Tax law assignmentBULAW 5916 Taxation Law & Practice Semester 2 2020 Written Assignment Total...

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Tax law assignmentBULAW 5916 Taxation Law & Practice  Semester 2 2020  Written Assignment  Total maximum marks: 100, weighted to 30% of the final mark for the course  Due Date: Friday of Week 9, 11.55 pm (through Moodle)  Length: While it is difficult to set a required word count, it is anticipated your  assignment will need to be between 2000 and 2500 words to adequately  respond to all requirements. ASSIGNMENT TOPIC  The focus of this Assignment is the business activities of Luxwood Pty Ltd, you are  required to analyse facts, research and apply relevant law and provide considered  advice to the company.    Luxwood is a resident private company established in 2011 to manufacture quality  furniture that is sold to retailers under several brand names and directly to the public. The  Assignment comprises four tasks which are largely independent of each other. In respect  of each task, the requirement is that you:  Identify the issue/issues raised  20% of the available marks for each Task are allocated for this requirement.   Identify and discuss the relevant provisions of the legislation, case law,  ATO rulings and determinations.   30% of the available marks for each Task are allocated for this requirement.   Advise the company what amounts are assessable or deductible for each  Task. In your advice you should also ‘resolve’ the issues raised by each task,  and where appropriate advise what options or alternatives are available.   50% of the available marks for each Task are allocated for this requirement Note: Disregard GST and Small Business Entity related matters You will not receive  marks for discussing these.             Task 1 (30 marks)    Luxwood operates a customer loyalty programme as follows:    Under a LuxRewards Card™ system, each year, on the anniversary of the issue of  each customer’s card, the store grants a non-refundable credit to each customer’s  account according to a sliding scale based on aggregate purchases for the previous 12  months period. The credit is 2% up to $5,000, 3% for the next $5,000 and 4%  thereafter. There is no limit. The credit may only be used to reduce the amount payable  for LuxRewards Card™ credit purchases.    For example: Customer A commenced his credit card account a few years ago on  1 February so he is entitled to a credit on the anniversary of that date each year,  based on his actual purchases for the previous 12 months. Therefore, at balance  date, 30 June, an accrual is made based on the actual sales since 1 February  although the actual credit cannot be accurately calculated and neither will it arise  until the following financial year. At 30 June 2020 Luxwood estimates that for the period up to that date its liability in  respect of these credits is $220,000. In addition, it has already credited $245,000 during  the year ended 30/6/20. The store estimates that, on average, 10% of these credits will  lapse.      Task 2 (30 marks) Luxwood prides itself on its “no questions asked” refund policy for return of defective  goods. It has gathered statistics over the previous 8 years since it adopted this policy and  it concludes, as a reliable estimate, that of all its refunds under this policy, 60% are  covered by supplier warranties. It bears the balance as a cost of doing business.  In this respect the store has made the following entry in its journal for the year ended  30 June 2020:  Dr. Profit and Loss 25,000  Cr. Provision for warranties 25,000  Narration: Being 40% of estimated refunds for claims in respect of defective  goods sold during the year ended 30 June2020 for which no supplier  warranty is available. Task 3 (20 marks)    During the year it came to the directors’ attention that a rival firm was marketing a lounge  suite that appeared identical to Luxwood’s best-selling line. An action to recover  damages was commenced. The matter is yet to be finalised but the company’s legal  advisors are confident. At June 30 only $1,500 had been paid in legal fees but estimated  additional costs of $24,000 had accrued although no account had been received.      Task 4 (20 marks)    In November 2019 a visitor to Luxwood showroom slipped on the steps and sustained  injuries requiring medical attention. She claims one of the steps was loose and  commenced legal proceedings against Luxwood alleging her injuries were caused by the  poor condition of the building. Luxwood has so far incurred legal expenses of $4,000 and  the action has not been settled at 30 June.

Sumit · Accepted Answer

BULAW 5916 Taxation Law & Practice                         	1
BULAW 5916 Taxation Law & Practice		4
BULAW 5916 Taxation Law & Practice
Table of Contents 
Introduction	3
Task 1 - Customer Loyalty Programs	4
Task 2 – Provision for Warranties	6
Task 3 – Legal Costs to defend Patent Infringement	8
Task 4 – Legal Costs to defend Suit for Tort of Negligence	10
Conclusion	11
References	12
Introduction
	
	Assessment and payment of Income Tax falls under a statutory duty for each business entity. The amount of tax to be paid is a function of taxable income which derives its value from two different limbs viz. Assessable Income and Deductions. The statutes for Income Tax in Australia viz. ITAA 1936 & ITAA 1997 provide Assessable Income to comprise of Ordinary Income and Statutory Income. Similarly, deductions comprise of General and Specific Deductions.
	While there are specific provisions for determining the deductibility of specific deductions, general deductions to be claimable or not require a proper understanding of various general provisions for deductibility and relevant business cases and facts.
	Let’s look at various situations for Luxwood Pty Ltd, a furniture manufacturing company to ascertain various financial and taxation implications in each of these scenarios.
Task 1 - Customer Loyalty Programs
Issues:
Luxwood has setup a Customer Loyalty Program to induce its customers to buy more of their products and remain loyal to their brand of products by providing incentives on future purchases. This has also been defined in Paragraph 3 of Taxation Ruling TR 1999/6 ‘Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs’. With non-refundable store credits passed on based on a percentage of a customer’s historical purchases they are being enticed to revisit the store to purchase their goods. It is to be noted that the credits are non-refundable so that a customer cannot cash it out and has to compulsorily buy a product so as to take advantage of these credits offered. Also, the credits become available after aggregating the sales of one full year, so it also ensures that a customer remains loyal even after a year. 
Law:
Usually under a customer loyalty program the reward provider promises the customers some rewards for redeeming the loyalty points. This means the reward provided is liable to incur some expenses to make good on the promises of the rewards on redemption. 
Under the provisions of S 8-1 of the Income Tax Assessment Act (ITAA) 1997 ‘You can deduct from your assessable income any loss or outgoings to the extent that:
(a) It is incurred in gaining or producing your assessable income; or
(b) It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Rightfully so when a business provides customer loyalty benefits in whatsoever way it is designed to gain further income or may even be classified as marketing outgoing and thus any such outgoings or losses can be claimed as deduction against an assessable income.
However, it is also worthwhile nothing that any outgoing or loss should have been actually incurred to qualify for a deduction under this section. So when a reward provider in our instance rewards a customer with reward or loyalty points there is no definite liability on the reward provider to incur an outgoing or a loss as there is no certainty that a customer will return to redeem his points and often redemptions are subject to certain conditions to be met viz. minimum points to be collected or only on buying some goods from the reward provider, etc. Thus, unless any actual expenses or losses are incurred a business cannot claim a deduction for a customer loyalty program benefit being handed out to customers.
Advice:
From a financial view point for Luxwood, their LuxRewards Card program implies that it intends to forego a percentage of future sales by way of credits which otherwise it was not obliged to give out had there been no customer loyalty program.

BULAW 5916 Taxation Law & Practice Semester 2 2020 Written Assignment Total maximum marks: 100, weighted to 30% of the final mark for the course Due Date: Friday of Week 9, 11.55 pm (through Moodle)...

Answer To: BULAW 5916 Taxation Law & Practice Semester 2 2020 Written Assignment Total maximum marks: 100,...

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