specific deduction on australian tax slides

7/27/2019 specific deduction on australian tax slides

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Foundations of Taxation Law

SPECIFIC DEDUCTIONS

Chapter 20


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Foundations of Taxation Law[20.1] Foundations of Taxation Law CCH Australia Limited

Introduction

Specific deduction provisions are designed to providedeductions for particular kinds of expenditure thatmight not otherwise be deductible under the generaldeduction provision

Checklist of provisions in Div 12 ITAA97 Expenditure may be deductible in the year in which it is

incurred or spread over a period of years

Specific deduction provisions operate subject to special

provisions which deny or limit deductions


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Tax-related expenses (s 25-5ITAA97) Taxpayers allowed deductions to the extent that

expenditure is incurred in managing their tax affairs

Deductions expressly denied for:

Payments of income tax or PAYG

Fees paid to persons who are not recognised taxadvisers

Capital expenditure


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Foundations of Taxation Law[20.3](a) Foundations of Taxation Law CCH Australia Limited

Repairs (s 25-10 ITAA97)

Taxpayers allowed deductions for non-capitalexpenditure on repairs to premises and depreciatingassets held or used for the purpose of producingassessable income

Nature of a repair: Involves restoring an asset to its previous condition

without changing its character (W Thomas)

Can involve the renewal or replacement of

subsidiary parts of a whole but not reconstructionof the entirety (Lurcott)


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Foundations of Taxation Law[20.3](b) Foundations of Taxation Law CCH Australia Limited

Maintenance costs

Expenditure upon repairs is properly attributed torevenue account when the repairs are for themaintenance of an income-producing capital asset(Kitto J in W Thomas)

Costs incurred in fixing defects in an item which existedat the time of acquisition are usually capital (WThomas, Law Shipping)


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Foundations of Taxation Law[20.3](c) Foundations of Taxation Law CCH Australia Limited

Replacement & restoration

Repair often involves the replacement of parts of anasset with new parts (Rhodesia Railways)

Extensive works may constitute the acquisition of a newasset rather than a repair (Lindsay)

Repair will not generally arise where there is afunctional improvement in the quality of the asset(Western Suburbs Cinemas)


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Borrowing expenses (s 25-25ITAA97)

Deductions available for expenditure incurred inborrowing money to the extent that the money is usedfor the purpose of producing assessable income

Expenditure is generally deductible over the period of

the loan (or five years if this is shorter)Amounts of $100 or less are usually fully deductible in

the relevant year


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Foundations of Taxation Law[20.5](a) Foundations of Taxation Law CCH Australia Limited

Bad debts (s 25-35 ITAA97) Taxpayers can deduct a debt (or part of a debt) written

off as bad in an income year if: It was included in the taxpayers assessable income

for the income year or an earlier income year, or

It is in respect of money lent by the taxpayer in the

ordinary course of a moneylending business


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Foundations of Taxation Law[20.5](b) Foundations of Taxation Law CCH Australia Limited

Bad debts (cont) Deductions are not available for debts that have been

released, extinguished or compromisedA debt has gone bad when it is reasonably regarded

as irrecoverable

A bad debt is deductible in the year that it is physically

written off in the taxpayers accounts

Special anti-avoidance rules apply to deal withtrafficking in companies and trusts with bad debts


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Loss from profit-makingundertaking or plan (s 25-40) Taxpayers may claim a deduction for a loss arising from

the carrying on or carrying out of a profit-makingundertaking or plan if any profit from that plan wouldbe assessable under s 15-15 ITAA97

A loss is not deductible if it arises in respect of the saleof property acquired on or after 20 September 1985

Special restrictions apply to the deductibility of lossesthat arise in respect of property


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Lease related expenses

Section 25-15 ITAA97 allows a tenant to deduct anamount paid for failing to comply with a lease obligationto repair premises that have been used for the purposeof producing assessable income

Section 25-20 ITAA97 allows a tenant to deduct

expenditure incurred for preparing, registering, orstamping a lease of property used for producingassessable income

Section 25-110 ITAA97 allows deductions for capital

expenditure incurred to terminate a lease if theexpenditure is incurred in carrying on a business orceasing to carry on a business


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Pensions, gratuities and retiringallowances

Section 25-50 ITAA97 allows deductions for pensions,gratuities or retiring allowances that are paid during theincome year to an employee, a former employee, or adependant of an employee or former employee

Payments are only deductible to the extent that theyare paid in good faith in consideration of theemployees or former employees past services in abusiness carried on by the taxpayer for the purposes ofproducing assessable income

Deduction is not available if the payment is deductibleunder another provision


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Payments to associations Section 25-55 ITAA97 provides deductions for

payments made for membership of a trade, business orprofessional association

Maximum amount deductible under s 25-55 forpayments made in an income year to any one

association is limited to $42 There is no requirement that the membership of the

association have a link with any income-producing orbusiness activities carried on by the taxpayer, but if

there is a link, payments may be deductible under s 8-1 There is no limit on the amount that can be deducted

under s 8-1.


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Election expenses

Expenditure incurred in contesting an election formembership of Parliament or ACT or NT LegislativeAssemblies is generally deductible under s 25-60ITAA97

Expenditure incurred in contesting a local governmentelection is generally deductible under s 25-65 ITAA97,subject to a deduction limit of $1,000 per election (thislimit can be exceeded in certain cases)


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Gifts (Div 30 ITAA97)

Taxpayers can claim deductions for inter vivosgiftsmade to specified charities, public institutions and otherentities

To constitute a gift, property must be transferredvoluntarily without any material benefit to the donor(McPhail, Leary, Cyprus Mines)

Deductions generally only available for gifts made toentities that have been endorsed by the Commissioneras deductible gift recipients

Deductions are also available for testamentary gifts ofproperty made under the Cultural Bequests Program

specific deduction on australian tax slides

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