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Taxation of Income in Australia

Division 26.1 of ITAA 1997 summarizes the allowable deductions that are used to reduce the amount if taxable income. On division 26.1, the Act details out the rules regarding the treatment of annual leave. This section of the law states that, the annual leave deductions should not be deducted from the operational expenses of a company. The annual leave expenses comprises amounts paid to forfeited annual leave. Generally, the amounts are paid on the demise of an employee or when an employee has transefered from the company. Despite the fact the company incurs this expense, according to the ITAA 1997, the deduction is not allowed.

Notably, the division of Tax prohibits against deduction of accrued leave transfer payment. The industrial law requires that where an employee has a pending leave, and he transfers to a new job, the new employer should be paid for the accruing leave. However, the taxation law requires that the amount paid by the company should not be included in the assessable deductions.

Division 25.1 of ITAA 1997 states that the repairs and maintenance expenses are allowed deduction which should be used to reduce the assessable income. However, the expenditure should not be capital in nature. Notably, the repairs and maintenance deductions should have been utilized to earn income for the entity that is deducting the expenses. However, if the property in which the expenses were used was not fully owned by the company, the expenses should be deducted on prorate basis. Nonetheless, capital expenditure should not be included in the deductions.

Court cases on repairs and maintenance expenses related expenses 

W Thomas & Co Pty Ltd v. FC of T (1965) 115 CLR 58 at 72; 14 ATD 78

The case details out the meaning of repairs and differentiates the meaning of repair from improvements.

 Court cases on annual leave deduction and other related expenses

Section 73-10 of the ITAA 1997 details out the facts about the deduction of annual leave deductions.

   section 83-30
section 83-10    
subsection 6-5(2)    
section 8-1    
Income Tax Assessment Act 1997
Legislative References:


Annual leave:

Repairs and Maintenance: