S7 Capital vs Revenue - Summary Taxation 1 PDF

Preview

Summary

summary of tax law...

Description

S7 Deduction——Revenue/capital expenditure Capital expenditures are not deductible under s 8-1. 一．三个 tests 1. The “once and for all” test (text p562) 1)

capital expenditure is a thing that is going to be spent once and for all

2)

revenue expenditure is a thing that is going to recur “every year” which is continuous and constant demand.

3)

Case Vallambrosa Rubber Co Ltd v Farmer

2. The enduring benefit test: 1)

where expenditure is made, not only once and for all, but with a view to bringing into existence an asset or advantage for the enduring benefit of a trade, it is a capital expenditure.

2)

Case British Insulated & Helsby Cables v Atherton

3. The business entity or process-structure test 1)

Is the expenditure one that establishes, acquires or adds to the taxpayer’s profit-earning structure

2)

or is the expense a cost of operating that structure?

3)

Case *Sun Newspapers Ltd; Associated Newspapers Ltd v FCT

二．Sun Newspapers 给出的三个判断标准 (1) the character of the advantage sought, and in this its lasting qualities may playa part [What is the advantage/asset, and how long will it last?] (2) the manner in which it is to be used, relied upon or enjoyed and in this and under the former head recurrence may play its part [How is the advantage used?]——如果是 used in continuous and recurrent 则是 revenue (3) the means adopted to obtain it; that is by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment [How was advantage paid for?] 三．简单一点的问法 1. Is the expense a working expense?——if so revenue 2. Is the expenditure one that establishes, acquires,protect, strengthen or adds to the taxpayer’s profit-earning structure ——Capital or is the expense a cost of operating that structure——Revenue 3. Is the expense one that is made to meet a continuous or constant demand——Revenue or is it made once and for all——Capital 4. Does the expense bring into existence an asset or an advantage for the enduring benefit of the taxpayer’s business? ——if so capital 四．其他散点 1. Fixed or circulating capital? 1)

Losses of circulating capital such as debts and expenditure to acquire items of circulating capital, such as trading stock, are on revenue account.

2)

The acquisition of a fixed asset is on capital account.

2. 垄断与一般经营 1)

monopoly position——Costs incurred to create, preserve or defend a monopoly position——capital outgoings

2)

routine business hazard——defending against a routine business hazard——revenue account

3)

eliminate a potential business rival ——capital in nature: Broken Hill Theatre Pty Ltd v FCT

3. Marketing expense is revenue National Australia Bank Ltd v FCT

Sun Newspaper Ltd v FCT (1938) 5 ATD 87 (structure vs process) (pp901-903)  Fact:The TP published evening newspaper, called Sun sell @$1 each. Its competitor 计划要出一种新的报纸 @$0.8 each, 然后 TP have agreement with competitor that 竞争者 can’t publish newspaper for 3 years within 300 miles of Sydney，而且还会 take over competitor’s equipments(Restrict)  Conclusion: Capital not deductible 

The expenditure is to strengthen and preserve the business organisaion (这个是本 case 最强的理由) Expenditure is incurred to remove competition, And the chief purpose of making the outgoings was to strengthen and reserve the TP’s existing business organisation and to acquire and asset (text p565)



3 年在这个行业算是 enduring



Once and for all?——might happen again——but not sufficient here

Broken Hill Theatre Pty Ltd v FCT (1952) 9 ATD 423 (pp123-125) 

Fact: The TP operated a number of motion picture theatres. He incurred legal costs in successfully opposing an



Conclusion:  The expenditure can not deductible as it made once and for all and with a view to brining into existence an

application by a potential new exhibitor to obtain a license to operate a motion picture theatre.

advantage for the lasting benefit of the motion picture business. (这个是总结不是理由) 

这个 expenditure 不是周期性的(recurrent)——since at the time the payment was made, it was impossible to predict whether or not future applications for licences would be made



What is the advantage?——the advantage of being free from competition and of all other competition for 12 months (text p568/569)

BP Australia Ltd v FCT (1965) 14 ATD 1 (casebook p92) Marketing expense is revenue 

Fact: The TP carried on business of distributing and selling petrol. When the new rival(竞争者) comes in, TP 也学 竞争者给加油站 inducement payment, offer 是给加油站$100 for every 1000 gallons purchased per month,而



加油站要保证在 3 年之内只用 TP 的汽油 Conclusion: Revenue——下面的理由是应用了 Sun Newspapers 给出的三个判断标准  What is the advantage/asset, and how long will it last? 是因为 sudden change in market 所以才有的这个花费 payment is recurrent, needs to reimburse——circulating capital not an enduring benefit 

How is the advantage used? Benefit was to be used in the continuous and recurrent struggle to get orders and sell petrol



How was advantage paid for? Not clear here

National Australia Bank Ltd v FCT 97 ATC 5153 (case p796) Follow the decision of BP Australia  Fact: 银行竞标得到了为国家某个项目的人提供贷款的”exclusive right”15 年，每年初要给国家$42m，这个钱

是 capital 还是 revenue expense?  Conclusion: revenue expense 

the character of the advantage sought?——what the bank sought is the expansion of its home loan customer base——in nature of a marketing expense



This payment did not confer it a monopoly over loans



It was incurred as part of the process by which the bank operated to obtain regular returns

Vallambrosa Rubber Co Ltd v Farmer (1910) 5 TC 529 (text p562)  Fact: TP 有个橡胶园，每年会产生很多 expense 像 weeding, pest control, superintendence of estate(不动产管理)， 但是 ATO 不给 deduct 全部，只 deduct 了七分之一，这个比例是橡胶园里已经开始产橡胶的树的比例  Conclusion: Fully deductible  Because these expenditures are necessary for the TP each year——not once and for all 

其实也不 enduring

British Insulated & Helsby Cables v Atherton (1926) 10 TC 155 (text p562) 

Fact: TP 花了$30,000 to form a pension fund for its staff



Conclusion: Capital in nature 

This fund is an asset of “enduring benefit”

FCT v Star City Pty Ltd 2009 ATC 20-093 (text p573) 

Fact: TP pay $120m of “rent” in relation to a 99-year lease of a NSW casino



Conclusion: Not deductible, capital 

这个 rent 不仅仅是租场地，更重要的是那个赌场经营的 licence，只有这个才能让 TP 顺利经营赌场生意， so this payment is related to “the character and organization of the business”



Lump sum paid in advance



TP 还 pay 了 premium...