Taxation Case Study
Task one
Issues:
1. Are activities relating to use of land a business or a hobby?
2. Are the amounts related to the land deductible or not under general rules? * the loan to purchase the land and interest expense * council rates and insurance in respect of the land * payment to develop plans for proposed building
3. If no, is there a “specific deduction” section?
References:
ITAA97 s8-1---general deductions: you can deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, and you cannot deduct losses or outgoings that are capital, private or domestic, gaining exempt income and specifically excluded by the Act. Specific deductions: you can deduct from your assessable income an amount that a provision of this Act (outside this Division) allows you to deduct. s8-1---The test of whether a business is being carried on appear to be: 1.profitability 2.size 3.effort 4.bussiness records
Steele v FCT (1996)---no deductible. The expense was incurred too soon before the commencement of the income earning activity to be deductible.
Sun Newspapers Case (1938)---capital as once and for all and asset for the enduring benefit.
This case:
On July 1 2011, Hector Vector purchased a land and expected to build up accommodation. But the building project did not commence until 2016. On 1 August 2011, Hector does another business--- renting vacant land to a neighbouring earthmoving business to earn money. So it means that Hector have two businesses in respect of the land. $2000000 Hector borrowed from NBN bank is regarded as capital
Issues:
1. Are activities relating to use of land a business or a hobby?
2. Are the amounts related to the land deductible or not under general rules? * the loan to purchase the land and interest expense * council rates and insurance in respect of the land * payment to develop plans for proposed building
3. If no, is there a “specific deduction” section?
References:
ITAA97 s8-1---general deductions: you can deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, and you cannot deduct losses or outgoings that are capital, private or domestic, gaining exempt income and specifically excluded by the Act. Specific deductions: you can deduct from your assessable income an amount that a provision of this Act (outside this Division) allows you to deduct. s8-1---The test of whether a business is being carried on appear to be: 1.profitability 2.size 3.effort 4.bussiness records
Steele v FCT (1996)---no deductible. The expense was incurred too soon before the commencement of the income earning activity to be deductible.
Sun Newspapers Case (1938)---capital as once and for all and asset for the enduring benefit.
This case:
On July 1 2011, Hector Vector purchased a land and expected to build up accommodation. But the building project did not commence until 2016. On 1 August 2011, Hector does another business--- renting vacant land to a neighbouring earthmoving business to earn money. So it means that Hector have two businesses in respect of the land. $2000000 Hector borrowed from NBN bank is regarded as capital
References: Steele v FCT (1996)---no deductible. The expense was incurred too soon before the commencement of the income earning activity to be deductible. Sun Newspapers Case (1938)---capital as once and for all and asset for the enduring benefit. This case: Centrelink Unemployment benefit (NewStart Allowance) 1950 Net rent loss 5200-7500= -2300 (2300) Computer 1850*200%/4*60%*150/365=228 (228) Other deductible expenditure relating to Australian income (1000) Taxable income 78685 Tax payable (78685-37000)*30%+4650=17155.5 17155.5 Less tax offset Imputation credit 3800*(30/70)=1629 (1629) Foreign tax (<1000) (995) ADD Medicare levy 78685*1.5%=1180 1180 Medicare levy surcharge 78685+2500+3300+2300=86785*1%=868 868 Flood levy (78685-50000)*0.5%=143 143 Less PAYG (21000) Refund 2665.5