Australian Taxation Law: Analysis and Application

This assignment delves into the complexities of Australian taxation law. Students are expected to demonstrate a comprehensive understanding of core concepts, including income tax, capital gains tax, fringe benefits tax, and double taxation conventions. The assignment likely includes analysis of relevant legislation, case law, and practical scenarios. It may also require students to apply their knowledge to solve problems or provide advice on specific tax situations.

Running head: TAXATION LAW
Taxation law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Issue:..........................................................................................................................................2
Rule............................................................................................................................................2
Application:................................................................................................................................2
Conclusion:................................................................................................................................6
Answer to question 2:.................................................................................................................6
Issue:..........................................................................................................................................6
Laws:..........................................................................................................................................6
Applications:..............................................................................................................................6
Conclusion:..............................................................................................................................10
Reference list:...........................................................................................................................11

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Answer to question 1:
Issue:
The current issue deals with the Aussie Ltd being a subsidiary company of the
Meranti Ltd where Aussie Ltd incurred advertising expending for launching an attack on the
media with the objective of demanding repeal against the government decision of imposing
high import duty on the yearly sales.
Rule
a. “8-1 of the ITAA 1997”
b. “subsection 51 (1) of the ITAA 1936”
c. “Income tax ruling of ID 2001/83”
d. “FC of T v Snowden and Wilson Pty Ltd (1958)”
e. “Magna Alloys and Research Pty Ltd v. FC of T (1980)”
f. “Herald and Weekly Times Ltd v. FC of T (1932)”
Application:
From the present case, it is found that Aussie Ltd functioned as the subsidiary
company of the Meranti Ltd being the manufacturers of the high quality furniture with much
reduced cost. The furniture manufactured by Meranti Ltd was exported to the Aussie Ltd that
enjoyed highest degree of success in terms of the large volume of sales. Following the case
study, it was found that the federal government imposed huge amount of import duty on the
yearly sales of imported furniture that was done by Aussie Ltd since the company sold those
furniture in the Australian market. As a result of this, the government decision of imposing
import duty has considerably effected the business and revenue generating capacity of Aussie
Ltd. Subsequently Aussie Ltd launched a media attack with the objective of repealing the
government decision and sought petition in the parliament against such the import duty. As a

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result of this the company incurred an expenditure of $2 million as a demand for revoking
government decision.
As defined under the “section 8-1 of the ITAA 1997” an individual taxpayers is
allowed to make claim for allowable deductions related to losses and outlay up the extent that
they are occurred at the time of gaining and producing the taxable income (Barkoczy 2016).
There is also an exception to the rule, which states that where an expenditure is of a capital in
nature or possessing the characteristics of private or domestic in nature are not allowed as
allowable deductions. In order to consider the legal expenditure in the form of allowable
deductions the taxpayer is required to explain that the expenditure was related or significant
to the production assessable income (Braithwaite 2017).
Denoting the judgement of the “Hallstroms Pty Ltd v Federal Commissioner of
Taxation (1946)”, in determining the deductibility of the legal expenditure to be considered
as allowable under “section 8-1 of the ITAA 1997”, it is obligatory to understand the nature
of the expenditure (Saad 2014). It is noteworthy to denote that the nature and the character
possessed by the legal expenditure follows the benefit that is sought by the taxpayer in
incurring such expenditure. As it was held in “Herald and Weekly Times Ltd v. FC of
T (1932)” legal expenditure are usually considered as deductible if such expenditure is
originated from the regular activities of the taxpayer’s business (Lang 2014). Furthermore, as
noted in the case of “Magna Alloys and Research Pty Ltd v. FC of T (1980)” the legal
expense are usually regarded as deductible if the legal actions that has been taken has more
peripheral association to the business of the taxpayer revenue producing activities (Miller and
Oats 2016).
In the present context, it can be stated that the legal expenditure incurred by Aussie
Ltd can be regarded as deductions under “section 8-1 of the ITAA 1997” that are allowable

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for the losses and outgoings to the degree that they are occurred in the revenue generating
capacity of the taxpayer business (Davison, Monotti and Wiseman 2015). Citing the reference
of “Ronpibon Tin & Tong Kah Compound NL v. F C of T (1949)” the expenditure
incurred by Aussie Ltd in the present context constitute a deductible expenditure since they
were relevant in the generation of Aussie Ltd taxable income (Woellner et al. 2016). The
legal action of Media attack and seeking petition in the parliament represents that the
expenditure incurred by Aussie ltd carries more than a peripheral association to the income
producing activities of the taxpayers.
Aussie Ltd does not occur the legal expenditure in the present context for any
alternative purpose other than defending its method of business of exporting high quality
furniture in Australia. Therefore, it can be asserted that decision to challenge the decision of
government against the imposition of higher duty is hence associated to the integral part of
the taxpayers business. Therefore, it can bought forward that the expenditure incurred by
Aussie Ltd was in the purview of executing the business activities with the objective of
gaining assessable income. In addition to this, the negative limbs of the “subsection 51 (1) of
the ITAA 1936” does not have any kind of application for the reason that the expenditure
occurred in challenging the decision of government does not forms capital in nature neither it
is associated for the preservation of the capital asset (Robin 2017).
Denoting the judgements of “FC of T v Snowden and Wilson Pty Ltd (1958)” the
fact the legal expenditure incurred in the present context has not on earlier occasion being
required to undertake such legal actions (Barkoczy et al. 2016). Therefore, it does not prevent
the expenditure incurred by Aussie Ltd from being considered as the deductible.
As held in “Magna Alloys and Research Pty Ltd v. FC of T (1980)” it was noticed
that the legal expenditure that was incurred by the taxpayer with the objective of preventing

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the statements of defamation that was being made by the co-worker was regarded as the
allowable deductions under “section 8-1 of the ITAA 1997”. The reason for such decision as
presented in “section 8-1 of the ITAA 1997” where a deductions are allowable if the
expenditure is arising out the regular income generating activities or having more than a
outlying association to the business of the taxpayers (Anderson, Dickfos and Brown 2016).
Arguably, it can be bought forward that when the primary reason of incurring legal
expenditure is for the purpose of defending the actions of the taxpayers in executing the
employment duties with the help of which they gain or generate taxable income such
expenditure are characterised in the form of revenue in nature and are regarded as allowable
deductions.
As rightly explained under “section 8-1 of the ITAA 1997” that permits deductions
for all kinds of losses or expenditure till the certain extent to which they are incurred by the
taxpayer in producing and generating the taxable income (Tran-Nam and Walpole 2016). An
exception to this rule is that unless on the circumstances it is found that the such expenditure
are holding the nature of the capital, domestic or private characteristics or associated in the
earnings of the exempted income.
An important considerations of the “section 8-1 of the ITAA 1997” is that legal
expenditure have generally regarded to be as allowable deductions given the fact that the
expenditure has originated as the consequence of the Aussie Ltd income generating capacity
given that such expenditure is not holding the nature of private or domestic (James 2016.).
Therefore, it can be asserted that the expenditure incurred in challenging the decision of
government for imposing higher import duties represents allowable deductions. The expenses
is occurred by Aussie Ltd was for the purpose of defending the method of business and the
decision to challenge the imposition of duties is related to the integral part of the taxpayers
business.

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Conclusion:
On arriving at the conclusion from the above stated analysis, it can be ascertained that
the legal expenditure that has been occurred by Aussie ltd is in conformity with the method of
producing and gaining the assessable income and will be treated as allowable deductions
under “section 8-1 of the ITAA 1997”. The reason for such decision is that the amount of
expenditure is incurred for the purpose of safeguarding the purpose of the income generating
structure.
Answer to question 2:
Issue:
The present issue is concerned with the determination of deductibility of the
expenditure that is incurred by the taxpayer prior to the purchase of rental property and after
the purchase of the rental property.
Laws:
I. “Section 8-1 of the ITAA 1997”
II. “Sun Newspapers Ltd v. F C of T (1961)”
III. “Taxation ruling of 97/23”
IV. “Section 25-10 of the ITAA 1997”
V. “Subsection 25-10 (1)”
VI. “Taxation ruling of TR 97/25”
Applications:
The current case study is based on James who proposes to purchase a block of five
flats for the purpose of using the same as the rental property by letting out on rent to the
tenants. From the case study, it is found that James before making the decision of purchasing
the block of five lands was advised by the inspector that would be incurring pre-acquisition

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cost of $20,000 on plumbing, roofing and painting. Soon the work of plumbing, roofing and
painting was finished and James lent out the flats to the tenants. According to the Australian
taxation office capital works that are incurred by an individual on structural improvement of
the rental property are generally written off over the period of long term and such expenditure
are considered as deductible expenditure.
The capital works deductions is considered as an expenditure of the capital in nature
that are usually depreciated over the period of time and might form the part of the cost base
of the property for the capital gains tax purpose (Daley and Coates 2015). It is noteworthy
that repairs and maintenance expenditure are regarded as the most commonly sought after
query. Expenditure, which an individual makes, on repairs and maintenance to the property
might be considered as allowable deductions. However an exception to the rule is that such
repairs must be directly associated to the wear and tear or other damage that has arisen as the
outcome of renting out the property (Blakelock and King 2017). Therefore, it can be stated
that repairs that is carried out to the newly purchase property are not viewed as the
expenditure and they are regarded as the capital work expenditure.
According to “Section 8-1 of the ITAA 1997”, it provides permission for deductions
of all the losses and outgoings to the certain degree to which such expenditure are incurred in
gaining or deriving the assessable income of the taxpayers (Barkoczy et al. 2016). An
exception to this rule is that an expenditure cannot be allowed as deductions that are incurred
in the nature of capital, private or domestic in nature. The federal court have considered the
nature of capital goings in the case of “Sun Newspapers Ltd v. F C of T (1961)”. The cost
that is associated with the purchase of the rental property are usually not regarded as
allowable deductions since they form the part of the creating a profit making asset (Coleman
and Sadiq 2013).

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In the present context of James, it can be stated that cost that is involved in the
roofing, plumbing and painting are not viewed as expenditure indeed they are deemed as
capital works expenditure. It can be stated that the expenditure incurred by James were to
make the property appropriate for rental purpose and these expenditure did not originated
from the James use of property to produce the rental income (Harris et al. 2013). Arguably, in
respect of the “Section 8-1 of the ITAA 1997”, it can be bought forward that the expenditure
that is are in the nature of capital and James in the present context will not be able to claim an
allowable deductions for such expenditure.
On the other hand, it is found that James has incurred an expenditure of $50,000 as a
result of the collapse of a section of upstairs floor due to the infestation of termites. In
addition to this, it is also found that James additionally incurred an expenditure of $2,000 to a
pest control company so that he can make sure that remaining parts of the buildings are not
damaged by further termites infestations.
According to the “Taxation ruling of 97/23”, it provides the explanations on the
circumstances in which expenditure that is incurred for repairs will be considered as the
allowable deductions under “section 25-10 of the ITAA 1997” (Kenny, Blissenden and
Villios 2017). The expression of the term repairs is defined under “Subsection 25-10 (1)”
defines repairs where the repairs are in the nature of capital nature or expenditure that is
occurred to remedy defects, damage or deterioration in presence at the date of acquisition of
the property (Keyzer, Goff and Fisher 2013). The expenditure that is incurred by James on
replacing the ceiling from the infestation of termites can be regarded as the capital works
deductions. According to the Australian taxation office capital works deductions are regarded
as the income tax deductions that can be claimed by the taxpayers on the event of cost
involved in construction of building, cost of altering the building, the cost of capital
improvements that surrounds the property (Krever 2013).

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As it is found that James acquired the property after the period of 17 July 1985,
therefore he can claim allowable deductions on the rental property for the cost that is incurred
on replacing the roofing of the building (Morgan, Mortimer and Pinto 2013). “Para 15 of the
Taxation ruling of TR 97/23” defines repairs for the most part is viewed as occasional and
partial (Nethercott et al. 2016). It generally comprises of the restoration of the efficiency
function of the property that is being repaired without changing the character and might
consists of restoration of the former appearance, state or conditions.
An important considerations of the “para 14 of the Taxation ruling of TR 97/23” defines
that work that is done to prevent the repair or anticipated defects, damage or deterioration in
the property in not itself considered as repairs unless the repairs are carried out with the
objective of remedying or making good defects or deterioration of the property. It the present
context of James repairs that is carried out for replacing the roof would be considered as the
allowable deductions since it is carried out with the objective of remedying or making the
property good of defects and deterioration (Sadiq 2016). Furthermore, the replacement of
infested roof contemplates that James wanted to prevent the property from further
deterioration with the objective of contemplating the continued existence of the property.
As defined under the “Taxation ruling of TR 97/25” a deduction of capital works
under the division 43 is reliant on the amount of the constructions expenditure that is
incurred by the taxpayer in respect of the construction of those capital works that forms the
part of the structural improvements or extensions (Woellner 2013). As evident in the present
context of James it can be rightly put forward the repairs done on roofing of the building
represents structural improvement of the rental property and would be regarded as capital
works deductions. Though in the earlier instances it is found that James incurred expenditure
that were as the means of repairs carried out to the newly property were not regarded as the
allowable deductible expenditure and were deemed as the capital works. However in the

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subsequent part the expenditure incurred were eligible for deductions since they represented
as the extension or improvement to the rental property.
Conclusion:
On arriving at the conclusion from the above stated analysis, it can be stated that the
expenditure that is incurred prior to the acquisition of the property could not be regarded as
the allowable deductions. The expenses were incurred by James to make the property suitable
for rental and it did not originated from the use of rental property to generate assessable rental
income. In later stages, the expenditure on structural improvement to the property by building
a fence could be claimed as allowable deductions by James.

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Reference list:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role
does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), pp.127-140.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G. (2016). Foundations Student Tax
Pack 3 2016. South Melbourne: Oxford University Press Australia & New Zealand.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax
Pack 3 2016. Oxford University Press Australia & New Zealand.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), p.18.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Coleman, C. and Sadiq, K. (n.d.). Principles of taxation law 2013.
Daley, J. and Coates, B., 2015. Property taxes. Grattan Institute.
Davison, M., Monotti, A. and Wiseman, L., 2015. Australian intellectual property law.
Cambridge University Press.
Harris, J., Graw, S., Gilders, F., Kenny, P. and Van der Waarden, N. (n.d.). 2013 Theory and
law in the regulation of business.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense
deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Kenny, P., Blissenden, M. and Villios, S. (n.d.). Australian tax 2017.

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Keyzer, P., Goff, C. and Fisher, A. (n.d.). 2013 Principles of Australian constitutional law.
Chatswood: LexisNexis Butterworths.
Krever, R. (2013). Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., Mortimer, C. and Pinto, D. (2013). A practical introduction to Australian
taxation law. North Ryde [N.S.W.]: CCH Australia.
Nethercott, L., Devos, K., Gonzaga, L. and Richardson, G. (2016). Australian taxation study
manual. Melbourne: Oxford University Press.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Sadiq, K. (2016). Principles of Taxation Law 2016. Pyrmont: Law Book Co of Australasia.
Tran-Nam, B. and Walpole, M., 2016. Tax disputes, litigation costs and access to tax
justice. eJournal of Tax Research, 14(2), p.319.
Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.

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