Topic: Taxation Law Essay Example

Lecturer:

Topic: Taxation Law

For an expense to be classified as outgoing, there must be some payments being made. To qualify to be in the positive part, the outgoing must be incurred in generating the assessable income of the taxpayer, or it is necessarily incurred on business for the purpose of generating the assessable income. In this case, Peter uses the mortgage to secure a loan to buy a new house which he moves into. Therefore the loan is not used in generating any income as it is used in private who makes it not qualify to be the positive part. If Peter could have moved used the loan money in purchasing a business from where he could be earning revenue, the interest could be deductable but buying a new house and moving into it amounts to a private investment hence the disqualification from the positive part. For David, the loan he secures is used to purchase a new house. He does not move into the new house and instead, he leases it hence earns income from it. Therefore the loan money is used in generating David’s assessable income. This makes interest outgoings on David’s loan qualify to be on the positive part of s8-1.

When Michael invested ion shares, he was expecting to be receiving dividends which would form part of his taxable income. Therefore the loan money had then been used to generate Michael’s assessable income. This made the interest outgoing during this period qualify to be in the positive part if the s8-1. When Michael received the $600000 inheritance and repaid the loan, there were no interests accrued, so there are no claims during the period. The withdrawal of the money gotten for the will meant that the loan was still active since the money that had been used to settle the loan was withdrawn. This led to the interest being incurred on loan. The money withdrawn was invested on a private beach house. Before the inheritance money was deposited the interest outgoings qualified to be in the positive part since it was incurred in purchasing shares which contributed to Michael’s assessable income. The inheritance money acted like it had cleared the loan and so when it was withdrawn; it was like Michael took a new loan. Therefore since the money was withdrawn for private investment which did not contribute to the assessable income, the interest outgoings henceforth ceased from being deductible and therefore not qualifying for the positive part. Michael had some options to ensure that the interests incurred continued being deductible:

1. He could have invested the same amount into shares or any other income earning investment.

2. He could have deposited the sum into a different account.

1. In, this case the individual had to make a decision whether to travel to Sydney or not. Secondly, at the time of expense, it was not contributing to the assessable income of the said individual. The expense was an ordinary expense and was not incurred as part of any operation of getting assessable income. From the itinerant worker’s cases, the expense could have been deductible only if it was a requirement that the individual travels to Sydney to complete an operation which is outside their workplace. Therefore the expense fails to fall under the positive part.

2. The shop assistant travel expense from their full-time job to their part time job and then to their home can be characterized in the itinerant workers Lunney’s case. She had to travel from her home to the workplace and back. In the ruling, the expense was declared not deductible. Their Honours took the view that the expenditure was characterized as personal or living expenses rather than business expenses and therefore could not be deducted from the assessable income. The expense the stated could not be said to be incurred in gaining or producing a taxpayer’s assessable income and could be at most described as a necessary consequence of living in one place and working in another.

3. The case of Arthur is similar to the case of Vogt. In this case, Arthur earned income by performing at various events in different places. Therefore he has to travel to the events to perform and earn income. Traveling in his car is necessary so as to perform well. Drums are bulky, and therefore it is essential they be carried by a motor vehicle, and he has to take the drums home for practicing. Therefore the expense occurred as a result of the necessity of getting the instruments to the place of performance. The very nature of his work requires he has traveled at his disposal so as to obey the summons to attend the performance. Therefore the expense qualifies to be in the positive part as it is deductible.

1. In this case, the business is new and therefore any expenditure is capital by the owners. The mechanic is purchasing their first toolkit which is then classified as a capital expenditure. Under section 8-1 capital expenditure is not deductible.

2. There is a nexus between the tools and the available income of the mechanic. If the mechanic does not replace the tools, they will not be able to carry out the activities of repairing which leads to them earning income. Therefore the replacement contributes to the generation of the assessable income and therefore is deductible.

3. The printing press is already in existence and has been printing. A new printing plant will lead to increase in their earnings. There is, therefore, the nexus between investing in the new facility and the business’ assessable income. The investment also falls under capital investment which is not deductible. Therefore the most appropriate category for the taxpayer is the first one where the plant contributes to plants taxable income. Therefore the outgoing is deductible but will be claimed periodically until the tenth year. The whole amount will not be deducted at once but rather in portions.

References

Goode, Richard B. The individual income tax. Brookings Institution, 2012.

Lehman, G. J., and C. F. Coleman. Taxation law in Australia. Butterworth-Heinemann, 2009.

Braithwaite, Valerie. «Responsive regulation and taxation: Introduction.» Law & Policy 29.1 (2013): 3-10.