Taxation of Income and Deductions in Australia

This assignment analyzes a hypothetical scenario involving two individuals, Jordan and Cate, residing in Australia. It explores the taxability of Cate's part-time administrative work income under Division 6AA of the Income Tax Assessment Act 1997 (ITAA 1997). The analysis further examines allowable deductions for home office expenses incurred by Jordan and payments made to Cate for administrative services, referencing sections within the ITAA 1997. The assignment concludes by summarizing the tax implications for both individuals.

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
Laws:..........................................................................................................................................2
Applications:..............................................................................................................................2
Conclusion:................................................................................................................................6
Answer to question 2:.................................................................................................................6
Issue:..........................................................................................................................................6
Laws:..........................................................................................................................................6
Applications:..............................................................................................................................7
Conclusion:................................................................................................................................7
Reference List:...........................................................................................................................8

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Answer to question 1:
Issue:
The contemporary issue that is laid down in this case is determination of the net tax
payable or refundable from the relevant income and expenditure derived by Jordan and
Cameron. In the current context, the taxable income is computed by deducting and including
the relevant expenditure occurred by each of the taxpayers.
Laws:
a. Lodge v FC of T (1972)
b. Jayatilake v FC of T (1991)
c. Section 6-5 of the Income Tax Assessment Act 1997
d. subsection 51 (1) of the ITAA 1936
Applications:

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An explanation put forward under Section 6-5 of the ITAA 1997 describes that a
person will be held liable to pay tax for the ordinary income derived by him or her (Pinto
2013). In the current situation salary derived by Jordan and Cameron will be considered for
assessment under Section 6-5 of the ITAA 1997. On the other hand, it Jordan reported a
fringe benefit sum of $4000 that is paid by his employer for medical insurance and private
use of the car. Therefore, such amount will be considered for assessment.
Evidence bought forward under the taxation ruling of TR 95/6 states that deductions
will be either allowable or will excluded under subsection 51 (1) of the ITAA 1936 (Cao et
al. 2015). The taxation ruling of TR 95/6 states an individual taxpayer is disallowed from
claiming allowable deductions relating to traveling to and from home. The expenses incurred
by Jordan and Cameron on travelling from and to home are private expenditure and they are
disallowed from claiming allowable deductions. Subsection 51 (1) of the ITAA 1936 defines
that an employee shall be able entitled to allowable deductions incurred on work related
expenditure (Saad 2014). The judgement stated in the case of Lodge v FC of T (1972)
explains, to qualify an expenditure as allowable deductions it must have an association in the

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production of taxable income (Woellner et al. 2016). Similarly expenses incurred by Jordan
and Cameron will be entitled for claiming an allowable deductions because such expenses
forms the nexus with the assessable income of the taxpayer.
The case study puts forward that Jordan incurs a childcare expenditure of $6,000. As
stated under the Taxation ruling of TD 92/154 an individual taxpayer is disallowed from
claiming allowable deductions on the childcare expenses since this expense is regarded as the
private expense (Barkoczy 2016). Citing the reference of Jayatilake v Federal
Commissioner of Taxation (1991) the expenses incurred on childcare is observed as private
expense and will not be treated as the allowable deductions (Faccio and Xu 2015). Similarly,
childcare expense incurred by Jordan is disallowed from being regarded as allowable
deductions.
Jordan and Cameron reported a personal living expense of $18000 each and as per the
Subsection 51 (1) of the ITAA 1997, Jordan and Cameron is not allowed to claim allowable
deductions (Robin 2017). As bought forward by Jordan and Cameron, it is observed that they
occurred an expense in the form of interest on investment property, holiday home and
mortgage home. In accordance with the definition of the section 8-1 of the ITAA 1997
expenses incurred in producing assessable revenue of the taxpayer are allowed for deductions
(Barkoczy et al. 2016). Therefore, interest paid on investment property, holiday home and
mortgage home can be claimed as an allowable deduction since they are occurred in
producing taxable income. Additionally, it has been noticed that expenses have incurred
related to investment property and holiday home. Similarly, with reference to section 8-1 of
the ITAA 1997 these expenses can be claimed as allowable deductions (Berg and Davidson
2016).

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Another instance bought forward by Cameron stated that she incurred a loss of $7,000
from the share portfolio that was acquired by her in the year 2002. According to the
Australian Taxation Office, an individual is not allowed to offset capital loss unless a profit
has been reported from share portfolio. Similarly, there was no instances of capital gains
reported by Cameron from the share of share portfolio and as a result of this, she will not be
able to offset the loss bought forward from share portfolio.
As stated under section 8-1 of the ITAA 1997, expenditure incurred on credit card is
disallowed from being considered as allowable deductions (Fry 2017). The credit card
interest expense incurred is a private expense and such expenses cannot be claimed as
permissible deductions.
Conclusion:
The taxable income of Jordan and Cameron is arrived by determining the above stated
discussion. Relevant case laws and legislations have referred in present context to determine
the taxable income of the respective taxpayers.
Answer to question 2:
Issue:
The issue is evidently focused on ascertainment of liability of tax for Cate along with
the determination of the reduction in the taxable income of Jordan from the minor
administrative work executed by his daughter.
Laws:
The laws that have been considered in the above defined issue is the Income Tax
ruling of IT 2489 that determines the taxable position of the income received by a minor
engaged in the part time administrative work (Tran-Nam and Walpole 2016). Other income

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tax rulings of Division 6AA of the part III of the ITAA 1997 has also been referred in
determining the tax liability of minor that have not completed the age of 18.
Applications:
An evidence has been stated in the Income Tax Ruling of IT 2489 that places
emphasis on the person that have not completed the age of 18 or regarded as minor and have
worked on full time basis will be treated for taxation purpose which will be higher than the
tax rate that charged to adult. Moreover, Division 6AA of the part III of the ITAA 1997,
places focus on the chargeability of tax for individual that are minor (James 2016). Similarly,
Cate, will be assessed for income derived from the part time administrative work.
As laid, down under the income tax ruling of 93/30 an individual will be entitled for
home-office expenses. Therefore, as bought forward from the situation of Jordan it is
understood that Jordan incurs expenses for home-office purpose. Therefore, Jordan can claim
allowable deductions for it. Additionally, the amount paid to Cate by Jordan for
administrative work purpose qualifies as allowable deductions under section 8-1 of the
ITAA 1997. Jordan can claim allowable expenses for the same and this will help in reduction
of his tax liability.
Conclusion:
On arriving at the conclusion, it can be concluded that the income received by Cate
shall be assessable under Division 6AA of the part III of the ITAA 1997, and Jordan can
claim an allowable deductions for the expenses incurred on administrative expenses.

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Reference List:
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. Oxford University Press Australia & New Zealand.
Berg, C. and Davidson, S., 2016. Submission to the House of Representatives Standing
Committee on Tax and Revenue Inquiry into the External Scrutiny of the Australian Taxation
Office.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and
Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major
Australian taxes. Treasury WP, 1.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis, 50(3), pp.277-300.
Fry, M., 2017. Australian taxation of offshore hubs: an examination of the law on the ability
of Australia to tax economic activity in offshore hubs and the position of the Australian
Taxation Office. The APPEA Journal, 57(1), pp.49-63.
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.
Pinto, D., 2013. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia
Limited.
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.

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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., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.