This session explores the fundamentals of deductions for income tax purposes. We will review Ronpibon Tin and section 8-1 of the ITAA 1997.
Discussion Focus:
The requirement that an expense be “incidental and relevant” to earning taxable income, and what this means in practice for ordinary business outgoings.
The treatment of costs that relate to capital or income and the way the case draws line excluding between these types of expenses.
The idea that overheads and other general expenses supporting multiple activities must be apportioned on a “fair and reasonable” basis, and the recognition that this is a factual, judgment-based exercise.
The distinction between a company carrying on an active income-earning business and a company mainly preserving or recovering capital assets, and how that distinction affects deductibility.
Discussion focus:
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Construction of s 51(1) ITAA 1936 (now s 8-1 ITAA 1997):
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What do “incurred in gaining or producing the assessable income” and
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“necessarily incurred in carrying on a business for the purpose of gaining or producing such income” mean?
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Can the companies deduct all of their head-office/admin expenditure in the relevant years, even though:
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there was no business income (only interest income); and
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much of the activity related to capital matters and exempt income?
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If not all deductible, how should the expenses be apportioned between:
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assessable income (interest),
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exempt income, and
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capital expenditure.
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Please see below link to case materials which is assumed reading in order to participate in the discussion:
Ronpibon Tin NL & Tongkah Compound NL v FCT (1949) 78 CLR 47
Discussion led by Llewellyn Wood.