Deductions flowchart - Taxation law PDF

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deductions flowchart and sections - taxation law...

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(Taxable Income = Assessable Income – Deductions s 4-15(1))

DEDUCTIONS GENERAL DEDUCTIONS S 8-1 Must satisfy 1st or 2nd positive limb and NONE of the negative ones s 8-1(1)

1st Positive limb s 8-1(1)(a) *expenses incurred in gaining assessable income nexus tests inc: incidental/ relevant; essential character; form or legal; purpose; employment

2nd Positive limb s8-1 (1)(b) * expenses necessarily incurred in carrying on a business for the purpose producing/ gaining assessable income -nexus tests -necessarily -business

Then consider the negative tests as well 8-1(2) 1st Negative limb *Capital vs Income Business entity test Sun Newspapers v FCT (1939)

2nd Negative limb *Private or domestic expense ie: self education, home office travel, entertainment

3rd Negative limb *losses in relation to exempt income

4th Negative limb *specific provisions that limit deductions

____________________________________________________________________________________________________________________ SPECIFIC DEDUCTIONS Repairs Bad Debts S25-10 s25-35 Premises or Plant Must be bad, not doubtful Repair – deductible Improvement - not deductible FCT v Western Suburbs Cinema Ltd (1952)

Borrowing Expenses s25-25 (not interest payments) Travelling expenses s25-100 now can cover some travelling b/w 2 separate place of work

Income Tax Affairs Depreciation of Capital Items s25-5 Div 40 relates only to income tax * depreciable asset s40-30(1) recognised tax advisor * held ready for use s 40-25(1) * producing assessable income 40-25(2), s 40-25(7), Quarries Ltd. v FCT (1960) Cost of asset: Sub Div 40-c

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Also note Initial repairs TR 97/23, W. Thomas & Co P/L v FCT (1965) Odeon Associated Theatre v Jones [1972] Not In Aust

Effect life of asset: s 40-95 to s40- 110 Relevant rate of depreciation: s 40-65 to 40-75: Prime or Diminishing Black Hole expenses s 40-880(1)...