The Taxation Rulings of TR-Free-Samples-Myassignmenthelp.com

Questions: 1.Advise Cassandra Pty Ltd of the capital gains tax consequences of the above transactions for it. 2.Advise Oscar Pty Ltd as to whether, and if so when and to what extent, any of the above expenditures that it incurs will be deductible to in for Australian income tax purposes. 3.Advise Ernest Constructions Pty Ltd as to whether and, if so, when the instalment payments in relation to its contract with Oscar Pty Ltd will be included in its assessable income. Answers: 1.The taxation rulings of TR 2007/9 lay down that if an item used to create a particular atmosphere or ambience for premises used in caf, motel or retailing business results in being considered as the item of plant[1]. Whether an item is an item of plant is relevant in determining whether an allowable deduction will be available either under division 40 for a depreciating asset or under division 43 relating to the capital works of the income tax assessment act 1997. According to the taxation rulings of TR 2007/9 deductions for capital expenditure on the assets related with the premises used in the type of the business will be usually considered for deductions under the Division 40 for the depreciating assets or the division 43 for the purpose of capital works[2]. The current case study is concerned with the determination of the capital gains tax consequences from the sale of land and the theatre building. However, prior to sales Cassandra Pty Ltd incurred capital works expenditure on the construction of theatre building. Division 43 lay down that a deduction for construction expenditure on the capital works used for other works rather than residential accommodations given that the capital works started after the 19th July 1982 and the capital works is put into use to generate taxable income. In the present context it is evident that Cassandra Pty Ltd incurred an expenditure on construction of building and division 43 is applicable in the case of Cassandra Pty Ltd[3]. Division 43 is applicable for the capital works that are carried on the buildings or structure improvements. An item that becomes the portion of the premises does not fall within the meaning of the plant unless in the cases where the premises are considered to be plant[4]. When there is a circumstances that an item on the premises does not becomes the part of the premises and even do not falls in the comprehensive meaning of the plant it may come inside the ordinary meaning of the plant where the functions that is performed by the premises to attract the customers. Additionally, the premises should definitely be the element of service which the business provides and for which the customers are prepared to pay. As held in the case of Wangaratta Woollen Mills and ICI reflects the closeness of the relationship which should prevail between the functions that is performed by the item along with the particular income earning capacities of the taxpayer for the item of plant to be considered as the item of plant. Additionally, it has been found that Cassandra Pty Ltd had incurred an expenditure on the demolition of the derelict building. According to the ATO ID of 2002/633 a capital gains or capital loss originates from the CGT event C1 in the section 104-20 of the Income Tax Assessment Act 1997 in the event of demolition of the dwelling given that no form of capital gains proceeds are received[5]. The effect of the cost base rules in subsection 112-30 (2) and (3) of the ITAA 1997 the capital proceeds rule in the section 116-25 of the ITAA 1997 represents that no capital gains or capital loss originates at the time of CGT events happens if no form of capital proceeds are received for it. In the present case it is understood that the Cassandra Pty Ltd has incurred a demolition expenditure and the taxpayer in the present context does not received any capital proceeds for the demolition of the building. However, in the later stage it is found that Cassandra Pty Ltd sold the land and theatre building for a sum of $3,000,000 and this has resulted in capital gains. In accordance with the subsection 104-20 (3) of the ITAA 1997 it lays down that an individual makes the capital gains from the CGT event will result in capital gains if the proceeds were more than the destruction or more than the cost of the asset. Therefore, from the given context it can be stated that Cassandra Pty Ltd made a capital gain from the sale of land therefore as a result of this Cassandra Ptd Ltd would be held liable for the capital gains tax on the sale of asset. 2.The Taxation ruling of TR 2004/16 lay down that an individual can claim allowable deductions either under the division 40 relating to the depreciating assets or under the Division 43 relating to the capital works of the ITAA 1997[6]. Deductions for capital expenditure on the assets would be allowable for the property that are under the division 43 related to the capital works. In the present context it can be stated that the Oscar Pty Ltd incurred expenditure of $500,0000 for the capital works. In terms of the present case of the Oscar Pty Ltd division 43 lay down that an allowable deductions will be available relating to the construction expenditure on the capital works along with the buildings that is used by the taxpayer. Since the Oscar Pty Ltd incurred expenditure on the structural improvements in order to protect the theatre building from the any further earthquakes shocks division 43 is applicable for the expenditure incurred on the capital works of the premises that is used to generate the assessable income[7]. The division is applicable since Oscar Pty Ltd incurred building or structural improvements that is related to the improvements of the buildings. As per the division 43 if taxpayer incurs expenditure on the on the property that is related to capital works then a deductions will be available unless it is found that the item is considered to be plant or depreciating asset and other conditions of the Division 40 are met. Capital works are generally used to generate assessable income that also includes the buildings and structural improvement are usually written off over the longer period of time other than the depreciating assets[8]. The capital works deductions are available for the buildings or extensions or alterations or making any kind of improvements to the building. Capital works also comprises of the structural improvements carried out on the retaining walls. As evident the capital works are carried out by Oscar Pty Ltd for the purpose of strengthening the walls and premises of the theatre therefore a capital works expenditure would be available to the company. As held in the case of Quarries Ltd v FCT (1961) an item might be regarded as a component of depreciation deductions even though it is not considered to be plant and might be regarded as the article under the section 54 of the ITAA 1997[9]. As evident from the current case study of Oscar Pty Ltd an item that is used to create a particular atmosphere or ambience for premises that is used to carry out the functions of the business will fall inside the ordinary meaning of the plant for the business to attract customers. Furthermore, the element of premises is considered to be a definable element in the service that is provided by the business and for which the customers are willing to pay[10]. Therefore, Oscar Pty Ltd will be able to claim allowable deductions in order to produce assessable income and as a result of this the expenditure that is incurred by the Oscar Pty would be considered as the allowable deductions. The reason for considering it to be an allowable deduction is that the improvement on the building that is carried out by the Oscar Pty Ltd was for improvement of the premises and will be considered to be an allowable deduction because it qualifies for the capital works expenditure. 3.The current scenario is based on the determination of the assessment of the income derived from the instalments payments by Earnest Construction Pty Ltd in relation to its contract with Oscar Pty Ltd[11]. Income that is recorded at the time they are received they are termed as the cash basis. Income that is recorded at the time when they are earned they are known as accrual basis. As held in the case of J Rowe and son Pty Ltd v FCT it lays down that lay by sale would be treated as assessable income in terms of the accrual basis however the cash receipts are considered as the cash basis and would be earned as the received. As held in the case of Arthur Murray Pty Ltd v FCT income that are non-refundable are generally treated as the income and the amount that is received on the cash settlement that is derived under section 6-5 of the ITAA 1997 they are treated as the income and will be included in the assessable income of the taxpayer[12]. As it has been defined under the Subsection 6-5 of the ITAA 1997 it lay down that assessable income of the taxpayer that is a resident of Australia which is derived directly or indirectly from all the sources at the time of the income year. As held in the case of Brent v. Federal Commissioner of Taxation (1971) the federal court has stated that the word derived is generally not regarded as equal to the meaning earned or derive within the ordinary sense[13]. Additionally, the commissioner of taxation in the case of Trust and Agency company of South Australia v Federal Commissioner of Taxation (1938) defined appropriate method of accounting[14]. The commissioner specified that unless the act lay down any kind of specific provision on the point the sum of revenue or income that is generated should be determined in the ordinary meaning of the business and appropriate method of income must be adopted to provide a true and fair view of the income of the taxpayer. Considering the examples of Arthur Murray Pty Ltd v FCT (1965) income received for work which his yet to be performed the federal commissioner has held down that it will not be considered to be assessable since it is not viewed as derived under section 25 (1) of the ITAA 1936. As held in the case of Federal Commissioner of Taxation v. Australian Gas Light Co (1983) it has been held that income derived based on the accrual basis under the subsection 25 (1) of the ITAA 1997 when a debt of recoverable nature is created and the taxpayer under such kind of circumstances are not required to undertake any form of steps to make an entitlement for payment. In the present case study, it can be defined that the progress payment cannot be considered as the income[15]. The reason for not considering the payment as the assessable income because the full payment has not been received by the Earnest Pty Ltd and it will be liable for income tax once the entire amount is received[16]. As understood in the present case of Earnest Pty Ltd income would be usually derived under two basis namely cash and accrual basis. Given the circumstances that cash basis is adopted then the income will be derived upon the receipt of part payment in the form of cash and the same will considered for taxable purpose. Reference List: Anderson, Colin, Jennifer Dickfos, and Catherine Brown. "The Australian Taxation Office-what role does it play in anti-phoenix activity?."INSOLVENCY LAW JOURNAL24.2 (2016): 127-140. Barkoczy, Stephen, et al.Foundations Student Tax Pack 3 2016. Oxford University Press Australia New Zealand, 2016. Braithwaite, Valerie, ed.Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017. Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major Australian taxes."Treasury WP1 (2015). Coleman, Cynthia, and Kerrie Sadiq.Principles Of Taxation Law 2013. Davison, Mark, Ann Monotti, and Leanne Wiseman.Australian intellectual property law. Cambridge University Press, 2015. James, Kieran. 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"The Australian Taxation Office-what role does it play in anti-phoenix activity?."INSOLVENCY LAW JOURNAL24.2 (2016): 127-140. Coleman, Cynthia, and Kerrie Sadiq.Principles Of Taxation Law 2013. Kenny, Paul.Australian Tax 2013. Chatswood, N.S.W., Lexisnexis Butterworths, 2013,. Morgan, Annette et al.A Practical Introduction To Australian Taxation Law. North Ryde [N.S.W.], CCH Australia, 2013,. Woellner, R. H.Australian Taxation Law 2012. North Ryde [N.S.W.], CCH Australia, 2013,. Woellner, R. H et al.Australian Taxation Law 2014 James, Kieran. "The Australian Taxation Office perspective on work-related travel expense deductions for academics."International Journal of Critical Accounting8.5-6 (2016): 345-362.