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    Taxation Assignment Help

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    Taxation Assignment Help


    Taxation Assignment Help

    Answer to question no-1

    : Differences between capital and revenue expenditure

    a)     Information of the case study

    In the given case study, John has applied for the license to run a casino in Melbourne city. The Victorian government has provided him with license for a period of 10 years. Additionally, the government has also provided him the authority of the casino building for period of 90 years. The cost of the getting license from the government was $180 million and the rent that must be paid for 10 years was $80 million. Apart from this, the rent that John must pay per year for next 80 years will be $400,000. The overall amount that he has paid is both revenue as well as capital expenditure (Australian taxation rules and regulation, 2020).

    b)     Identifying and analysing legal issues

    The issue that arises in the case study is to recognise whether the amount paid by John in the scenario will be revenue expenditure or capital expenditure.

    The revenue expenditure is the expenditure that is used on the assets of the company for a shorter period of time (Australian taxation rules and regulation, 2020).On the other hand, the capital expenditure is the expenditure that is applied on the assets that will be used for the longer period of time. In the case of John, he was granted the license for 10n years at the cost of $180 million and the rental payment he paid for 10 years was $80 million. This expenditure for the casino building is considered as revenue expenditure. However, he has to pay an amount of $400,000 at the end of every financial year (Australian taxation rules and regulation, 2020). This expenditure that he pays for the building is regarded as capital expenditure. This is so because he has to use the building for a period of 90 years. The expenses like repairing the damaged area or operational cost of the building is referred as revenue expenditure (Australian taxation rules and regulation, 2020).

    c)     Applicability of the tax law

    According to the income tax assessment act, 1997 (ITAA, 1997), the two types of expenditures that are generated while operating a business are of two types namely, capital expenditure and revenue expenditure (Australian taxation rules and regulation, 2020). The revenue expenditure involves all the costs that incurred in repairing the damages or paying the rents (Australian taxation rules and regulation, 2020). On the other hand, the expenses incur on the assets that are used for longer period are referred as capital expenditure. In the case of John, the amount used for issuing of license to run casino and the prepaid rent for the 10 years of time will occur under the category of capital expenditure. The license and the prepaid rent cost John $180 million and $80 million, respectively. Besides, the payment that John must make every year as the cost of rent is regarded as revenue expenditure and this expenditure will be continue for other 80 years (Australian taxation rules and regulation, 2020). However, according to the given case study, it can be concluded that the amount of license and the prepaid rent will be regarded as capital expenditure, while the rent of the building on yearly basis will be regarded as revenue expenditure (Australian taxation rules and regulation, 2020). And those expenses which are of the revenue in nature would be allowed as deduction if it is as per the taxation rules is allowed.

    d)     Identifying and analysing the lump sum amount of rent

    Lump sum amount is the amount of money that is paid once and not in instalments. The casino named Casino East is owned by John where he paid a huge amount to get the authority of license and the building (Australian taxation rules and regulation, 2020). The amount that he pays to get the authority of the license is $180 million, while the amount of the rent paid for prior 10 years is $80 million. On the other hand, John must pay an amount of $400,000 as the rent of the building for period of 80 years. In this case the amounts paid by him are capital and revenue expenditure. Revenue expenditure, according to ITAA, 1997, is the amount paid on short terms and the expenses made for longer period is capital expenses. The capital expense can be paid in instalments or as a lump sum of the total amount. The section 40-885(5)(d) of ITAA, 1997 states that the owner has no rights of deducting the amount that he has to pay for lease (Australian taxation rules and regulation, 2020). The expenses on the assets of the company are not under any kind of deduction and the whole amount must be paid to recognise the ownership of the property. Therefore, according to the given case study, it can be concluded that the amount of license and the prepaid rent will be regarded as capital expenditure, while the rent of the building on yearly basis will be regarded as revenue expenditure (Australian taxation rules and regulation, 2020).

    Serial number

    Particulars

    Costing

    Expenditure type

    1.      

    Money used in taking the authority of license for casino (Australian taxation rules and regulation, 2020).

    $180 million

    Capital expenditure

    2.      

    Prepaid rent for the casino for 10 years of time (Australian taxation rules and regulation, 2020).

    $80 million

    Capital expenditure

    3.      

    Rent of the building to be paid every year for 80 years (Australian taxation rules and regulation, 2020).

    $400,000

    Revenue expenditure

     

    Therefore, according to the given case study, it can be concluded that the amount of license and the prepaid rent will be regarded as capital expenditure, while the rent of the building on yearly basis will be regarded as revenue expenditure (Australian taxation rules and regulation, 2020) so it would be allowed as revenue expenditure and those related to the capital expenditure would be allowed for the same.

    Answer to question no-2

    Facts of case

    Alex is residing in Dandenong with his family and working as a mechanical engineer in Melbourne. Apart from working as an engineer, he also operates his catering business from his residence in which he prepares food for the school canteen and other residents. To earn the funds for his business, he performs his engineering work for 15 days in a month and for rest of the time, he runs his food catering business. For the purpose to travel between Melbourne and Dandenong, Alex uses his personal car and taxi which results the spent of large amount on travelling (White, and Townsend, 2018). Alex wants to claim the deduction for the amount incurred on travelling from his total taxable income and for this he wants to recognize the applicable taxation rulings (Australian taxation rules and regulation, 2020).

    Issue

    The issue arise here is related to the eligibility of traveling expenses for the deduction under the taxation rules of Australia.

    Income Tax Assessment Act 1997:

    In the ITAA, 1997 several business and personal expenses of a taxable individual are allowed for the deduction which also includes the travel expenses. However, the Act covers the travel expenses for deduction if these are incurred in context of transport, meal and accommodation of a person while travelling for the work purpose (Dyl, \2017). As per the several taxation rulings, the deductibility of travel expenses is based on the circumstances and nature of travel held by person (Australian taxation rules and regulation, 2020).. Some of the major allowed and disallowed travel expenses are categorized hereunder (Woellner, et al. 2010). The travel expenses incurred by an individual on personal interest shall not be entertained by the taxation law as deductible expenses (Australian taxation rules and regulation, 2020).

    income tax assessment act 1997

    Allowed Expenses

    Disallowed Expenses

    ·       If the expenses are related to the travel from workplace to another workplace such as travel from head office to branch office for work purpose (Australian taxation rules and regulation, 2020).

    ·       If the place of work has changed or the person is assigned with different work sites for purpose of work then the expenses incurred while travelling for those different work places (Australian taxation rules and regulation, 2020).

    ·       When an individual travels to office from home to serve the similar employer, which was previously located nearby his residence (Smith, 2018).

    ·       When an individual travels to different work places due to working duties (Australian taxation rules and regulation, 2020).

    ·       Any expenses paid to the driver or as a fair for flight, bus or taxi shall also be allowed for the deduction (Australian taxation rules and regulation, 2020).

    ·       Regular expenses incurred while traveling from home to office.

    ·       Where individual travels for a working purpose which is not related to the employer or related to another employer (Australian taxation rules and regulation, 2020).

    ·       If there is no availability of public transport in the way from office to home and person incurred expense to hire a car for travelling to home (Australian taxation rules and regulation, 2020).

    ·       If an employee travels to meet an assigned office work which he may even do while travelling to home (Australian taxation rules and regulation, 2020).

    ·       When an individual is assigned with office work at home then expenses incurred on travelling to office once a while for official purpose (Australian taxation rules and regulation, 2020).

    ·       Where an employee works for overtime then travel expenses incurred by him for going back to home (James, 2016). 

    ·        

     

    Hence the deductibility of travel expenses in context of business or job shall be allowed by assessing the nature and cause of travel (Australian taxation rules and regulation, 2020). While assessing the income and expenses of an individual for the purpose of taxation, the eligibility of each expense shall be evaluated as per the prescribed rules of taxation (Brown, & Efthim, 2015).

    Application

    It could be inferred by considering the facts of case and relevant taxation rules that travel expenses shall be allowed for deduction only if they incurred in the relation to business or work purpose (Ball, 2014). The travel expenses incurred by an individual on personal interest shall not be entertained by the taxation law as deductible expenses (Australian taxation rules and regulation, 2020). Alex travels from Melbourne to Dandenong for purpose of work and his business but the employer of his both works is not same. Hence, he works for an employer in Melbourne as an engineer and additionally runs catering business which is not related to the same employer (Chen, and Yuan, 2016). As it is mentioned in the above given list that any travel expenses incurred while travelling to another employer or working purpose shall not be allowed for deduction. Therefore, Alex cannot claim for the deduction of travelling expenses he incurs while travelling from Melbourne to Dandenong.

    Conclusion

    The proper taxation rules is required to be implemented with a view a view to determine the right amount of taxation liability.  Conclusively it could be stated that travel expenses which are occurred in relation to the employment under a single employer can be deductible from the taxable income of an individual. In the given case, Alex was serving for to different working purposes which do not have common employer or employment hence he would not be allowed to claim the deduction for travel expenses which he incurred for travelling between Melbourne and Dandenong.

    References

    White, J. and Townsend, A., 2018. Deductibility of employee travel expenses: The ATO's guidance. Taxation in Australia, 52(11), p.608.

    Smith, A., 2018, October. The fiscal impact of the trans‑Tasman travel arrangement: have the costs become too high?. In Australian Tax Forum (Vol. 33, No. 2).

    James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.

    Chen, H.S. and Yuan, J., 2016. A journey to save on travel expenses: The intentional buying process of consumers on opaque-selling websites. Journal of Hospitality Marketing & Management, 25(7), pp.820-840.

    Diewert, W. E., & Lawrence, D. A. (2018). The high costs of capital taxation in Australia. Agenda: A Journal of Policy Analysis and Reform, 355-361.

    Twite, G. (2011). Capital structure choices and taxes: Evidence from the Australian dividend imputation tax system. International Review of Finance2(4), 217-234.

    Ganghof, S. (2017). The political economy of high income taxation: Capital taxation, path dependence, and political institutions in Denmark. Comparative Political Studies40(9), 1059-1084.

    Dyl, E. A. (2017). Capital gains taxation and year‐end stock market behavior. The Journal of Finance32(1), 165-175.

    Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2010). Australian taxation law. CCH Australia.

    Brown, C., & Efthim, K. (2015). Effect of taxation on equal access share buybacks in Australia. International Review of Finance5(3‐4), 199-218.

    Ball, R. (2014). The natural taxation of capital gains and losses when incomes is taxed. Journal of Banking & Finance8(3), 471-481.

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