Income Taxation Law and Practice

Document Type:Coursework

Subject Area:Law

Document 1

This means the point of time at which a taxpayer is legally entitled to an ascertainable amount as the result of having performed an agreed task (Henderson v. Federal Commissioner of Taxation) Factors Affecting the Choice of a Cash or Accrual Basis Starting a small business will require proper initial decision-making process to streamline business activities. Among the decision needed for running business include making a choice of good accounting practice to use in the business. The accounting decision will look into the factors like how to record the transactions wheatear manual or electronic, choosing either to use a cash accounting system or accrual system of accounting. In making such a decision the owner or the management of the business should follow the laws governing business operations.

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In the real business world, there is no business that can 100% operate on the cash method of accounting because not all transaction will be paid in cash and on time. Utilization of accrual method will be effective in giving a picture of business expenditure and income hence the business will be in a good position to judge its profitability. To choose accrual method of accounting the business staff must have good knowledge of double entry bookkeeping knowledge. Cash accounting will demonstrate how the cash is flowing in the business. Lastly, a factor that affects the choice of accounting method is tax returns, the law requires the business to use an accrual method of accounting if the company is a C corporation, the company has inventory or if the company gross sales revenue is more than $5 million.

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It is also important to note that the company has employed specialized staff including two to handle administrative duties, the staff will be able to handle the accrual system of accounting technicalities. Does the Commissioner of Taxation have a right to insist on a particular basis? Tax year will depend on which year the expense or income was recorded. For example, if a company invoiced a client during 2016/17 financial year but paid in the financial year 2017/18. For the cash accounting system, this transaction will be recorded in the financial year 2017/2018, therefore, the tax will be paid during this financial year (Vann, 2016). If the business using accrual accounting method, the transaction will be recorded in the financial year 2016/2017 and therefore tax will be paid during this financial year.

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Lastly, the electronic accounting system offers some security features for example use of a password in protecting data and information against unauthorized access (Gordon et. al, 2017). The accounting software has more advantages than the traditional methods and there it is advisable for Frank business to adapt. Part Two Introduction Deduction under division 8 is composed of the General deductions and specific deductions. The basic structure of the legislation is to provide for general deductions under Section 8-1 ITAA 97 and specific deductions through section 8-5 ITAA 97. However, one cannot deduct a loss or outgoing under this section to the extent that the loss or outgoing is Capital in nature, Private or domestic, Incurred in gaining or earning exempt income and lastly Fourth limb which is Prevented from being deducted by a specific provision of the income tax legislation act.

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a) The expense at this point is deductible since essential provision concerning deductions is 8-1 of the 1997 Act, which provides in relevant part as follows: You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. Rent of a separate office is generally deductible, except when rent is part of rent + purchase or sale+ leaseback agreement. b) Ruby incurred legal expenses in defending defamation charges. Court held that legal expenses incurred in defending the company against defamation lawsuits was deductible as the expenditure was a necessary part of carrying on a newspaper business. e) Generally, all legal costs associated with the administration of an employment agreement in an existing employee/employer relationship are deductible, both for the employer and the employee.

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