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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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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 85
o
Commentary
How do you reconcile this case with
Cecil Brothers
? – the difference may be that the taxpayer has a
choice between items of expenditure (e.g. whether to fly business class or economy class) versus the
quantum amount that is paid which is clearly excessive and unable to be shown to be reasonable
Herald and Weekly Times Ltd v Federal Commissioner of Taxaon
(1932) 48 CLR 113 (HCA)
o
Facts
A newspaper made defamatory publicaons – they had to pay damages when sued and wanted to
claim a deducon
o
Judgment
The damages are deducble – they were incurred in deriving assessable income because the
defamatory publicaons were used to put the newspaper together, and because defamaon lawsuits
were a reasonable prospect in aggressive journalism
TIMING OF THE EXPENDITURE
Expenditure incurred to produce future income is generally deducble (unless subject to a ming regime under Part E)
– you do not have to wait unl you derive the income before you deduct the expense incurred in producing it
Vallambrosa Rubber Co Ltd v Farmer
(1910) 5 TC 529
o
Facts
The taxpayer operated a rubber plantaon – the process involved looking aſter trees for six years
while they regenerated to produce rubber again
A lot of expenditure was incurred that was preparatory to the generaon of income
o
Issue
Is expenditure that is incurred in deriving future income deducble?
o
Judgment
VR was sll carrying on a business – even though the assessable income isn’t derived immediately, it
will eventually be derived
Therefore, expenses incurred in deriving future income can be deducted immediately
DEDUCTIONS FOR BUSINESSES DISRUPTED BY COVID-19
During the pandemic, some businesses were temporarily suspended (e.g. tourism, educaon, hospitality)
o
An income tax deducon will usually be allowed where a business has downscaled or ceased operang
temporarily, provided the general permission is sasfied
o
It is entled to all deducons because it hasn’t ceased carrying on business
However, businesses that ceased operang permanently (even if it is possible that the business may restart later) are
not entled to a deducon
o
Whether a business has ceased operang temporarily or permanently is a queson of fact in each case – the
nature of the acvies carried on and the business’ intenon in engaging in those acvies are relevant
consideraons
o
For most taxpayers, determining whether their business acvies have ceased temporarily or permanently will
be straighorward – however, if a business has ceased, it will be important to idenfy when this occurred
because any expenditure or loss incurred aſter this point is unlikely to be deducble
This means if a business went bust, no more deducons are allowed
Ongoing expenditures aſter permanently ceasing business include rent, insurance etc.
Example – English language school
o
Facts
The school operated unl the pandemic
All students were from overseas
At Alert Level 4, the school closed and remained closed unl Alert Level 2
o
At Alert Levels 3 and 4
The school accessed the wage subsidy and connued to pay staff, and paid rent, rates, power, water
and insurance
No teaching took place but the two shareholders connued to undertake markeng work and provide
pastoral care to students that remained in New Zealand and invesgated was to provide online tuion
The business downscaled
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