Week 8 – Specific Deductions - Chapter 13Question 13.

1 Advise Cheryl of her tax consequences from the

following transactions?

a)Donation of $300 to the building fund of her local public primary schoolIssueWhether the donation is
deductible for income tax purpose?RuleDivision 30 of ITAA 1997 provides taxpayers with a deduction for
gifts or contributions made to particular recipients. The gift or contribution can be of money or
property. There are 2 conditions:•A gift or contribution must be made to a deductible gift recipient that
is an entity which meets the requirements to be registered as such by the relevant body (public
universities, public hospitals, charities or research organizations)•The gift must be a true gift and made
with no expectation of material advantage in return (FCT v McPhail 1968 117 CLR 111.ApplicationIn this
case, Cheryl gives a contribution ($300) to the building fund of her local public primary school which is
the deductible gift recipient. The gift is a true gift because she receives no material advantage in
return.ConclusionCheryl would be entitled to a deduction for $300 donation to the public school under
Div 30 of ITAA 1997 as it is donation to a deductible gift recipient.

(b) Donation of $50 to her local public library (as a result she does not need to pay membership fees of
$20 that year to borrow books from the library).IssueWhether the donation of $5 to library is deductible
for income tax purpose?Rules:Division 30 of ITAA 1997 provides taxpayers with a deduction for gifts or
contributions make to particular recipients. The gift or contribution can be of money or property.

Surfs Up P/L is a national retailer that sells a range of surfing and water sport equipment
(surfboards, clothing, etc.) with an annual turnover of $60 million. Surfs Up purchases “Billapro”
surfboards for $440 each from Billapong P/L, a large manufacturer of surfboards located at Gold
Coast with an annual turnover of around $45 million, this was their only sale for the month. Surfs
Up plans to sell the Surfboards at a 200% mark-up to its customers. In October last year it
purchased 370 surfboards but a couple of months later (December) they discovered that 14 of the
surfboards were faulty and subsequently returned these faulty surfboards to the manufacturer,
obtaining a full refund. Assume both apply the accrual method of accounting.

Consequence for Billapong P/L :-

When Goods sold by Billapong P/L in the month of October :-
Billapong P/L had sold the goods to Surfs Up P/L in the month of October and included in GST
liability for the month of October and Paid GST thereon.

When Goods returned by the Surfs Up P/L in the month of December:-

In the month of December when Surf Up P/L returned faulty surfboards it issued credit note to
Billapong. When billapong received credit note it reduced its GST Liabiltiy for such Credit Note from
the GST Liability for the month of December.

Consequence for Surf Up P/l:-

When Goods purchased by Surfs Up P/L in the month of October :-
When surfboard were purchased in the month of October it booked Input Tax Credit on 370
surfboards purchased and adjusted the same from output GST Liability.
When Goods returned to the Billapong P/L in the month of December:-
When Surf Up P/L returnd 14 faulty surfboards to Billapong P/L it issued a credit note to Billapong
P/L and it will reversed its GST Input Tax Credit in the month of December for the goods purchased
in the month of october and returned in the month of December.