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CLAW3201 Study Guide - Brewery, Legal Personality, Bass Strait

17 Pages
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Fall 2015

Department
Business Law
Course Code
CLAW3201
Professor
All

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Taxation law Final
Notes
General Deductions
Section 8-1(1)
(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a * business for the purpose of gaining
or producing your assessable income.
(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your * exempt income or your *
non-assessable non-exempt income; or
- Nexus:
oLogical: is outgoing related to that income generating activity?
oTemporal: before, during and after
-A deduction must be incurred
oLegal obligation to pay – positively committed
- Apportionment; in both positive and negative limbs
-Approach to answer questions
1. Who is the tax payer – what is the business
2. Is it a loss or outgoing – what is the outgoing
3. Was it incurred in producing assessable income
Apportionment of expenditure – ronpibon tin
No limits on deductions – cecil bros and fct v
phillips
No necessity for matching – herald & weekly
times
Expenditure must be incurred in gaining/
producing assessable income
-Fct v maddalena
-Sprigs v fct
-Softwood pulp
-Amalgamated zinc
-Fct v riverside road
-Goodman fielder
-Placer pacific
-Steele v dct
-Fct v brown
-Fct v jones
“Necessarily incurred”
-W Neville & co
-Charles moore
-Fct v snowden
-Fct v total holdings
-Magna alloys
-Ure v FCT
-Fletcher v FCT
-FCT v Ashwick
-Putnin v FCT
-FCT v Day
-Creer v FCT
Losses and outgoings of capital or of a
capital nature
-Once and for all test
-Enduring benefit test
-Sun newspapers
-Hallstroms
-Broken hill
-John Fairfax
-FCT v Consolidated fertilizers
-Kemp v FCT
-Nat Aus Bank v FCT
-CityLink Melb v FCT
Capital protected loans – st George bank
Losses and outgoings of a private or
domestic nature
-Handley v FCT
-FCT v Forsyth
-FCT v Cooper
-FCT v Edwards
-Mansfield v FCT
-FCT v Payne
-Morris v FC
Logical nexus Rare expenditure
-Neville
-Charles Moore
-Snowden
-Magna Alloys
-Putnin
W Neville & Co: pays a ceo to retire in a joint manager situation on the board
Held – Deductible
-Don’t need to show expense earnt money
-Business 1(b) incurred in running a business
Charles Moore & Co: retailer gets robbed banking funds.
Held – Deductible because it is logical that the risk could happen and banking is connected to
running a business
Putnin: TP wanted to defraud the commonwealth, he claimed a deduction for legal expenses
relating to his defence.
Held – deductible because similarly to herald weekly because may have been protecting his
reputation??
Creer v FCT: taxpayer was a partner and the firm expelled him.
Held – deductible because related to the restoration of the taxpayers income entitlement
Logical nexus
FCT V Day: a public servant (customs officer) whose employment was set by an act of
parliament. They took action under parliament so that he would either be sacked or have a
reduced pay. Day spent money defending himself.
Held – deductible because he is seeking to keep his job. In the course of gaining / producing =>
keeping his job
FCT v Anstis: study allowance was paid and a series of requirements need to be met ie grades.
She said it was her assessable income. Also worked a casual job, two sets of income.
Held – deductible by (a) because given that her pay is income
-Was the expenses incurred in gaining or producing?
oIf she didn’t buy textbook – pass – not get paid
oTherefore it is in the course of g/p
oShe didn’t earn the allowance though – she gained it??
-An exceptional case so they changed the law after this
Cecil Brothers: No prudent taxpayer test of how much ought to be spent. Court doesn’t care if it’s
a good or a bad deal.
Magna Alloys: directions are charged with criminal offences by the government. Magna
funds/suppose their defence of those charges.
Held – deductible bc of nexus to the taxpayers business
1. Whats the business
2. Whats the issue? What are you protecting by paying directors legal fees? – like an
advertisement, you want good name -> Deduction
Snowden: legal expenses for goodwill threatened and future income earning capacity – Protect of
how they do the thing.
Held – deductible because could do nothing else but defend themselves and was not capital
La Rosa: Drug money, someone dig up your money and take it whilst you are in jail
Held – Deductible because
-What is the business: drug importation
-Is there logical nexus: criminals hide money and yes there is chance of it being stolen

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Description
Taxation law – Final Notes General Deductions Section 8-1(1) (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carryin*business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or produc*exempt income or your * non-assessable non-exempt income; or - Nexus: o Logical: is outgoing related to that income generating activity? o Temporal: before, during and after - A deduction must be incurred o Legal obligation to pay – positively committed - Apportionment; in both positive and negative limbs - Approach to answer questions 1. Who is the tax payer – what is the business 2. Is it a loss or outgoing – what is the outgoing 3. Was it incurred in producing assessable income Apportionment of expenditure – ronpibon tin Expenditure must be incurred in gaining/ producing assessable income No limits on deductions – cecil bros and fct v phillips - Fct v maddalena No necessity for matching – herald & weekly - Sprigs v fct times - Softwood pulp - Amalgamated zinc - Once and for all test - Fct v riverside road - Enduring benefit test - Goodman fielder - Sun newspapers - Placer pacific - Hallstroms - Steele v dct - Broken hill - Fct v brown - John Fairfax - Fct v jones - FCT v Consolidated fertilizers “Necessarily incurred” - Kemp v FCT - W Neville & co - Nat Aus Bank v FCT - Charles moore - CityLink Melb v FCT - Fct v snowden Capital protected loans – st George bank - Fct v total holdings Losses and outgoings of a private or domestic nature - Magna alloys - Handley v FCT - Ure v FCT - FCT v Forsyth - Fletcher v FCT - FCT v Cooper - FCT v Ashwick - FCT v Edwards - Putnin v FCT - Mansfield v FCT - FCT v Day - FCT v Payne - Creer v FCT - Morris v FC Losses and outgoings of capital or of a capital nature Logical nexus Rare expenditure - Neville - Charles Moore - Snowden - Magna Alloys - Putnin W Neville & Co: pays a ceo to retire in a joint manager situation on the board Held – Deductible - Don’t need to show expense earnt money - Business 1(b) incurred in running a business Charles Moore & Co: retailer gets robbed banking funds. Held – Deductible because it is logical that the risk could happen and banking is connected to running a business Putnin: TP wanted to defraud the commonwealth, he claimed a deduction for legal expenses relating to his defence. Held – deductible because similarly to herald weekly because may have been protecting his reputation?? Creer v FCT: taxpayer was a partner and the firm expelled him. Held – deductible because related to the restoration of the taxpayers income entitlement Logical nexus FCT V Day: a public servant (customs officer) whose employment was set by an act of parliament. They took action under parliament so that he would either be sacked or have a reduced pay. Day spent money defending himself. Held – deductible because he is seeking to keep his job. In the course of gaining / producing => keeping his job FCT v Anstis: study allowance was paid and a series of requirements need to be met ie grades. She said it was her assessable income. Also worked a casual job, two sets of income. Held – deductible by (a) because given that her pay is income - Was the expenses incurred in gaining or producing? o If she didn’t buy textbook – pass – not get paid o Therefore it is in the course of g/p o She didn’t earn the allowance though – she gained it?? - An exceptional case so they changed the law after this Cecil Brothers: No prudent taxpayer test of how much ought to be spent. Court doesn’t care if it’s a good or a bad deal. Magna Alloys: directions are charged with criminal offences by the government. Magna funds/suppose their defence of those charges. Held – deductible bc of nexus to the taxpayers business 1. Whats the business 2. Whats the issue? What are you protecting by paying directors legal fees? – like an advertisement, you want good name -> Deduction Snowden: legal expenses for goodwill threatened and future income earning capacity – Protect of how they do the thing. Held – deductible because could do nothing else but defend themselves and was not capital La Rosa: Drug money, someone dig up your money and take it whilst you are in jail Held – Deductible because - What is the business: drug importation - Is there logical nexus: criminals hide money and yes there is chance of it being stolen Temporal Nexus When an outgoing is incurred? - Must not be incurred before gaining a job Maddalena - If you are carrying on a business… sprigs & ridell Herald v Weekly Times: business in media. Defending against defamation. The defamation charges could be 6 years after alleged defaming event. Held – Deductible because incurred in running your business. Risk of being sued. Spriggs v FCT: A NRL footballer engaged in an agent to deal with the next club. Paid agent fees held – deductible because it was not a time too soon, sufficient connection between outgoing, fees and gaining or producing f assessable income from the business of exploiting sporting prowess. FCT v Finn: deduct conference fee and other expenditure - Not deductible because not incurred in the course of gaining income Maddalena: fella wanted to become a professional footballer, hires an agent and pays a fee and eventually gets a contract. Claims the agent fee is a deductible through (a). Held – getting in the position to earn income, not earning. The expense wasn’t incurred in gaining/producing. At a time too soon Softwood Pulp & Goodman: feasibility study about whether we start a new pulp Held – not deductible because it is about starting a new business as opposed to expanding your current business Goodman Fielder: feasibility studies regarding monoclonal antibodies – until commitment to project made (project did not proceed) Held: not deduction, preliminary expenses Steele v FCT: the expenditure is associated with a business and he started an income producing plan. If he didn’t start a plan then the expense would have been too soon. He borrowed a loan but didn’t use the loan to start up the company Held – deductible because there was sufficient nexus connection. No other purpose in incurring expense other than producing assessable income. Even though no assessable income was created. - You don’t have to produce income - Just a likelihood of producing income - But you need a functional generating income scheme as opposed to a time too soon Expenditure incurred after cessation of business (sometimes deductible) Placer Pacific Mgmt: legal expense taken 10 years to get sorted out. In an entirely new business now, can I deduct if incurred this year Held: deductible because risk of incurring was that long ago FCT v Brown/ same as Jones: had a business, closed the business but kept the load. Is the interest on load deductible against new earnings Held: deductible because cessation of business did not break the nexus between carrying on business and incurring liability for interest. FCT v Riverside: Apportionment Ronpibon Tin: Held – deductible because - Expenditure must be incidental and relevant - Apportionment and dissection permissible Role of tax payers purpose – tax avoidance don’t worry Ure: TP had a loan at 11% but off loaned it to family at 1% making a 10% loss. Held – private benefit or loan scheme: Usually doesn’t care whether it is a bad deal but since this is extreme and such a bad deal, objectively that expense was not incurred in gaining and producing assessable income FCT v Phillips: a service company (accountants) and the TP was a partner. Deliberate tax minimisation by reudicng their own assets and set up a unit trust to provide non-professiaonl services to the partnership. held – deal was not at arms length, you shouldn’t get the deductible FCT v Ashwick: if 1 subsidiary of a company (a legal entity) is a treasurer, they are all individual tax payers Negative Limb: Private and Domestic Travel Expense Lumney v FCT: expenses held not deductible reason – puts the employee in a position to engage in activities that produce assessable income (you can choose where to live) Fct v Payne: travel to and from work is private and domestic But – s 25 – 100 travelling between two unrelated places is now deductible Child care Lodge v FCT: childcare not deductible because it puts the TP in the position to gain/produce only Special Diet for Athletes Fct v Cooper: told to bulk up to be a league player as a requirement of his employer. Held food is private and domestic not deductible Clothing - TR 97/12 Income Tax and Fringe Benefits tax: work related expenses: decutibility of expenses on clothing, uniform and footwear - TR 2003/16 Deductibility of protective items Fct v Edwards: a ‘frock’ as a maid => a formal uniform => deductible Mansfield v FCT: air hostess => some of the dd but not all for pantyhose or shoes ½ size bigger Morris: dd for hat/suns because working outdoors Home office - TR 93/30 – Deductions for home office expenses o When you can deduct occupancy costs When occupancy costs are deductible o Running costs: electricity/water/gas o if you can prove work from home (both running and occupancy are deductible) o If a matter of convenience to work at home (portion of running expenses only) FCT v Handley : mortgage interest payments on home study not allowed FCT v Forsyth rental payments on home study not allowed FCT v Faichney: matter of convenience at home Swinford: script write for radio and tv drama able to deduce interest on one room of the house because that’s where he had to work. This was the only place she could work (exception) held – deductible because it was necessity for her work & require for home office. Negative Limb: Self education TR 98/9 – Income Tax deductibility of self education expenses => doing your current job better - Needs to be for this job. Not to get the next job (LAWYER EXAMPLE) - Getting a promotion is not a deductible - Has to be FOR this Job. Ie FCT v Finn (Architecture guy – went to America to learn to improve skills for his current job. He needed to keep up to date with skills in order to keep his job and do his job as an architect) - FCT v Hatchhet (Teacher – went to get a Higher Certificate was a DD because even though it was to improve her salary, her title did not change. The Arts Degree was not DD even tho the department encouraged it because – it was for promotion purposes of another job) Negative Limb: Capital Nature Loss of a Capital Nature (Dixon J Criteria) 1. Character of the advantage sought 2. Manner to be used, relied upon / enjoyed 3. Means to adopt or obtain it Broken hill cinemas: a monopoly cinema in broken hill, once a year had the regulatory license granted to continue operating. They applied/litigated/expended money to get the license renewed for another year. Held Capital because no license = no business 1. Character – monopoly right to run the theatre 2. Manner – without it, you don’t have a business. No license = no theatre. Enjoy or not enjoyed 3. Means – providing a single/yearly payment National Australia Bank: the bank tenders to nat gov for the right to provide exclusive financial services to the military (practically buying a client base/ or a branch?). Gov sold it to the bank (the existing business) and the right into the future. There was a once lump sum payment Held – if once and for all, the more likely to be capital. Revenue because the bank has just bought the right to get more customers as opposed to expanding its capital. Legal costs Focus on what is being protected or created FCT v Consolidated fertilizers: in the business of patents and stuff held- revenue because patent protecting is part of the regular operation of a business to protect items of an intangible nature John Fairfax and sons: legal expenses to defend a take over held - Capital have I just grown the business or have I added to what makes my money? held as capital payment concerned with enlargement of profit yielding to subject/attempt to acquire a new asset - Success or failure of a law suit makes no difference to the character of the expenditure Hallstroms: Fridge brand run on gas and kerasense, Electrolux made better fridges and has patent on part of its fridges and seeking to extend patent for another 10 years. Hallstrom spends money on litigation to stop the extension of the patent held revenue because: - Have I increased the earnings generating or growing the client base? - Seeking to stop an existing situation to be extended is not changing anything Specific deductions Section 8.5 1) You can deduct from your assessable income an amount that a provision of this act allows 2) Some provisions of this act prevent you from deducting an amount that you could otherwise deduct Division 28 – Vehicles Division 26 – denying deductions Division 32
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