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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 82
A property developer is in the business of buying and selling property – so the cost of buying
the land and building the structure will be incurred in deriving income and is of a revenue
nature and thus deducble
This is otherwise called
trading stock
– things you buy for the purpose of selling them
o
One of the most difficult quesons in tax law is the difference between capital and revenue (the other one
being the definion of tax avoidance) – therefore, there may be some difficult cases
The capital/revenue disncon is important for the purposes of defining income and for defining
deducons
When there is a payment, there are two pares – the party paying and the party receiving
From the receiver’s perspecve, the issue is whether the payment is income – if it is income
(i.e. of a revenue nature), they must pay tax; if it is a capital receipt, they don’t
From the payer’s perspecve, the issue is whether the payment is deducble – (assuming it is
incurred in deriving assessable income) if it is of a revenue nature, it is deducble; if it is a
capital receipt, it is not
EXPENSE DEDUCTIONS
A deducon consists of expenditure that you can deduct from your gross income to lower your taxable net income –
the purpose of this is that tax is imposed on a realisc picture of the net profit that you make
o
Somemes, you cannot get deducons and thus your gross income is taxed – an example is salaries, as you
cannot get deducons on employment income
CORE PROVISIONS
The amount you deduct from is your gross income – you calculate net income by:
o
Calculate annual gross income
Secon BD 1 defines your assessable income – your gross income
You allocate the assessable income to a parcular year under secon BD 3 – your annual gross income
under secon BC 2
o
Calculate annual total deducons
Secon BD 2 defines your total deducons
You allocate the deducons to a parcular year under secon BD 4 to get annual total deducons
o
Calculate net income
Annual gross income minus annual total deducons (
secon BC 4
)
If net income is zero or posive, you subtract any available tax losses to get taxable income
If net income is negave, this is a net loss – you can either subtract your net loss from your net
income for a future tax year or make it available to another taxpayer
BD 2
Deducons
An amount is a deducon of a person if they are allowed a deducon for the amount under Part D (Deducons).
BD 4
Allocaon of deducons to parcular income years
(1)
Every deducon must be allocated to an income year …
You need to allocate deducons because income tax operates on a taxable year – it is important to work out in which
year you can claim a deducon
o
Timing makes a big difference parcularly when there is a change in tax rates
GENERAL RULES – SUBPART DA
THE GENERAL PERMISSION – THE NEXUS WITH INCOME
Specific rules elsewhere in Part D can override the general permission (
secon DA 3
)
o
For example, secon DB 7 allows companies a deducon for interest incurred – they don’t need to incur the
interest payment in the process of producing assessable income
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