayer can subtract the expenditure under another provision of the Act The expenditure can be accounted in the capital gain/capital loss12 Therefore, in this case all expenditures that Joan initially used as part of the cost of buying the property that was deprecating should be exempted from the deductions. As a result, the items that Joan can claim deductions for include: Lump sum of $6,000 to be granted a lease for her business by the landlord Rent of $240 per week (4×12) = 11,520 Deduction for the purchase of property Expenses on buying properties such as the one Joan bought are a capital nature according to the general deduction provision. The property is a depreciating asset according to s 40-30 but Division 40 is not applicable to the property that Joan bought because the property fulfills all requirements of s 43-10. The property was solely to be used as a general setting for Joan’s income activities. However, the property that Joan was buying is applicable to Division 4313. Capital gains Capital gains tax (CGT) is applicable to assets acquired after 20th September 1985 and capital gains are made after realising that such assets are included in assessable income and their taxing is done at ordinary rates of tax. Therefore, capital gains tax will be applied in the assets that Joan acquired to conduct her business. Capital losses are counterpoised only against capital gains. Accordingly, in this case since Joan made a loss of $10,000 after selling her property, capital loss will be offset against capital gains. In the case Myer Emporium Pty Ltd (1985) 85 A.T.C. 4111 it was held that making a sale for future rights, separated from the right to loan repayment is the sale of a structural asset and the proceeds generated from this should not be termed as part of the income and therefore should not be taxed14. Similarly, in this case Joan made a sale in order to avoid incurring further losses she was incurring and moreover she encountered losses after selling the property and hence the money she made from selling the property should not be termed as taxable income. References The Institute of Chartered Accountants in Australia, Allowable deductions – essentials, [The Institute of Chartered Accountants in Australia, 2012] Psaltis Alexander, Introduction to Taxation Law, [Psaltis, 2009] Parsons, R. W, Income Taxation in Australia Principles of Income, Deductibility and Tax Accounting, [University of Sydney Library Sydney, 2010] Coles Myer Finance Pty Ltd v. FC of T 93 ATC 4214 at 4222; (1993) 25 ATR 95 at 105 (Coles Myer ), Myer Emporium Pty Ltd (1985) 85 A.T.C. 4111 Zobory v FCT 95 ATC 4251 Section 25(1) of the Income Tax Assessment Act, 1936-1965 8-1 of the ITAA 1997 Read More

CHECK THESE SAMPLES OF Deduction for the Purchase of Property

Consumer Remedies for Poor Quality Goods

This right will not be available where the purchase or hiring is within the course of business and the defect is so insignificant that rejecting the goods would be unreasonable.... The White Paper policy was formulated to minimise differences in manners of purchase.... In contrast, in Bowes V Richardson & Son Ltd5, it was held that the consumer had the right to reject the car even after keeping it for seven months after purchase....
4 Pages (1000 words) Essay

SCHOOL FINANCE BUDGET REDUCTION PLAN AND JUSTIFICATION

SCHOOL FINANCE BUDGET REDUCTION PLAN AND JUSTIFICATION ... ntroduction ... he principal of all high schools in the suburbs of a large city are aware about a significant budget crisis looming throughout the state.... .... ... ... Introduction ... he principal of all high schools in the suburbs of a large city are aware about a significant budget crisis looming throughout the state....
7 Pages (1750 words) Essay

Eagle Home Products: Controlling Purchases and Materials Usage

The materials should be purchased without compromising the quality of materials at the cheapest cost in line with the purchase policy of the organization.... This requires product knowledge and negotiating skills on the part of the purchase manager.... This essay "Eagle Home Products: Controlling Purchases and Materials Usage" explores materials management activities related to purchasing, storing, and providing goods and services for production....
7 Pages (1750 words) Essay

Recommendation on Internal Control for Purchases, Payables, and Payments

The essay "Recommendation of Internal Control for Purchases, Payables, and Payments" focuses on the critical analysis of the sufficient understanding of internal control objectives in relation to the purchase, payable, and payment system of a company.... ... ... ... Internal Auditing is defined as an independent, objective assurance and consulting activity designed to add value and improve an organization's operations....
13 Pages (3250 words) Essay

The Primary Goal of the Macon Police Department

The primary goal of the Macon Police Department is to maintain social order within prescribed ethical and constitutional limits.... ?To attain this goal, the Departments role is to enforce the law in a fair and impartial manner, recognizing both the statutory and judicial.... ... ...   Included are the Departments responsibilities to: ...
4 Pages (1000 words) Essay

Legal Side of Property Ownership Disputes

The study "Legal Side of property Ownership Disputes", therefore, describes the principles of resolving legal disputes concerning the landlord disputes.... Property law is a part of a law that administrates the vast forms of property possession and the occupancy of rental apartments.... In early modern England there existed the 'Napoleonic code' which was the first act of property law in recent times that introduced the overall idea of total ownership merged with the rights of property that was personal and this was incorporated into various laws including the unique laws of Islam....
17 Pages (4250 words) Case Study

Discussing the Case Concerning Property Law in England

The paper "Discussing the Case Concerning property Law in England" highlights that the statement that equitable interests are not property rights is therefore not strictly correct as case law has demonstrated how the courts have given rights to persons whose interest has existed purely in equity.... When dealing with matters relating to property that has been found there is a general presumption that ownership is defined by the possession of the item....
14 Pages (3500 words) Coursework

The Law of Property

This assignment "The Law of property" deals with explaining the nature of the legal and equitable interests that may exist in the house, how Liam might realize the purchase value of any interest he might have and any ways in which Jonathan might assert rights in the property.... n 1,000-1,200 words, write a report explaining the nature of the legal and equitable interests that may exist in the house, how Liam might realize the purchase value of any interest he might have and any ways in which Jonathan might assert rights in the property....
9 Pages (2250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us