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Module 3 (Part C: Limitations on deductibility (Entertainment expenses (*)…
Module 3
Part C: Limitations on deductibility
Entertainment expenses (*)
In-house recreation facilities
where the facility is located on the premises of the tax payer (or related company)
Taxpayers who are in the business of entertainment
Promotion and advertising expenses
Overtime meals
Seminars
Charitable entertainment
In-house dining facilities and meals in a dining facility
Occupational clothing (*)
payments to related entities
commercial standard
Prepaid expenditure
Exclusions for the prepayment rules
<$1,000
payment under a contract of service
required to be paid by law or court order, such as a workers compensation insurance premium and motor vehicle registration.
For small business entities and individuals incurring
non‑business expenditure
can claim an immediate deduction for prepayment where
the payment is incurred for an ‘eligible service period’ (ESP) not exceeding 12 months; and
X + 12 months < last day of the following tax year
the deduction for the prepaid expenditure is claimed proportionately
Other taxpayers
Prepaid expenditure x (number of days of eligible service period in expenditure year / Total number of days in the eligible service period)
Self-education expenses (*)
Losses from non-commercial business activities (*)
Adjusted taxable income is below $250 000 (income test) and the taxpayer meets one of four
additional tests.
The Commissioner has exercised discretion to allow the taxpayer to claim the loss.
The primary production or professional arts business exception applies
assessable income from other sources unrelated to main business <$40,000
Sustantiation of expenditure
apply to all individuals and to a partnership that includes at least
one individua
Work expenses
Written evidence from the supplier
2 exceptions
evidence does not show the date, can use independent evidence (i.e. bank statement )
the document does not specify the nature of the goods or services, the taxpayer may write
in the missing details
Evidence recorded by the taxpayer
expense <= $10 and total <= $200 ,need not have documents
Evidence on a payment summary
Time limits for obtaining written evidence
No time limit
Meal allowance expenses
No need substantiation for OT meals
Travel allowance expenses (*)
When written evidence is not required (p.244)
Car expenses
Cent per kilometer method
$0.66 / km
maximum 5000 km = $3,300
Log book method (p.245)
Exceptions (p.247)
Business travel expenses (p.247)
Retention and production of documents (p.248)
Loss of records (p.248)
Penalty tax for breach of substantiation provisions (p.248)
Thin capitalisation
debt > equity => riles limit the amount of debt used to fund Australian operations
Identify any exemptions available (p.250)
Determine which category of entity is affected
Apply the specific thin capitalisation test for that particular type of entity.
Non-ADI general outward investor (*)
Inward investor vehicle general (similiar to Non-ADI general outward investor)
Disallow any debt deductions to the extent the entity exceeds its maximum allowable debt
Part A: General Deduction
First limb
losses or outgoing
incurred
Nexus between outgoing and assessable income
second limb
business and carrying on a business
necessarily
4 negative limbs
Losses or outgoing of capital or of a capital nature
once and for all test
enduring benefit test
business entity test
the chracter of the advantage sought
the way in which the asset or advantage is used
how it was acquired
Apportionment
Some possible general deductions under 8-1
Interest
capital protected borrowings (including formula)
Effect if GST on deduction