MLC301 - Topic 4 PDF

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Topic 4: Dedications 1) General Dedications A) Overview s8-1 Section 8-10 – No double deductions “Loss and Outgoing” o

Charles Moore v FCT (1956) – Robbed on the way to the bank “in gaining or producing Assessable Income P383

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FCT v La Rosa (2003) – Drug dealer who robbed losses are deductible after this Section 26-54 was bright in P389 

Section 26-54 now denies deductions

“To the extent that”   

Loss or outgoing related to production of assessable income o Ronpibon Tin(1949 Not weather loss or outgoing is necessary o Snowden & Wilson (1958) Another purpose of the loss or outgoing o Ure (1981) – Took out loan for 7.5 leased to wife for 1% private amount P416 o Fletcher (1992) – Interest high did not intend to arrangement until it generated income P416

EXTRACT FROM LEG. 8-1 General deductions (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income; or (d) a provision of this Act prevents you from deducting it. For a summary list of provisions about deductions, see section 12-5. (3) A loss or outgoing that you can deduct under this section is called a general deduction. 8-10 No double deductions If 2 or more provisions of this Act allow you deductions in respect of the same amount (whether for the same income year or different income years), you can deduct only under the provision that is most appropriate. B) First Positive Limb Section 8-1(1)(a) – The expenses is in the result of earning assessable income NEXUS Cased Business o Placer Pacific (1995) o Jones (2002) Future Assessable Income o Steele (1999) o Fin (1961)

Incidental and Relevant Test o o

Ronpibon Tin (1949) Day (2008) – Charged with failing to fulfil his duties as an office made deductable as it flowed from income P387

Essential Character Test o o

Charles Moore (1956) Herald & Weekly Times (1932) – Respect to libel claims made against it damages were deductible P387

Term of employment o o

Finn (1961) Wilkinson (1983)

C) Second Positive Limb Section 8-1(1)(b) – Necessarily incurred in carrying on a business (Does not mean required, does mean adapted or appropriate) o Ronpibon Tin (1949) o Magna Alloys & Research (1980) – Legal expenses incurred in defending itself in curt proceedings and deductible P389 Does not Apply to personal exertion o o

Maddalena (1971) P419 Spriggs (2009) P419, Riddell (2009)

Legal Rights – Objective purpose o

South Australian Battery Makers (1978) – Rental Payments amount payments capital but made deductable P415

Purposive Approach – Subjective Purpose  

Ure (1981) – Took out loan for 7.5 leased to wife for 1% private amount P416 Fletcher (1992) – Interest high did not intend to arrangement until it generated income P416

2) Exclusions from deductions A) Capital Exclusion Section 8-1(2)(a) – Not capital or capital in nature Sun Newspapers (1938) – Agree to not make papers in a radius. That classified as capital in nature under the Profit yielding structure test. P397 Profit Yielding Structure Test o Changes to the profit yielding structure (capital) o Operations of the structure Broken Hill Theatres (1952) – Blocking a competitor from opening a cinema not datable aided the profit yielding structure P457  BP Australia (1965) – Where classified as deducible as it was keeping up with competitors P400  Magna Alloys & Research (1980) – Legal expenses incurred in defending itself in curt proceedings and deductible P389 More examples relating to legal costs and fines 

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Herald Weekly Times (1932) – Respect to libel claims made against it damages were deductible P387 Hallstroms (1946) – Blocking a competitor a competitor’s application to Day (2008) – Charged with failing to fulfil his duties as an office made deductable as it flowed from income P387

B) Private Exclusion Section 8-1 (2)(b) – Not private or domestic expenses  Relocation Expenses o Fullerton (1991) – Not deductable as before assemble income P421  Child Care o Lodge (1972) – Not deductible for employee but for employer P421  Travel from home to work to home o Lunney (1958) o Wiener (1978) – Deducible for teachers that are itinerant workers P424 o Collings (1976) – Working at home when called into work decantable P423  Travel between work or in relation to work o Payne (2001) – Not decantable as not in the process of earning Income P427 o s 25-100 – Makes travel between to places of work decantable given its not a home one of the places. 

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Overseas travel o

Finn (1961) – Work related travel expense made decantable P437

o

Apportionment of fixed cost for amount that is private

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s 26-30

Self-Education o

Hatchett (1971) – Teachers High Certificate when she is a teacher was decantable P433

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Sec 26-19 - excludes deduction for rebatable benefit. – HECS-HELP (Anstis)

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s 82A - excludes first $250

Home Office Expenses o

Forsyth (1981) – No deduction for office expenses if rental property P446

o

Handley (1981) – Office expenses like power gas and but demining Occupancy Expenses (Interest) P446

o

Faichney (1972) – Work related study at home decantable

o

Swinford (1984)

Clothing o

Edwards (1994) – Allowed dedication for clothing as she would not overwise wear the clothing P449

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Mansfield (1995) – Shoes, stockings, moistures made decantable as important part of occupation and uniform P450

o

Morris (2002) – Dedication allowed for all sun protection items P451

o

Protective clothing – Always deducible

o

Div 34 – uniforms – Register uniform

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Newspapers Trade journals etc

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Fitness Expenses o

TD 93/112, 114, TR 95/13 - Only if for occupation – (Profession Sports Man)

C) Legislative Exclusion (Section 8-1(2)(c))  s 26-5 – penalties and fines  s 26-10 – provisions for leave  s 26-19 – rebatable benefits eg Youth Allowance  s 26-20 – HECS-HELP payments  s 26-30 – Relatives Travel expenses  S 26-31 – Travel relating to earning rental income  s 26-35 – Payments to related entities must be reasonable  s 26-40 – Maintaining family  s 26-45 – Club membership  s 26-50 – Leisure facility  s 26-52/53 – Bribes made to public officials  s 26-54 – Expenses relating to illegal activities  Div 27 - GST credits  Div 32 - Entertainment expenses  s 32-5: No deduction for entertainment  s 32-10: Entertainment means: food, drink or recreation Subdiv 32-B – Exceptions to exclusion Only deductible if s 8-1 applies Example: Employee Expenses, seminars 4 hrs or longer  Div 34 : Non-compulsory uniforms 3) Specific Deductions A) Repairs Section 25-10 – Repairs is not capital 25-10(3), Decided as a question of face, restoration by renewal, replacement or subsidiary part of entirety. o Lindsay (1961) – definition of entirety (The repayment of the whole or half the asset) P472 o Western Suburbs Cinemas (1952) – improvement is not a repair replacement celling P471 o Law Shipping Co Ltd v IRC (1924) – initial repair is capital P469 o Wates v Rowland (1952) B) Bad Debts Only possible if the accruals accounting s 25-35(1)(b) – bad debts of a money lender s 25-35(5) - Special rules for bad debt of a company Requirements 1. s 25-35(1): There must be a debt  AGC Ltd (1975)  Point (1971) – No dedication for fist year not actually been written off and no debt in existence at the second year P476 o barred by statute o debtor has died without leaving assets

2. 3.

o debtor and assets cannot be traced o abandoned due to business reasons s 25-35(1): The debt must be written off during the year s 25-35(1)(a): The debt must have been assessable income at one stage

C) Other Deductions o s 25-5 - Tax-related expenses  Not capital expenses  Recognised tax advisor lawyer – s 25-5(2)(c). o s 25-20 & 110 - lease document expenses o s 25-25 - Borrowing expenses o s 25-30 - Mortgage discharge expenses o s 25-60 & 70 - Election expenses o s 25-100 – travel between places of income  Direct and neither place is where you live  Not capital o Div 30 - gifts over $2 where approved P481  Subdiv 30-A - requested D) Tax Losses Section 36-15 - Tax losses of previous years are allowed as a deduction Losses are carried forward indefinitely if they cannot be used o Does not related to Passive investments (Negative Gearing) o Income test $20,000; or o Taxable income for 3 of last 5 years; or o Real property => $500,000; or o Other assets => $100,000. E) Capital Allowance Div 40 – Unified Capital Allowance Section 40-25 – Debut decline in value of depreciable asset

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Depreciating asset 40-30 defined as assets with limited effective life, excludes:  1/7/17 – second-hand assets used in rental property  Trading stock  Land  Intangibles (unless listed s 40-30(2))  Div 43 deductions (building write-off) – s 40-45(2) 40-50 – avoids double deductions 40-60 – Depreciation begins when first used or installed ready for use. Methods of depreciation 40-65: Choice of 2 methods of depreciation  40-70: Diminishing value depreciation = Base value x (days held/365) x (200%/effective life yrs)  40-75: Prime cost depreciation = Cost x (days held/365) x (100%/effective life yrs) Effective Life - Section 40-95 Choose between own or C’er effective life  40-95(7): Rates for intangibles set by Act – proposal self-assess for high risk innovative businesses (1/7/16).

40-105: number of yrs asset can produce assessable income assuming good maintenance  40-110: can be changed during life Immediate Write off 1. 40-80(2): Items under $300, 100% in year of purchase. 2. 40-425:...