In the current accounting era, everyone has rough information regarding the concept of taxation. It happens to be an essential process through which people can pay tax to the concerned government on the total net income generated during the year. It has been determined that the right of taxation is based upon the theory that is the primary source of the existence of local governments. However, it has been determined that with the help of a specific taxation nation can easily be able to regular their business operation and contribute more to the growth of the economy (Fisher and Wassmer, 2015). Therefore, it is important to have specific knowledge regarding the various law and regulations that are followed within the country. This report tends to provide vital information regarding the two respective case studies in which the discussion is based on the casino's prepaid rents, whether it is applicable as revenue or capital expenses. Similarly, the other case is based on providing advice to Alex regarding the traveling expense rules.
(a): Material facts regarding the case
According to the given case study, it has been determined that John has got approval to open a new casino in the city of Melbourne with a maximum of 10 years' license from the Victorian governments. Apart from this, John has also acquired the right for casino development for maximum 90 years time limit with a total of the estimated cost of $180 million. For this purpose, he is liable to pay an $80 million as prepaid rent for the period of 10 years as rent. After getting negotiated with the party he has not had the option of pay a sum of $400000 as rent for the total leftover 80 years.
(b): Analysis of the issues
The primary issues with the agreement are the different rent and capital expenses for the casino. It has created a serious dilemma for John to categorize the value of $ 80 million as revenue or record it as a capital expenditure. According to the ITAA act 1997 section 40.880, it has been clearly stated that the business capital expenses are deductible for over 5 years of close to whichever is earlier in the case of any new start-up projects. The value must be in equal proportion for the decided period (Higgins, 2014). As per section 2A, John can deduct the capital expenditure from the total income which is kept for the construction work. However, in regard to the tangible assets could be considered as revenue assets at the time when it is acquired by the owner for its profit motive. Apart from this, if any damage occurs with the assets for a short period, the purchase of capital assets could be charged accordingly for a longer period. Similarly, the capital expense is generally a value that is spent to attain or used to improve the capabilities for the maximum period is applicable as per the ITAA act. The cost would be allocated to the depreciated value over the total life of the property. Therefore, the amount will be considered as capital expenditure for John as it is kept for a period of 80 years. Thus, the expenses generated for the maintenance of the casino because it can provide revenue to John in the future is categorized as a revenue expense.
(c): Application of tax law
In regards to the ITAA act, John has taken a property license for the period of 90 years for the construction of a casino with a valuable cost of $ 180 million as well as $ 80 million is considered as prepaid rent. However, the total amount which is paid by John for the casino has amounted to $400000 per annum (Apps, Van Long and Rees, 2014). Therefore, the total cost is categorized as capital expenses because it is considered as long-term projects with a total value of $ 80 million as rent should be analyzed as a capital expense. Moreover, the profit generated from the operation of the casino could be marked as revenue expenses because it is also regulated for a period of 80 years. Similarly, the total cost of $ 400000 per annum would be its final revenue that has incurred during the time as profit.
(d): Identification of lump sum rental payment
According to the legislation of the ITAA act, the payment, as well as allowance, is paid under div 3 of sec 3. The total value pays by John for attaining an operation license from the Victorian government was amounted to $ 180 million for the tenure of 90 years. Although it is a long term investments project therefore it is considered as the capital expense for John. Apart from this, the final value that has been kept as prepaid rent is considered for a period of 10 years. Therefore, the final amount of $270 million should be included as a capital expense as per the regulation of ITAA, 1997 (Oats, 2012). However, as a rent he needs to pay a total of $400000 per year could be considered as a revenue expense. Moreover, the act also provides certain deduction under the ITAA act because the capital expenses cost would be invested for the period of 80 years, whereas the revenue expenditure charged for John as rent paid each year would also be included in the same terms and laws.
(e): Correct information and taxation law
The case study has provided specific information regarding the sources of revenue and capital expenses application. As it has been found that the entire case has indicated the capital expenses for John. According to the ITAA act 1997 under section 40.885 (5)d, John does not have any right to get exemption on the expenses incurred during the time (Taylor and Richardson, 2014). This particular section has provided specific information regarding the administration of land tax as the expense has a direct link to the lease or duties held by an organization other than the liable person. This particular right does not offer entire ownership of property as well as could not be allowed any kind of tax deduction.
(f): Understanding of the case
In the context with the case scenario, it has been clearly identified that john needs to consider the value as capital expenses because the property is taken for a period of 90 years. It has been analyzed from the case that in the case any expense that has been occurred to get a lease agreement would not be liable to have any kind of tax deduction. The important facts regarding the case are as mentioned below:
John has paid $ 180 million for getting licenses for casino construction is categorized as a capital expense.
The total prepaid rent of $80 for the 10 years time period is also included in the capital expenditure head.
The value of $ 400000 as lease rent annually is considered as net profit for John, therefore it is considered as revenue expenses.
(a): Material facts
According to the given case situation, Alex Kingsford is working for ABC Engineering as a mechanical engineer in the Dandenong along with his family members. It tends to be involved in a food catering business. He intends to work for around 15 days in a month as well as generate a reliable amount as a substantial income from the core operation. To reach its workshop he used to take a car or taxi. In the year 2019, he lodges a tax return asking for a specific deduction for the number of travelling expenses.
(b): Legal Issues in the case
From the entire scenario, it has been identified that Alex was facing problems with the amount of the travelling expense as a deduction for travelling between the ABC engineering workshops till the home-based catering store. Alex was quite confused with the deduction, whether it is applicable under the ITAA act 1997. It has been analyzing that as per the income tax regulation for travelling expenses could not be admissible because he is taking the car for its private purpose (Holzhauer, 2016). Although it can be accepted up to two different sources one for the ABC and other for Workshops. It has also provided specific information regarding the expenses that are considered only in the case a person is performing his work for personal purposes.
Exemption under ITAA 1997:
In this case, a person is taking services for its workshop to other alternative places as well as for its duties and then return to its original places.
Traveling done with the two different locations for serving a purpose with some other role for a company or shop is also accountable under the regulation.
The rules say that if an individual journey between the work location of the same employer and to travel home is considered admissible under section 25-100.
It could also be applied to a car expense with the deductibility of travel expenses under the rule of 8-1 equally to division 28 (Baltz and et.al., 2015).
A special allowance for living away from home is also provided to the person as compensation.
Expenditure that does not claim:
In the case travelling is done for any small activities such as courier picking on the way to the home location or any working place.
Expenses that are generated from driving between residence place to the workplace.
In the absence of any public transport services close to the working premises is also not considered in the tax deduction rules.
(c): Application of tax law
According to the ITAA act 1997, it can be analyzed that Alex who is running a catering service from the home and take the care to reach its ABC workshop shall not be liable for any kind of tax deduction. The admissible travelling expenditure consists of all those expenses when a person tends to work at home and travel to work for some other location should not be allowed for deduction (Chan, 2012).
(d): Understanding of the case
Throughout the entire case scenario, it has been understood that Alex Kingsford is in dilemma for whether he is liable for any travelling expenses for taking car services to reach its two identical places i.e, one of the home base businesses and another one is related to its office work. It has been determined that no deduction shall be provided to Alex because of the ITAA act regulations.
From the entire project report, it has been articulated that it is important to have specific information regarding the various tax rules and laws so that an idea regarding the different types of expenses could easily be identified. It can further be useful to increase the knowledge regarding the deductions that are applicable in future operations.
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