Answer :

Question 1: Calculation of taxable income and tax losses:

Year 1:

Year 2:

Year 3:

Question 2: FBT of loan benefits:

The fact of the case:

• Loan to an employee of $ 15000 in case of an emergency.
• The loan is provided by the company is an interest-free loan.
• As of 28^th Feb 2020 the company has waived $ 10000 due to compassionate reasons.
• Tax implication on employee and his employer due to loan benefits.

Taxation law:

As per the provisions of ITAA, 1997, the fringe benefits are liable for FBT for the employer in case of benefits provided to the employee other than the salary and employment benefits. The waiver of a loan is liable for FBT in case the waiver is arisen due to employment-related reasons. The interest benefits are also liable for FBT if the interest charged from the employee on the loan amount is less than the standard rate of interest.

The waiver of a loan is not considered as fringe benefits for the employer if there is a financial implication for recovery of debts. The employer has made all efforts to recover the amount. The reason for the waiver of the loan is not related to the employment relationship. The employee has no assets for recovery of loan amount and there is a waiver after the negotiation and discussion of management. However, there is no impact on the interest benefits provided to an employee on the loan amount (Grudnoff, & Richardson, 2018).

Application of taxation law on the case:

In this case, the loan is waived and the employee is required to pay only 5000 under the compassionate reasons which are related to the employment relationship. Therefore the waived loan amount of $ 10000 is considered fringe benefits and liable for the FBT for the employer. The employer is liable to pay FBT at the rate of 47% on the loan amount waived i.e. $ 10000 and FBT liability is $ 470. The employer also cannot claim the deduction of the loan waived to the employee.

The employer is also liable to pay FBT on the interest amount i.e. calculated at the standard rate of 5.37%. The interest amount in this case is:

$ 15000 * 5.37% * 180/365=$ 397

$ 5000 * 5.37% * 185 / 365 =$ 136

Total amount of interest benefits = $ 533

FBT on the interest benefits=$ 533 * 47%=$ 251

The employee is not liable to pay tax on the fringe benefits received from the employee however the employee is required to report the number of fringe benefits received in the tax returns submitted to the tax authorities.

Question 3: Transfer pricing issue:

Facts of the case:

The issue is related to the organization which is operating a business in different countries. The BEPS is the tax planning strategy in which the location of profit shifts for disappearing the tax to the locations where it is little or no real activity and the taxes are low that results in little or no overall corporate tax. The strategies in BEPS take advantage of a combination of features of home and host countries' tax system. The corporate tax is applicable on the income earned at the domestic level and the income which is taxed in more than one tax jurisdiction results in double taxation. The process is illegal as the tax authorities are not able to tax the income of taxpayers effectively (Oguttu, 2016).

Relevant tax laws and cases:

As per Division 13 and current transfer pricing rules in sub-division 815-B, the taxation issues of BEPS in which profits are shifted to the countries in which there is low tax implication to avoid tax. The amount on which tax is applicable is revenue in place of profits. There is the involvement of withholding tax on the amount paid by the party to the taxpayer which imposes the tax on the revenue part and reduces the tax of profit shifting. The OECD has worked for reducing the causes of BEPS and tax the profits of organizations in the tax jurisdiction in which it is earned. The actions taken are prevention of abuse of double taxation treaty, prevent the artificial avoidance of permanent establishment, and assurance that the transfer pricing outcomes are for the value creation (González-Barreda, 2018).

Application of tax laws:

Based on the above rules, and the objective of preventing tax avoidance, there is taxation rules applicable to the revenue instead of the profits of the taxpayer. The payer is liable to deduct the tax before making payment to the recipient which increases the recording of revenue income in particular tax jurisdiction. For the avoidance of cases of BEPS, the tax implication of revenue instead of profit is the effective measure taken by the tax authorities.

Conclusion:

 The case concludes that the taxing of revenue income is the best solution for avoiding the transfer pricing issues that arise in BEPS. The OECD and new rules of transfer pricing increase the application of this law system. The payer of revenue income is liable to withhold the tax on the amount paid to the recipient and required to report to the tax authorities which help in identifying the revenue income generated in a particular tax jurisdiction.

Question 4: Decline in value of the depreciable assets:

Calculation of depreciation and decline in value:

• The formula of depreciation or decline in value under the diminishing method are as follows:

Base value * (no. of days assets held / 365) * (200% / assets effective life)

• The low-value pool assets are depreciated at the rate of 37.5% and if the new assets are added during the year then the depreciation rate applicable is 18.75% on that assets. The low-value pool is applicable only on the assets having a value less than $ 1000 (Tran, & Wende, 2017).

Question 5: Partnership income and income of partner:

a) Calculation of net income of the partnership firm:

• The partner’s salary is not allowed as expenses from the partnership firm’s income.
• The interest on capital is not allowed to deduct from the income of the partnership firm.
• The interest on the loan provided by the partner is allowed expenses from the partnership firm.

b) Calculation of assessable income for Alastair:

• Profit of partnership firm liable to share among partners is calculated after deducting other payments to partners such as interest on capital of $ 18000 (9000 + 9000), Salary to Sophie of $ 45000 and superannuation contribution for Sophie of $ 9000.
• The income from the lottery is income from a hobby that is not incurred regularly and income from a hobby is not taxable as per ITAA, 1997. Therefore the income from a lottery of $ 100000 is not considered for calculating the assessable income of Alastair.

Question 6: Claim of the input tax credit in GST:

The fact of the case:

• Joshua Pty Ltd has the business of sale of furniture for which the company provides loan arrangements to finance the purchase of furniture.
• The company has total expenses of $ 2.2 million including the expenses incurred for the loan arrangement of $ 33000 which is including GST.
• The question raised whether the company can claim the input tax credit for the GST paid on a loan arrangement of $ 3000 ($ 33000 * 10 / 110).

Application of taxation law:

The GST input credit is available for the expenses that are incurred to earn the income from the business and run the business effectively. The GST input credit is related to expenses incurred for run the business and the expenses on which credit is booked are incurred for effective processing of business and earn income from business such as benefits to employees, advertisement, loan facility to customers, etc. which has relation with the business and helps in increase the business income.

In this case, the loan arrangement is done so that it is easy for the customers to purchase the furniture and the loan arrangement is for the benefits of the business of furniture. The loan arrangement increases the sales of furniture and helps in business. Therefore the company can claim the input tax credit on the GST paid on the expenses incurred related to loan arrangement.