Discuss amounts would be as an allowable deduction against assessable income

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Question - Referring to relevant statutory provisions and common law, discuss whether, for the current income year, the following amounts would be as an allowable deduction against assessable income.

a) Provision for the estimated amount of trade debtors' accounts, which might not be collected.

b) An amount of $9,000 paid to a solicitor for preparing a partnership deed.

c) Newspapers purchased by an accountant who advises clients on financial and investment matters.

d) Travel cost of a business executive to attend a trade fair in London paid by the employer.

e) Speeding fines of $ 500 paid by an owner to a driver.

Answer 1 -

As per present valuation and taxation methods in Australia, corporate taxation methods have been changed due to highly unpredictable market aspects, and the present pandemic situation influences the present market conditions. Moreover, Australia holds the higher taxation rates globally and it impacts its internal business culture also. According to the maximum franking credit formula, the tax is calculated as:

Amount of franking credit * (1 - applicable gross rates)

Where the applicable gross rate also can be calculated by the formula

"(100% - the corporate tax rate of the company or employer for imputation tax purposes for the ongoing income year)/ the corporate tax rate of the specific company for imputation tax assessment purposes for the ongoing income year".

According to the rules of the economic year of 2021-2022, the corporate tax rate for the organization is charged under the $50 billion turnover in the prior year and it is not more than 80% with the base rate amounts of 30& passive income gradients (Office, 2020). The rates are decreased from the previous economic year of 2020-21 by almost 4% (26%).

As per the question, the total franking credit is considered as the total accessible income with all the accounts debits like the travel costing, solicitors costing ( $9000), debtors trades amounts, employees costing and speeding fines (500) are included. As per the corporate taxation rules, od Australia considered the valuation of the assets as per the dividend regulation.

According to the question, the employers credited $9000 to the solicitor and the newspaper providers also come under the dividend amount as it is considered due to client retention.

Answer 2 -

a) The section 25-35(1) described that the amount of the trade receivable must be actually written off only in that case the bad debt will be eligible as deduction. Here is also important that the ground of the debt which is not recoverable must be reasonable. And the all the possibilities of the recovery of the debt must be check by the taxpayer. Here in provision for bad debt there is not providing reasonable ground for the irrecoverable amount. Hence this amount is not deductible.

b) According to section 40-880, the assessee can claim deduction relating to the legal expenses for the establishing of new business project. This expense is related to the capital nature. And these expenses are allowable expenses. Here in the given case $9000 is an allowable expense which can be deductible. This is black hole expenses.

c) As per ITAA revenue expenses are allowable as a deduction. These expenses are incurred by assessee in the ordinary course of activities. Here in this case the news paper purchased by assessee is an ordinary business activity. It is revenue in nature. So these expenses are allowable expenses.

d) The nature of this expense is revenue. And this is business expenses. Travel expense for trade fair is covered under business expense. According to section 8-1 this expenses are allowable expense. So this expense can be allowable as deduction.

e) Under section 25-5 mentioned that the expenses which are connected with the breach of the legal provision are non allowable expenses for the deduction. Here $500 paid as fine. This fine is paid because of the over speeding which is violation of the legal provision. So this expense is not allowable.

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