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21Dec

Taxation law Assignment Help

This solution is based on the taxation law assignment for the CLW- 3000 and written based on the deep analysis on Australian corporate laws.

INTRODUCTION

In the present report we will analyse the taxation laws in Australia that are related to specific tax deductions and general deductions and we will also discuss the relevant case laws and finally we will try to give our solution to the legal issue presented to us in relation to Water Jet ferries .

FACTS OF THE CASE:

Water Jet ferries was a successful ferry service provider that had to modify its engines so that it would be more cost effective and the engine manufacture is claiming that the modification can be shown as repair which would help in claiming tax deductions.

ISSUE:

The main issue in the present case is that whether the engine’s manufacturer claim is correct that the modification can be shown as repair and whether tax deductions can be claimed?

RULES:

In the specific tax deduction when there is any cost of a current repair then in that case tax deductions are provided but in case when the modification expenditure is not deductible then we need to see that whether under the general deductions any options are available or not. Below we are going to discuss the relevant cases and taxation laws:

The Income Tax Assessment Act 1997: the section 25-10 of the act talks about Repairs Section 25-10(1) says that “one can deduct expenditure that are incurred for repair of the premises (or part of the premises) or for any depreciating assets that the person holds or used solely for the purpose of producing assessable income.” Section 25-10(3) says that “there will be no deduction for capital gains”. We can see that the engines that are used by Water Jet are used for income producing purposes.

In the case Lurcott v Wakely and Wheeler (1911) it was held that a repair may also be done by the renewal or replacement of any subsidiary part of the property but not the entire reconstruction would be considered a replacement.

In another case W Thomas E Co Pty Ltd v FC of T (1965) it was shown “that a repair is generally related to any defects that may result due to general and everyday wear and tear in the operation of any asset, so when the asset was in a good condition before where nothing was required to be restored nor were any part required replaced or fixed then those expenses will not be considered as repairs”.

In the case FC of T v Western Suburbs Cinemas Ltd (1952) it was held that when any expenditure is incurred which is associated with the asset that has the result of any functional improvement in the quality of the asset then that expenditure would be considered under improvement and not repair and that would be considered o a capital nature where the deductions cannot be claimed.

General deduction

“Section 8.1 of the Income Tax Assessment Act provides that a deduction can be done from the assessable income for any loss or outgoing to the extent that it was incurred in gaining or producing the assessable income, secondly it is necessary that the incurred was incurred in carrying on a business for the purpose of gaining or producing the assessable income[2].”

“But the outgoing or loss cannot be deducted if the loss or outgoing is of a capital nature, private or domestic nature, if it is incurred in relation to gaining or producing the exempt income or non-asset and it any provision of this act prevents the deduction”.

APPLICATION:

So we can see that according to the case Lurcott v Wakely and Wheeler (1911) the changes are of one parts of the engine and not of the entire engine but the repairs are of significant nature and they will help in less fuel, consumption and it will be more environment friendly also, but when there is less fuel consumption then it will increase the profits of water Jet ferries.Also under Section 25-10(3) it says that “there will be no deduction for capital gains”. And we can see that the expenditure is of capital nature.

Also under the Section 8.1 of the Income Tax Assessment Act it says that “the outgoing or loss cannot be deducted if the loss or outgoing is of a capital nature, private or domestic nature, if it is incurred in relation to gaining or producing the exempt income or non-asset and it any provision of this act prevents the deduction”.

CONCLUSION:

After discussing the relevant case laws and laws we can see that the modifications are of significant type and they are not minor changes also the modifications are of capital nature therefore the Water jet ferries company cannot claim any deduction under the specific tax deductions or general deductions and the engine manufactures are giving misleading information to water jet ferries that the modifications can be shown as repairs. So in our opinion we would suggest that water jet ferries would be required to show the expenditure and no deduction claims can be made because of the above discussed reasons.

REFERENCES

  1. Stephen Barkoczy, Core Tax Legislation & Study Guide 2011 (CCH Australia, 2011).
  2. Lurcott v Wakely and Wheeler [1911] 1 KB 905.
  3. W Thomas E Co Pty Ltd v FC of T (1965) 115 CLR 58.
  4. FC of T v Western Suburbs Cinemas Ltd (1952) 86 CLR 102.
  5. edu.au, INCOME TAX ASSESSMENT ACT 1997 – SECT 8.1General Deductions (2014) <http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html>.
  6. Stephen Barkoczy, Core Tax Legislation & Study Guide 2011 (CCH Australia, 2011).
  7. Austlii.edu.au, INCOME TAX ASSESSMENT ACT 1997 – SECT 8.1General Deductions (2014) <http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html>.