BULAW 5916 Taxation Law & Practice Assignment Help

BULAW 5916 Taxation Law & Practice Assignment Help

Task 1

Questions raised

Luxwood was established by dealers of different brands in 2011-12 as a private enterprise that is resident and manufactures quality furniture that is sold directly to customers. The work comprises of four entirely independent tasks. This form of customer engagement is applied by Luxwood:

The LuxRewards CardTM framework provides a non-refundable payment on the net revenue basis of each customer’s account for the last 12 months of the year on the anniversary of the issuance of the customer’s card. The amount is 2 percentage to 5000 dollars, 3 percentage to 5000 dollars and 4 percentage to 5000 dollars. No boundaries. No barriers. The loan should be used only to reduce the balance paid by LuxRewards CardTM in credit transactions.

For instance, Customer X begins his credit card account on 2nd February several years earlier, which ensures he has the right to a refund every year on the anniversary of his actual purchases within the last twelve months. The accrual is then generated on the basis of real profits after 2nd February on 29 June ‘s balance-date, but the actual credit does not have to be fully calculated and produced by the next year.

For the duration ending June 29, 2020, Luxwood estimates the debt for the loans to be of $230,000. In comparison, $255,000 has also been charged in the year ended 29 June 2000. The corporation expects a default loss of 10 percentage of the loans. 

Hence, in the following case the issue that has to be evaluated is whether the customer loyalty grant and credit point are deductible under the deduction s8-1 of ITAA 1997. The customer loyalty grant is the kind of fringe benefit tax that has been allotted by the seller to the customer for brand raising, customer retention and increasing customer spending on the company product. So, the tax law will be including is for deduction and fringe tax benefit as according to Australia taxation law.

The related laws, jurisprudence, ATO judgments and conclusions.

The entrepreneurs cover administrative expenses, such as taxation, payroll fees, paperwork, or parking penalties on personal credit cards. These points are reimbursed for numerous rewards, including flights, hotels, merchandise and coupons. The Australian Tax Office described the three conditions in which customer reward schemes will perform an audit and collect income tax and marginal benefit tax

The general rule related to the deduction section 8-1 of ITAA 1997 has been allowed to this case as in this case we are evaluating the future liability of the seller toward the customer has been regime through implication of the certain rules based.

  • Whether the firm has been established the separate account for showing the accrual balance and future creditability.
  • Does the transaction unit showing current liability that has going to meet in future?
  • Any loss and outgoing are carried out by the firm on the continuous basis.
  • Reward and the credit point have been taking place in present it does exist in future otherwise it is not called for the deduction under the section 8-1.

Deduction will not provide in this case 

  • If the firm has not being indulge in reward giving and outgoing barely done.
  • The expense that are offered is of capital nature is being completely abide in this case 
  • Privately owned goods are not considered in this case as per the tax rule of Australia taxation government.
  • The fringe benefit for deduction has been entitle as if the customer has been gaining some benefit out of it the liability that has been incurred by the firm has been liable for the deduction.

Sums are quantifiable or deductible.

As per the case the discussion based on tax determination according to Taxation Ruling TR 1999/6 ‘Income tax and fringe benefits tax as described under TD 2003/20.  That illustrate the customer loyalty grant is the grant that has given by the supplier to their customer and client for delivering benefit on the purchase making. To get the deduction under the customer loyalty clause there should be certain loss or outgoing should be incurred (at the time of deduction as per s8-1 of ITAA97). Hence, in this case the tax determination can be done on the value that has forming both statement for future liability and also stating the current liability has already meet while providing the reward. So, the value that has been liable for the deduction is on the present value $240000 that has estimated as it is because the outgoing is showing and this meet the s8-1 deduction rule of loss or outgoing should be held while allotting deduction and also clearly precise the future liability also.

Task 2:

Questions involved

In the last 9 years following implementation of this strategy Luxwood compiled figures and estimates that 65 percent of the compensation schemes under this programme are ensured by supplier assurances as a reliable estimate. Luxwood knows that this is the compensation scheme for recovering faulty goods ‘no questions posed. Hence, in this case we are going to estimate that whether the warranties cost that has been by the supplier for meeting the defective return will be liable under the deduction or not.

Disposals

 The rule that has been applied for understanding the deduction criteria under the warranties cost is that the supplier is subject to deduction if the repair and replacement has been consist of future liability as per the tax law IT 2648.   The rules that applicable in the general deduction as per s8-1 ITAA97 and 1936 will be applicable to this case. As the clause say incurred here is the estimation of the future liability at the time of deduction. The tax determination can be done through evaluating the future liability of the supplier that has been providing warranty cost if genuine repair and replacement has been required. As per the case of Commissioner of (NZ) v. Mitsubishi Motors New Zealand Ltd [1995], The tax rule (Taxation Ruling TR 93/20, par 109) illustrate that supplier, manufacture does not claim the deduction till the future estimated payment on the repair and replacement until liability to make payment has been incurred. So, there should be outgoing in the embedment of the warranty cost by the supplier to the customer.

Reasons for decision

The reason of the decision is warranty cost are deductible in the course when the repair facilitating and payment has been made in the course of business and does show the future liability. The taxpayer while claiming the deduction should show the liability to make payment for the repair and replacement on the goods that is defective and required repair. At time when the outgoing has been done then the supplier will claim the estimated future liability for the deduction purposes at the assessment year. Hence, this is the reason of the decision as per deduction s8-1 of ITAA97 and the tax determination as per 2004/403.

Task 3:

Implicated concerns

Over the course of the year, the managing directors have been told about the arrival of a new company that is the same as Luxwood ‘s best seller. Work to restore losses has been taken. The problem must be overcome, but the organisation’s legal specialists are confident. Just $2,500 in court fees is billed on June 29, but there is around 25,000 dollars in excess as though there was no invoice received. The issue that has been arise in the overall case is the deductible liable toward the legal expenses that has been paid to the lawyer and its amount that has been charged is being discharge under the deduction clause.

General rules regarding the issues

 The general rule based on the deduction purpose income tax 1997 that has been allowed to the tax payer-

  • Expenses which are not incurred for assessing business income
  • Expenses which are incurred for earning assessable income
  • capital expenses or expenses in relation with capital nature
  • any expenses of personal nature
  • expenses incurred in relation with exempt or non-taxable income
  • expenses which had been specified as non-deductible expenses. 

There is certain case that has been estimating that legal expenses have been deductible as if the Australia taxation office has been allowed for the deduction. This can be state through the nexus test that assimilate that the expense is not in the capital nature and it include in the revenue expenses that has been deductible under the section 8-1 of ITAA97. Hence, this rule has been applied to overall case based on legal expenses statement.

Application and decision 

 As the company had paid $ 1500 on June 30, and the remaining there is a s additional payment of $24000, which have to be paid by the company. As per the estimation the payment that has been made to the lawyer is in the capital expenditure nature, so as per the section 8-1 deduction rule does not permit the capital nature expense as for deduction process. Hence this is reasoning the expenses that has been made is not allowed deduction in this case.

Any expenditure made for the capital nature and its relation; it is not allowed as per general deduction under the section 8(1) of Income Tax Act 1997.

Task 4:

Questions involved

The guest to Luxwood showroom glided in November 2018 on the steps and received medical injuries. She believed one of the steps was loose and began a case against Luxwood claiming her wounds had been incurred by the building’s bad state. So far, Luxwood has suffered 5,000 dollars in court cost and the action was not resolved on 29 June.

Disposals

To accept actual expenses as allowable deductions, the taxable gain or business operation of the taxpayer should be treated as either accidental or serious (AITR 236 (1949) 8 ATD 431). 78 CLR 47; (1949) 4 AITR 236).

Judicial expenditures must generally be omitted where they originate from everyday taxpayer’s activities and if the judiciary is connected more to the taxpayer’s revenue generation business (Magna Alloy and Analysis Pty Ltd v FC T 80 ATC 4542) rather than to the taxpayer’s revenue generating business (1989) the legal work of that person is more than just a secondary one.

In Magna Alloys, the decision of the Full Federal Court forms the strongest claim on the deductible of prosecution costs incurred in criminal cases.

In the battle against fraudulent theft, the taxpayers’ firm in Magna Alloys requested a legal derogation for some of its staff. This authorised deduction by the Federal Court reaffirmed the taxpayer’s assertion. The optimistic aspect of paragraph 51(2) of the Income Tax Assessment Act 1937, which was then unavoidable in the course of its transporting, (now paragraphs 9 to 1 of the ITAA 1998) was deemed to be met. It was found that it was reasonable for the interests of the taxpayer to safeguard the management and maintain the company picture against payment (Storm et al., 2020).

General rules for meeting the personal injuries claim

The claim is making for the compensation and damages of injuries made of personal nature or had been suffered with the person and or to the legal representative 

The claim should base for commission of act done wrong or against the statue

The settlement had been taken place in the way of written agreement in between only parties who wants to claim.

The general rules that has been applicable to the section 8-1 has been applied here too.

As per the case.‘ (Placer Pacific Management Pty v. Federal Commissioner of Taxation (1995) 95 ATC 4459; (1995) 31 ATR 253). The deduction is not allowed by the court because there is no existence of certain loss and ongoing that matter in the business operation and liable if the section8-1 deduction has been allowed. As in this case the personal injuries that a customer has been caused due to bad state. So as per the claim it evaluates the issue of the duty of care and the settlement liability. The nature of the claimant is based on the personal base as the company have to compensate for the injury as prescribed under the tort case law.

Application and decision 

 As it includes personnel expenses that are not included under the tax law deduction rule section 8-1 of ITAA97 as the it specified the compensation due to tort injuries clause. But deductibility has not been proven under the court as this is not allowable and it is not showing any kind of loss and outgoing in the business operation. Hence, the decision comes in order it has been compensatory as the personal injury has been present as per the tort case law but in contrary to tax law the deductibility has not been found, so it not marginalised under the deduction clause. That the reason it is neglected under the tax law.

References

Australia government. 2020. Deductions and Expenses: Legal Expenses in Course of Employment. [online] Available at: https://www.ato.gov.au/law/view/document?locid=%27aid/aid200127%27 [Accessed 20 September 2020].

Australia taxation office 2020. Customer loyalty grant deduction ruling [online] Available at: https://www.ato.gov.au/law/view/document?docid=TXD/TD200320/NAT/ATO/00001  [Accessed 19 September 2020].

Australia taxation office 2020. Warranty cost deduction [online] Available at: https://www.ato.gov.au/law/view/document?docid=AID/AID2004403/00001  [Accessed 19 September 2020].

FindLaw. 2020. Torts and Personal Injuries – FindLaw. [online] Available at: https://injury.findlaw.com/torts-and-personal-injuries.html [Accessed 20 September 2020].

Tax and Superannuation Newsroom | Tax & Super Australia. 2020. What Types of Legal Expenses Are Tax Deductible? [online] Available at: https://taxandsupernewsroom.com.au/types-legal-expenses-tax-deductible/  [Accessed 20 September 2020].