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Income Tax Laws – I

Notes
Example: Property taxes and interest on mortgages are usually deductible expenses.
Special tax credits may be temporarily available for improvements that increase the energy
efficiency of the home, so taking advantage of these can also reduce tax liability.
College students, their families and anyone taking coursework should be aware of changes to
the credits and deductions available for education-related expenses. The treatment of investment
income and losses may change, too, so individuals might make advantageous adjustments
based on current rules. Other tax planning strategies involve medical expenses, charitable
contributions and adjustments to tax withholding amounts. Many people are unaware that
deductions can be taken up to the amount of any earnings related to a hobby. In the same
manner, gambling losses can be deducted up to the amount of gambling winnings.

Caselet Company Director Failed to Pay Employees’ Income Tax

The defendant was the director of two companies.
The Court was satisfied that at all material times the returns lodged by the defendant’s
companies were true and correct. There was no evidence of any false or misleading
statements or evidence of their failure to pay being concealed.

The defendant’s companies, in the usual fashion, deducted amounts from their employees’
income for the purpose of satisfying income tax obligations. It appears, however, that due
to severe cash flow issues, these amounts were never paid to the Commissioner.
The defendant was indicted on two charges of “Defrauding the Commonwealth” through
not remitting in full the amounts owed to the Commissioner. In other words, the
Commonwealth alleges that they were defrauded by the debtor’s failure to pay their debt.
The debtor was sentenced to six months’ periodic detention for the offences at first instance.
On appeal, the Court held that simply not paying a debt was not fraud in the absence of
evidence that the defendant had somehow concealed either information or the non-payment
of the debts. The Court said “in the present case... there was no evidence companies made
any false or misleading statements to the Commissioner or concealed their failures to pay
or that the Commissioner was deceived...” Thus the company’s returns contained no
fraudulent misrepresentations or non-disclosure, and in any event the Crown did not
establish that they deprived the Commonwealth of the group tax or put that tax at risk.

On this basis the Court held that there was no defrauding of the Commonwealth and
allowed the appeal, dismissing all the charges.
Source: http://www.armstronglegal.com.au/corporate-crime/tax-fraud/cases

Self Assessment

State whether the following statements are true or false:
1. Savings increase extravagance, and correspondingly inflation.

2. In Inventory Valuation Methods, a small business chooses for inventory valuation can
also lead to substantial tax savings.
3. LIFO assumes that the items purchased the earliest are the first to be removed from
inventory.

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