|
|
|
LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
Showing 8 out of 157
LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 8
Example: a bonus is counted as income. If this rule was not there, the taxpayer could collude with
their employer so that the employer can pay a small salary and large bonus, so that the taxpayer
would pay a small tax on the small salary and keep the large bonus untaxed
DEDUCTIONS
Tax is paid on net income (total income minus
relevant expenditure that legislaon allows you to deduct)
o
Example: the gross revenue of a company is counted as income, but they deduct their expenses to calculate
net income – this is what is taxable
o
Some expenditure is deducble while others are not
The basic rule on deducons – you can generally deduct expenditure to the extent that it is (1) incurred in deriving
assessable income and (2) is of a revenue nature
o
Example
A company sells goods and services
The proceeds of sale of the goods and services are gross income
The company will incur expenditure by:
Renng premises from which they operate
This is expenditure incurred in deriving income – the reason they rent the premises
is to carry on business and make income
This is expenditure of a revenue nature – the expenditure on rent does not produce
a capital asset for the company
If the company purchases the premises, this would be a capital expense and not
deducble – this is because at the end of the year, the premises will sll be there, so
to allow the company to deduct the cost of the premises would present an
unrealisc calculaon of the company’s profits
Purchases machinery for manufacturing the goods
This is expenditure incurred in deriving income
However, this is not expenditure of a revenue nature – the machinery is a capital
asset; to deduct the cost of the machine would produce an unrealisc calculaon of
the company’s profits because the machine will sll remain with the company
But these thing can depreciate – the depreciaon is deducble over the useful life
of the asset
Paying wages and electricity bills
Paying for the raw materials needed to manufacture the goods
This is of a revenue nature because these items get used up and are a recurring
expense as the company must buy more materials to produce more goods
o
“To the extent” – if the company incurs expenditure partly for the purpose of producing income and partly for
some other purpose (e.g. private use), then some apporonment is required and the company can only deduct
the expenditure to the extent that it is incurred in deriving income
o
Usually, it is obvious whether expenditure is of a capital or revenue nature
Revenue expenses tend to be items that get used up and are recurring expenses and capital expenses
tend to be items that stay with the company at the end of the tax year
Lawyers need to focus on the marginal cases because it is advantageous for a taxpayer to arrange its
expenditure to be of a revenue nature so that it is deducble – they will aempt to manipulate the
disncon so as to maximise their deducons and minimise their liability to tax
Timing
o
Timing rules mainly concerns depreciaon
Depreciaon – items of a capital nature (except land) will wear out over me, and thus its value will
decrease over me
Allowing a company to deduct the whole cost of a capital asset would present an unrealisc image of
the company’s profits, but equally, allowing the company no deducon at all for the costs of a capital
asset would present an error in the other direcon as eventually the asset will completely wear out
and be worth nothing – this is the problem that depreciaon rules are designed to solve
Ace your assessments! Get Better Grades
Browse thousands of Study Materials & Solutions from your Favorite Schools
Vanderbilt University
Vanderbilt_University
School:
Tax_Law
Course:
Great resource for chem class. Had all the past labs and assignments
Leland P.
Santa Clara University
Introducing Study Plan
Using AI Tools to Help you understand and remember your course concepts better and faster than any other resource.
Find the best videos to learn every concept in that course from Youtube and Tiktok without searching.
Save All Relavent Videos & Materials and access anytime and anywhere
Prepare Smart and Guarantee better grades
Know more
Students also viewed documents
lab 18.docx
lab_18.docx
Course
Course
3
Module5QuizSTA2023.d...
Module5QuizSTA2023.docx.docx
Course
Course
10
Week 7 Test Math302....
Week_7_Test_Math302.docx.docx
Course
Course
30
Chapter 1 Assigment ...
Chapter_1_Assigment_Questions.docx.docx
Course
Course
5
Week 4 tests.docx.do...
Week_4_tests.docx.docx
Course
Course
23
Week 6 tests.docx.do...
Week_6_tests.docx.docx
Course
Course
106
