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HI6028 Identification of Application Process of Australian Tax Laws Assessment Answer

Assessment Details and Submission Guidelines
TrimesterT1 2020
Unit CodeHI6028
Unit TitleTaxation Theory, Practice & Law
Assessment TypeAssignment
Assessment TitleIndividual Assignment
Purpose of the assessment (with ULO Mapping)
Students are required to follow the instructions by your lecturer to confirm any relevant information. You also need to follow any relevant announcement on Blackboard to confirm the due date and time of the assignment.
The individual assignment will assess students on the following learning outcomes:
  1. Demonstrate an understanding of the Australian income tax system, the concept of deductions, CGT, general anti-avoidance provisions and income tax administration. (ULO 1).
  2. Identify and critically analyse taxation issues. (ULO 2).
  3. Interpret the relevant taxation legislations and case law. (ULO 3).
  4. Apply taxation principles to real life problems. (ULO 4).
WeightThis assignment task accounts for 25 % of total marks in this unit.
Total MarksThis assignment task accounts for 25 marks of total marks in this unit.
Word limitMax 2000 words (acceptable to be 10% above or below this word limit).
Submission GuidelinesInstructions: Please read carefully to avoid mistakes.
  • Answer all questions.
  • This assignment along with a completed Assignment Cover Page is to be submitted on Blackboard by the due date in soft-copy only.
  • The self-check links are no longer available as a separate link in each unit’s assessment. Students are now limited to attempt any given assignment submission a maximum of three times. After every attempt you will receive a SafeAssign originality report with Blackboard Learning Management System. This will provide detailed information about the matches found between your submitted works and existing sources.

  • The assignment is to be submitted in accordance with assessment policy stated in the Unit Outline and Student Handbook.
  • It is the responsibility of the student submitting the work to ensure that the work is in fact his/her own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence.
  • The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
  • Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style. You also must refer to relevant legislation and/or case law in your answer. Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style.
  • Note: Assessment task is set around the work that you have done in class. You are not expected to go outside the content of the unit but you are expected to explore it.


Individual Assignment Specifications

This assignment aims at assessing students on the Learning Outcome (LO) from 1 to 4 as mentioned above.

Assignment Structure should be as the follows:

Identification of material facts (issues) regarding John’s prepaid rent.
Identification and analysis of legal issues / legal question and relevant taxation lawin regards to casino’s rental (e.g. ITAA 1936 and ITAA 1997).
Thorough yet succinct application of tax law (e.g. ITAA 1936 and ITAA 1997)tmaterial facts in John’s case.
Detailed and accurate identification of the lump sum rental payment are reached.
Correct information and taxation law have been used and properly cited. A detailed analysis has been performed.
Ability to show excellent understanding of the cases and/or section of legislation, its context and application of taxation law.
Identification of  material  facts  regarding  the  deductibility  of  Alex’s  travelling expenses discussed in the assignment question.
Identification and analysis of legal issues / legal question and relevant taxation law.
Thorough yet succinct application of ITAA 1997 to material facts.
Detailed and accurate conclusions are reached from the scenario discussion.


1. Introduction

All business organisations are needed to follow the income tax regulations and rules as given by the government authorities of the economy in which the organization is working. The main objective of this report to identify the application process of Australian tax laws in context with the revenue and capital expenditure incurred within the business activities. The report also includes analysis and identification of issues and thus to resolve the same by applying appropriate tax laws. Irrespective of the treatment of capital expenditure under tax rules and legislations, the treatment of travel expenses incurred by an organisation as per the tax laws are also explained in this report. The report is providing a deep understanding of the tax laws related to the main business expenditure. 

2. Treatment of revenue and capital expenditure as per the Income-Tax

A. Fact Description

John is the owner of Casino East and obtained a license from the respective government authority to operate a casino bar successfully. The license will be valid until the next 10 years and thus, it can help the organization for the next 10 years. The building in which casino in the run, has been secured for 90 years by using a rent or lease agreement with the government. The license was given to him at a cost of $180 million along with the advance payment of rent for the next 10 years which was $80 million. After 10 years, the casino will be needed to pay $0.40 million per year from the 11th year.

B. Analysis of Legal issues

Based on the case study, it is clear that how a business organization is required to treat various types of expenditures. According to the appropriate tax law related to expenditures, the organisation can distinguish its expenditures either in revenue or in capital nature expenses. The expenses of revenue nature can be re-incurred at one shot and thus can provide benefits to the organisation over a period of time. This also enables the business organisation to classify rest expenses as capital expenditures. The revenue expenditures provide benefits only for a year in which they occur. On the other hand, capital expenditures need a large amount of investment and benefit the organisation for more than 2 years. Revenue expenditures are deductable from the current year earnings. 

C. Classification of Expenditures and per Taxation Laws

As per the given case study, the owner has made a capital expenditure from the payment of $180 million for casino license as it will provide benefits for more than one year. In addition to this, the rent paid as the prepaid expenditures will also be considered as the capital expenditure as per the ITAA 1997. These expenses will also provide benefits for a longer period in the future to the organisation. The last issue mentioned in the case study is related to the $0.40 million, which will be paid from the 11th year. It will be considered as the revenue expenditures for the financial year in which it will be incurred.

D. Tax Treatment of the Expenditures

For the above understanding and implications, it can be considered that the expenses incurred for getting a license will be treated as the capital expenses and the prepaid rent will also be termed as the capital expenditures as both will provide benefits for more than one year. Thus, according to ITAA 1997, The organisation is required to charge both as capital expenses against the financial statements by depreciating the cost of license over its life of 10 years. The amortization of prepaid expenses will also be required to be done over the life of its 10 years. The rent that is to be incurred in the future does not need any treatment in the present books of accounts. Thus. The total amount of $.40 billion to be paid after 10 years will be treated as revenue and allowed every year to be deducted in the same year of occurrence. As guided by the rules and regulations of Income Tax, all types of prepaid expenses are required to be considered as capital expenses as it includes the payment of rent for the future. This will be charged and amortised from the statement of income and thus to allow the tax benefit every year from the next 10 years. Tax treatment will be done as per the below-mentioned table.  

ExpenditureAmountNature of expensesTax treatment
Expenditure for obtaining a license$ 180 millionCapital NatureDepreciated over the life period
Prepaid rent for 10 year $ 80 MillionCapital NatureAmortise over the time duration
Lease rent after 10 years annually $ 0.40 millionRevenue NatureCharged from profit statement when incurred.

3. Treatment of the capital traveling expenses as per the income tax laws 

A. Fact Description

Alex is working in Melbourne as a mechanical engineer. He also runs the catering service and services the residents by providing food products. He is also providing services to the schools. He tries to earn money by working for 15 days from the catering service. He has traveled from his workshop to business place through the taxi car and is willing to claim travel expenses and the business expenses as guided by the income tax laws. 

B. Analysis of Legal Issues 

In this case, the legal issue is arising that whether the expenses done on travel can be deducted from the statement of income as per the Australian income tax laws.  The expenses are done form the workshop where he is working to the place from which he runs his won business. In the same place, he lives also.  This is the main reason to create confusion that what type of expenditures these can be termed. As per ITAA, 1997, the expenses have been done only for business, but partially may also be termed as the private expenses. Thus, there is required to make a clear distinction between personal and business expenses. The business expenses should be justified with the appropriate business vouchers along with providing support and justification. The treatment of traveling expenses are explained in a below-mentioned manner as per ITAA, 1997: 

  • If an individual in traveling between two workplaces, then it is required to disclose both of them. 
  • Traveling for business purposes and traveling back to the office will be considered as traveling expenses. 
  • If the resident and workplace are the same, and he is traveling fro any other business place than expenditures will be allowed. 
  • It is the duty of employees to shift here and there for the business purpose and such expenditure will be allowed. 
  • An alternative office due to which the expenses have been incurred will also be allowed to deduct. 

The law also allows the working cost of the machinery of any equipment carried by the working employees to work at another place in the office. In such a case, all transportation cost incurred in the form of airfare, car, taxi, or train expenses will be considered as traveling expenses. 

The expenses which have not been allowed by the ITAA, 1997 can be defined as follows:

  • Traveling expenses incurred at the place where there is no availability of public transport. 
  • If there are no appropriate vouchers for traveling expenses made. 
  • If, the taxpayer is not able to prove whether the expenses were made for official or personal purposes. 
  • If, taxpayer work from the home and he/she does not need to go office.
  • If, there are more than one-time traveling expenses shown from office to home in a single day. 

Although, traveling expenses may include all such expenditures which have incurred in the form of business trips like meals, hotels bills, transportation. Some other rules shave also been prescribed by ITAA 1997 as per the type of business in which the taxpayer is working. 

C. Classification of Expenditures as per the Taxation law

Following the above-mentioned tax provision of income tax from ITAA 1997, traveling expenses from the workplace to the home where the taxpayer is working will not be allowed. This is because the taxpayer is working from his home and also going out to work for some other employer. This type of expense can strictly not allowed under the income tax laws and can not be claimed from for the purpose of calculation of income tax. This indicates that he will not be allowed to claim any type of expenses from business place to home. However, Alex will be able to claim the traveling expenses if he is incurring the traveling expenses from the workplace to any other place for the business purpose. 

D. Tax Treatment of the Expenditure

Thus, it is clear that Alex's claim of expenses from the resident to the workplace can not be allowed at the time of calculation of income tax to be paid as per the income tax act. The liability of tax will be higher than usual in such a case. But, if Alex travels from one business site to another, then he will be eligible to claim travel expenses and thus to decrease the tax liability. 

4. Conclusion

Based on the above analysis, it is clear that tax regulations and rules are required to be followed by all individuals to calculate the accurate amount of income tax to be paid. However, is an employee is earning lower than the basic exemption limit, he/she would not need to consider the same. This can also be termed as the imposing liability from the government of the respective country in which the taxpayer is working. It can also be concluded that Ji=ohn will be required to follow the capital and revenue expenditure related laws while treating the different expenses made. Similarly, Alex will also be required to claim the traveling expenses as guided by ITAA 1997 to avoid any type of further issues of non-compliance. 

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