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May 01, 2023


Part A

1. Income should come in and it should be money or it must be convertible in money. To classify anything as income, it should “come in” to the taxpayer and it needs to be received by taxpayer as money or it is received in a form which can be converted in money otherwise it cannot be considered as gain for tax purpose. As per the “sec 21A of ITAA 1936”, it provides that any sort of non-cash business benefits should be treated as convertible in cash in order to determine the assessable income of taxpayer from carrying on a business activity (Barkoczy, 2016). As defined in “sec 21A (5) of ITAA 1936” the non-cash business benefits involve a property and services that is provided in regard to business relationship.

As per the “sec 21A of ITAA 1936” it does not consider any benefit received as property or services to be income (Sadiq, 2020). The main effect is that the non-cash benefit is already treated as income which is obtained from doing any business. Accordingly, “subsection 21A (2)” states that the amount which should be taken into consideration must be the amount that the taxpayer would have paid the provider for property or services on the basis of arm’s length transaction.

The client in the current circumstances has received a holiday trip that involves airfares and hotel accommodations worth $20,000 from his supplier after selling huge amount of shirts. The holiday trip of $20,000 received by the client will be considered as a “non-cash business benefit” which is delivered in respect of professional relationship. Therefore, in “sec 21A of ITAA 1936”, the sum of $20,000 will be included in the client’s assessable income.

2. Interest is regarded as the return that simply runs from lending the cash and it is considered as the reward regarding the loss of usage of that sum (Shome, 2021). Accordingly, “Riches v Westinster Bank Ltd (1947)” receiving of interest is regarded as an ordinary income within “sec 6-5 ITAA 1997” (Anderson et al., 2016). Interest is normally derived when it is received.

As evident in present circumstances, David reports receiving interest of $257.50 in August 2022. The taxpayer in the current situation follows cash basis and hence the interest is derived only when it is received. Therefore, the interest is not derived by him for the year income year ended 30th June 2022. Hence, he must include the sum of $257.50 for the income year ended 30th June 2022 because it was derived by him in that year only and he is not required to pay income tax for 30th June 2022.

3. As mentioned under the “sec 25-35 of ITAA 1997” a debt is “written off” as a bad assuming that the official accounts provide a suggestion that the amount will not be any more recovered (Kenny & Devos, 2018). Provisions for doubtful debts that might be recoverable cannot be considered as an allowable deduction. The debt ought to be “written off” as a “bad debt” in the current “income year” and the amount is contained within in the assessable earnings. The taxpayers are only permitted to claim deductions for bad debt when an accrual method is followed by them.

Similarly, in case of Fincorp Ltd, the doubtful debts and estimated bad debts are not permitted for deductions. While under “sec 25-35 ITAA 1997”, the bad debts amounting of $17,000 that is written off by Fincorp Ltd in the financial year ended 30th June 2022 will be allowable for tax deduction within “sec 25-35 ITAA 1997”.

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