Assignments’ Instructions and Requirements QUESTION XXXXXXXXXXMARKS) John has applied and been approved a licence to operate a casino in Melbourne, which later on he named it The Casino East. John has...

T1 2020
HI6028
Taxation Theory, Practice & Law
Question 1
Issue
To Assure that both casino prepaid rents are regarded as revenue or capital expenses according to applicable regulations and legislation.
Rule
A pre-paid expense is an expenditure resulting from a deal (all at once or in part) in future years of income. Whether you invest money in the current fiscal year or something that will happen, that is not a pre-pay expense. The general rule states that your expenses cannot be paid up front and deducted from the taxes of your current income year. Also, in the year in which it occurs will a prepayment expense be deducted. It means that you can subtract the value of the payment that relates to the current financial year if you pay anyone during a ten-year lease at the start of the term. Expenses must be deductible for the "Eligible Service Period," with a 10-year limit. The agreement must be fulfilled or the matter must be resolved according to the agreement in return for the amount you paid. The time of qualifying service begin the day you sign the contract or the day expenses are met (Kyle, 2015).
In the year ended 30 June 1995, 1996 and 1997, section 51(1) of the Act of 1936 applies. To the degree applicable, it provided that:
“All expenditure to the point that it is incurred to earn or produce the assessable revenues, or is actually incurred to conduct a company for the purpose of earning or producing such revenues, shall be acceptable deductions, except to the degree that it is capital”.
The balance of income years in dispute shall be covered by Section 8-1 of the 1997 Act. To the extent applicable, it provides that:
(1) Any loss or losses arising out of your assessable profits can be deducted in sofar as the cost or production of your taxable revenues is incurred; for the purpose of acquiring or increasing the taxable income, it is generally engaged in carrying on business (Taylor, 2011).
(2) In so far as this section does not, however, exclude a loss or loss it is a capital loss or a capital loss or outgoing;
In the case of “GP International Pipecoaters Pty Ltd v Federal Commission for Taxation”
The High Court was a party in this case to a deal with the State Energy Commission of Western Australia in which the taxpayer agreed to cover the pipes for the construction of a massive gas pipeline. To comply with this contractual requirement, the taxpayer was required to undertake an installation.
The High Court did not support the argument that the taxpayer had to contractually spend the cost of building the plant in the correct way to view the contract. The true contractual condition was that taxpayers were free to fund the construction they wanted but to invest in the total land. The Higher Court further observes that “Since the set-up costs were obtained for building expenses, they do not automatically follow that their receipt was receipt of money” it is of concern for present purposes. It follows that the High Court’s observations. (GP International Pipecoaters (1990) 170 CLR 124.).
The primary concern of the expenditure side of the ledger for income tax purposes is the feature of the benefit the expenditure is pursuing. On the revenue side the essence of a receipt in the possession of the receiver is not determined by how the receiver wants to spend it, as GP International Pipe coaters affirmed. It did not mean that the taxpayer spent in this case contractually induced capital account receipts on the manufacture of an industrial plant in order to start a company, which would be capital receipts. (GP International Pipecoaters (1990) 170 CLR 124.).
The qualifying service duration lasts to the end of the day of the...