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Taxation Law

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Via Margarita Bangoy

on 3 April 2014

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Transcript of Taxation Law

Taxation Law
ACCG 924

Via Margarita Bangoy
Student ID # 43317065
Question 4.4
Explain whether Peter would be entitled to a deduction for the following expenses:
Interest on loan
Cost of attending
3 days
Legal expenses
Cost of public transport
2 days
Employed
Medical doctor
Once a week
gives lectures to medical students
Lunney;Hayley 1958; Taxation Ruling IT 2543; Taxation Determination TD 93/174
General Deductions
Section 8-1
Positive Limbs s 8-1 (1)
John Fairfax & Sons Pty Ltd v FC of T
"Directed to expenditure incurred in the actual course of producing assessable income.... It is primarily at least concerned with expenditure voluntarily incurred for the sake of producing income. It's scope is not, of course, confined to cases where the income is derived from carrying on a business" (page 461-462 textbook)
Negative Limbs s 8-1 (2)
"May be thought to be concerned rather with cases where, in the carrying on of a business, some abnormal event or situation leads to an expenditure which it is not desired to make, but which is made for the purpose of the business generally and is reasonably regarded as unavoidable"
Conclusion:

In Peter's case, cost of public transport to and from his home when he goes to the University to give lectures is not deductible (Lunney v FC of T; Hayley v FC of T)
Snowden & Wilson; Magna Alloys ( page 537 textbook)
defending a taxpayers reputation
directly affecting the past present and future revenue of the taxpayer
criminal proceedings imperilled neither the business nor the capital assets of the taxpayer
proceedings were not necessarily directed at a winding up or stoppage of the business
Conclusion:
Legal expenses incurred in defending an action for professional negligence initiated by one of his patients is deductible
(Snowden & Wilson; Magna Alloys)
"Use Test"
"where the relevant borrowings are used to finance, ie. business expenses which are themselves deductible (such as rent, wages, advertising) is normally allowed for the interest even though the loan may be secured by a mortgage over the taxpayer's private residence."
FC of T v Munro; FC of T v Roberts & Smith
However....
Ure v FC of T; FC of T v Ilbery
"where the relevant borrowings are used for private or domestic purposes, the interest is not deductible"
CONCLUSION:
Since the interest is taken out to purchase a residential "rental" property which is used for business expenses which is rent, therefore the interest is deductible
(FC of T v Munro; FC of T v Roberts & Smith)
Medical Conference
Sightseeing
Legal expenses will be deductible if this criterias where met.
Business travel expenses
can only be deducted if it qualifies as a deduction under a provision of the Act outside Div 900 and is substantiated by written evidence as specified in Subdiv 900-E
for fuel or oil expenses while on a business travel, the taxpayer may keep odometer records under Subdiv 28-H ITAA97 for the period when he/she owned, leased or hired (under a hire purchase agreement) the car in the income year instead of obtaining written records (s 900-80)
travel records as specified in Subdiv 900-F must be kept (s 900-85) if the expense involves an absence from the taxpayer's ordinary residence for "six or more nights in a row"
"Work expenses" is a loss or outgoing incurred in producing the taxpayer's salary or wages (s 900-30(1))
Work expense (s 900-30) specifically includes:
"travel allowance expense" (ie a loss or outgoing for accomodation, food, drink or incidentals incurred for travel, where a "travel allowance" is payable)
"meal allowance" (ie loss or outgoing on food or drink that is covered by a "meal allowance)
Travel record is a record of activities undertaken during the travel (rather than a record of expenses incurred).

The record must be in English, in a diary or similar document, showing:
the nature of an activity undertaken during travel
the day and approximate time it began
it's duration, and
the location of the activity

Travel records are required to be kept where certain work-related and business travel expenses are being claimed as a deduction

Keeping travel records (s 900-20) being away from your ordinary residence for 6 or more nights in a row

A taxpayer is not required to retain written evidence of work-related expenses where:
the total of all work expenses (including "laundry expenses", but excluding travel allowance expenses and meal allowance expenses) is $300 or less (s 900-35)
the expenses are "laundry expenses", and the claim for these expenses does not exceed $150 (even though the work expenses might exceed $300, and therefore require substantiation for the non-laundry expenses (s 900-40)
the expense is a "transport expense" incurred in relation to an allowance or reimbursement paid by the taxpayer's employer under an "industrial instrument" in force on 29 October 1986 (s 900-45)
the expense is a "travel allowance expense" for travel within Australia provided the Commissioner considers that the total expenses claimed for travel covered by the allowance are reasonable (s 900-50)
the expense is a "meal allowance expense" provided that the Commissioner considers that the total expenditure claimed is reasonable (s 900-60)
Conclusion:
3 day medical
conference expenses is
deductible
since it is a business travel expenses under s 900-95 (1) and does not need to keep a record since the travel is less than 6 days where travel records is unnecessary under s 900-20 while the
2 day sightseeing is non-deductible
for the reason that it wouldn't be considered as a work-related expenses that is a loss or outgoing incurred in producing the taxpayer's salary or wages (s 900-30(1))

s 900-95(1) incurred it in producing your assessable income other than salary and wages
s 900-95(2) a loss or outgoing is a travel expense if incurred for travel that involves the taxpayer being away from the ordinary residence for at least one night.
s 900-95(3) travel expenses in producing your salary or wages, the expenses are not treated as business travel expenses instead dealt with as work expenses in Subdivision 900-B
References:
Australian Taxation Law (Woellner, Barkoczy, Murphy, Evans, Pinto) pages Chapter 10
Core Tax Legislation & Study Guide (Stephen Barkoczy) 17th Edition Division 900
http://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Vehicle-and-travel-expenses/Travel-between-home-and-work-and-between-workplaces/
Thank you
Lunney & Hayley; Hayley v FC of T
The High Court rejected two taxpayers' claims to deduct claims to deduct costs of travelling from their homes to their places of work.
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