Australian Law

This document provides information on various aspects of Australian Law including private rulings, taxation, residency tests, and income assessment. It also includes a case study on determining residency for income taxation purposes. The document covers topics such as assessable income, allowable deductions, and taxable income.

Running Head: Australian Law 1
Australian Law
Name
Institute Affiliated
Date

Australian Law 2
Part A
Question 1
The ATO may fail to give a private ruling if the requested information or documents are not
delivered within the specified deadline1. The ruling may also not be given if it would undermine
the law; for example, if the case happened in the past and the amendment period has elapsed.
ATO may also consider the matter and decide it does not merit a ruling. The complainant may
also decline to have the ruling on the matter at hand. Lack of payment of the required amount
may result in the termination of an evaluation2. The ATO interpreted decisions are posted on the
website of the ATO after the commissioners has answered the taxpayer's question.. The ruling is
always made under certain assumptions to determine the correctness of a private ruling. (The pdf
does not answer the question but it defines private ruling and how the commissioner applies it)
Question two
Gambling in Australia is not taxable for three main reasons3;
i. The Law does not recognize it as a profession.
ii. It is treated as a recreational activity.
iii. Winning from gambling is not income but proceeds from pure luck.
Earning from gambling cannot be classified as regular income. Income can be categorised into
two broad categories. Regular receipts or the flow concept4. Walsh is a billionaire who made
most of his money from gambling activities5, and ATO wanted to tax Mr.Walsh $37.7 million
1 Murphy, K. (2002). Procedural justice and the Australian Taxation Office: A study of scheme investors.
Centre for Tax System Integrity.
2 Above 1;Ibid
3 Paton, D., Siegel, D. S., & Williams, L. V. (2001). Gambling taxation: A comment. Australian Economic
Review, 34(4), 437-440.
4 Kerrie Sadiq et al. Tax Kit 15(2019)
5 Flanagan, R. (2013). The gambler: At home with David Walsh. Monthly, The, (Feb 2013), 16.

Australian Law 3
for his shareholders in the punter syndicate. Gambling proceeds might be taxed if they are earned
through analysis from a separate organization as is the case on Walsh vs. ATO.
Question 3
Accounting for assessable income on a cash basis includes the addition of income earned
regardless of when it was earned6. Only income received during the assessment period is added
to the computation. All financial statements are prepared on accrual basis7. The accrual basis
assessment includes income earned but not yet received by the taxpayer. All revenue is included
regardless of whether payment has been made or not8. (The same applies to what is written on
the pdf sent)
Question 4
Taxation Ruling IT 2650 was issued in response to FCT v Applegate and FCT v Jenkins9. It is
used to determine whether an Australian citizen who has temporarily left the country for school
or on a work visa is no longer an Australian resident for income tax purposes during his/her stay
overseas10. The ruling set conditions to determine whether a person has a permanent place abode
outside Australia. The commissioner has to look at the actual stay of the individual outside the
country11. The ruling also insists that it be determined whether an individual has acquired a
permanent place of residence in a country or whether the individual plans to temporary stay in
6 Karim, A. M., Shaikh, J. M., Hock, O. Y., & Islam, M. R. Australian Academy of Accounting and Finance Review
Volume 2● Issue 3● July 2016 www. aaafr. com. au.
7 Kerrie Sadiq et al. Tax Kit 15(2019)
8Above 5; Ibid
9 Above 6; Ibid
10 Kenny, P., Blissenden, M., & Villios, S. (2015). Residency and Australians working overseas: can be an
expensive lesson in tax Law.
11 Alley, C. R., & Bentley, D. (1995). In Need of Reform? A Trans-Tasman Perspective on the Definition of"
Residence". Revenue Law Journal, 5(1), 6575.

Australian Law 4
the foreign country the then relocate there afterward. A board rule of thumb of two or more years
is considered substantial for a taxpayer to stay abroad.
Question 5
A capital gain arises when a stock is bought and sold at a higher price than the buying price. Any
capital gain earned is included in the assessable income which results in higher taxation. When
an asset is held for at least one year, a taxpayer is entitled to a 50% discount on the capital gain12.
Jilian has the right to claim 50% of all the capital gain earned in the sale of the stock implying
that only 50% will be included in the assessable income. Jilian is eligible for the discount since
the stock was bought in 2013 and sold in 2018 which is more than one year. Jilian cannot deduct
any other capital loss from the capital gained in this sale since she has no other assets to dispose
and generate either a win or a loss. A capital loss deducted from capital gains significantly
reduces the amount of capital gain tax paid by an individual13. (The information contained in the
pdf is the same in the other sources)
Part B
Issues
The main issue is to determine whether Samuel is a resident of Australia for the purpose of 2018
income taxation. The factors will be analysed on the basis of a test of residency, physical
presence in Australia, and the current nationality of Samuel.
Rules
12 Burman, L. (2009). Taxing Capital Gains in Australia: Assessment and Recommendations'. Australian
Business Tax Reform in Retrospect and Prospect.
13 Pope, J. (1993). The compliance costs of taxation in Australia and tax simplification: The
issues. Australian Journal of Management, 18(1), 69-89.

Australian Law 5
Section 6(1) of ITAA 1936 contains four main tests to be carried out to determine residence of
an individual for taxation purposes. The four main tests to be analyzed include a person who
resides in Australia, the domicile test, the 183-day test, and the superannuation test
Application
The Residency Tests
According to the Income Assessment Tax Act of 1936, a resident for the purpose of taxation can
be anybody with a visa to enter Australia even when you are not a permanent resident of
Australia14. The rules of immigration and border protection do not apply in this case since the
residency question is only for filing income tax and not determining the nationality of an
individual. There are three domicile tests for residency.
Residence Test
One must be residing in Australia. It applies to immigrants, academic teachers, and scholars in
Australia, Tourists, and people working in Australia on pre-negotiated contracts15. In the case of
IRC v Lysaght [1928], it was determined Lysaught was a citizen of England because of his
weekly visits to the country even though he stayed in hotels16. Samuel automatically fails the
residence test since he moved to Hong Kong and has not gone back to Australia even for a single
day. He was born in Australia, but he has now transferred all personal belongings to Hong Kong
where he currently resides and works
Domicile Test
14 Work out your tax residency. (2019). Retrieved from https://www.ato.gov.au/Individuals/international-tax-for-
individuals/work-out-your-tax-residency/
15 Thampapillai, D. (2014). The Income Tax Assessment Act 1936 S23AG and Double Tax Avoidance
Agreements. SSRN Electronic Journal. doi: 10.2139/ssrn.2492052
16 irc v lysaght 1928 ac 234

Australian Law 6
The Australian Assessment Tax laws define domicile as the place where one permanently
resides. This implies that if one is working abroad for more than one year, then he is not
considered an Australian resident for the purpose of income tax assessment17. In response to FCT
v Applegate, the commissioner stated that two years is sufficient time for a person to be
considered a noncitizen in relation to income tax18. There are natural domiciles and domiciles by
choice. A natural domicile is where an individual was born while a domicile by choice is where
one chooses to live. Samuel is not an Australian residence according to this test. He has relocated
to Hong Kong which makes it a domicile of choice. He does not plan on coming back as it has
been stated explicitly in the question.
183-day Test
This is a test held for people who visit Australia. You are automatically considered to be an
Australian citizen under the taxation law if you were present in the country for more than half of
the income tax year whether continuous or with breaks19. Samuel also fails this test for he has not
returned nor is he planning to return to Australia in the near future.
The Commonwealth Superannuation Test
It is a test that only applies to government officials working abroad on government post, and
there are members of the Commonwealth Superannuation Scheme (CSS) and the public sector
superannuation scheme (PSS)20 which is established under the Superannuation Act 1990. Samuel
works for a private company who offered him an employment position in Hong Kong which he
17 Taxation. Adjudication of Domicile. Double Inheritance Taxation. (2000). Columbia Law Review, 34(6),
1151.
18 Kerrie Sadiq et al. Tax Kit 15(2019)
19 Work out your tax residency. (2019). Retrieved from https://www.ato.gov.au/Individuals/international-tax-for-
individuals/work-out-your-tax-residency/
20 Cortese, C. (2011). Taxation and the Australian Superannuation System: An International Comparison. Australian
Accounting Review, 16(39), 77-85.

Australian Law 7
quickly accepted. He is not a member of the schemes mentioned above and does not work for the
government21. Samuel has failed every residency test for he has permanently relocated to Hong
Kong.
Residency in Australia
ATO also looks at the behavior of the individual while in Australia. To be specific, they look at
how an individual has organized his/her social and financial affairs. The day to day activities in
the country can also be called into question. Before relocating, Samuel sold off the Property he
owned jointly with James and had been living rent-free with a friend for a while in the country.
He has since moved to Hong Kong for a supervisory role. He sold off all his belongings and
ensured that he had no personal attachment in the country. As it stands, Samuel does not show
any sign of ever going back to Australia which is a crucial factor to consider when it comes to
income taxation.
Maintenance and Location of Assets
As of now, Samuel has no property in Australia. He has purchased a fully furnished apartment in
Hong Kong where he resides. For the income tax assessment purpose, Samuel will not be
considered an Australian citizen for the 2018 income tax. For a person to be considered a
resident, there has to be an asset in the country or family that show the individual might come
back at some point, but in Samuel’s case, he disposed of every asset he had and relocated with
the rest. He will pay income tax in China according to their taxation laws.
21 Chomik, R., & Piggott, J. (2016). Australian Superannuation: The Current State of Play. Australian Economic
Review, 49(4), 483-493. doi: 10.1111/1467-8462.12190

Australian Law 8
As of 2018, Samuel will not be physically present in Australia which makes him a non-resident
for the purpose of income tax assessment. This factor does not imply he seizes being an Australia
citizen. He will be a resident once he comes back or starts visiting the country more often, but for
now, he will not pay the 2018 income taxes for he is not a resident under the law.
Conclusion
Samuel will always be an Australian citizen by birth and relocating to Hong Kong does not
change this factor. His employer quickly changed his income payments immediately he relocated
to signify that the Canadian income tax assessment law did not apply to his income any other
since he was no longer a resident of Australia under the income assessment Act.
Part C
Particulars AUD
Assessable income
Salary 144,000
Interest rates 2,400
Total assessable income 146,400
Allowable deductions
Special working clothes (1,600)
Seminar (10,000)

Australian Law 9
Total taxable income 134,800
The Salary
For a salaried employee like Danijela, most of the amounts received by the organization are
assessable. The monthly basic pay is an assessable income in accordance with the Income Tax
Assessable Act of 199322. It may include earnings from business activities, personal service
income, and government payments.
The Interest Rate
Income Tax Assessable Act of 1997 section 15 that deals with assessable income considers
Interests rates assessable income that can be used in the calculation of annual income tax
computation23. Dividends and other revenues received from investments are also considered
assessable income.
The Gift
Gifts can be classified into different categories, but mainly they are considered incentives for a
good job done. ATO interprets the decision on whether to classify gifts as assessable income in
accordance with section 6-10 of the Income Tax Assessable Act of 1977 (ITAA 1977) as a
nonassessable windfall gain24. Danijela participated in a research competition that would help
further her course or leading to a promotion in the IT department. The type of paper submitted
cannot lead to products that can be patented. In this case, it is clear that the purpose of the prize
22 INCOME TAX ASSESSMENT ACT 1936 - SECT 6Interpretation. (2019). Retrieved from
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s6.html
23 Kerrie Sadiq et al. Tax Kit 15(2019)
24 Above 23; Ibid

Australian Law 10
was to recognize and motivate others to join in such competition that contributes to the
development and broadening of knowledge with specific fields.
A large cash gift can be used to encourage more people to take up employment in a particular
industry in this case information technology. It is a competition where candidates are not allowed
to nominate themselves for the prizes. It was awarded to Danijela for her exemplary work. A gift
is only considered a source of income under section 6 of ITAA 1997 if it falls under the category
of ordinary income. This is only possible when the gift is given as a result of an income
producing activity such as a reward for increasing the productivity of an organization or being
the best team in an organization that the company gives the employees gifts. Such prices are
classified as ordinary income.
Danijela’s gift is a form of incentive for a good job done that is not related to her productivity at
the organization; hence it is classified as a windfall gain. This is in line with the set precedence
of Hayes v. Federal Commissioner of Taxation (1956)25 where the judge differentiated between a
gift that is issued voluntarily and one that is solicited. In Kelly v. FC of T (1985), the judge
concluded that the employee footballer won the cash prize for being the best player and it found
that the payment was completely incidental from the taxpayer’s income and was eligible to
receive the payment independent of the regular salary26. This case applies to our current question
as Danijela also received a similar cash prize for outstanding work on the research.
The painting
The income generated from the sale of the painting will be treated as a capital gain tax under
ITAA 1997. It is an appreciating assets. Danijela will be forced to pay for the capital gain tax
25 Hayes v. Federal Commissioner of Taxation 23rd May 1956
26 Kelly v. FC of T (1985) 80 FLR 155

Australian Law 11
because the painting is seen as a collectible under ITAA 1997. The painting is worth more than
$500 which is the maximum price under which the owner can ignore paying the capital gain tax.
The rule states that a collectible that was acquired for less than $500 before 16th December 1995
can be disregarded in paying the capital gain tax27. It will not be part of the assessable income,
but it will be filled separately as a form of capital gain income.
Business Expense
The t-shirts Danijela was forced to buy without being compensated by the organization entitle
her to a deduction. A work-related expense can only be claimed under three main conditions;
i. Danijela must have spent the money but never reimbursed by the organization
ii. It must be directly related to earning personal income
iii. There must be a record to prove it.
All three conditions have been met in Danijela’s case. She used her money to buy the t-shirts that
are compulsory in her line of work but was never reimbursed. The expense is a direct business
expense as the t-shirts are not sold to the public but very important at the workplace. She bought
the t-shirts directly from either the company or a selected dealer since they are not readily
available to the public and must have a receipt or any other form of payment. The purchase of
the t-shirts was completely a work event28. If the t-shirt were not entirely a business expense,
then only a portion of the entire expense would be deductible.
Family Trust Expense
27 Pulle, B., & John, T. (2008). Tax Laws Amendment (2008 Measures No. 4) Bill 2008. Parliamentary
Library.
28 Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2010). Australian taxation law. CCH
Australia.

Australian Law 12
This is entirely a personal expense that has no relation to the type of employment that Danijela
has. Under ITAA 1997, such an expense is not subject to deduction from the expected income
tax. Only work-related deductions are allowed under the taxation law29. Such deductions include
travel expenses that are related to the business, home office expense, and telephone expenses that
apply to a business or employment position.
Seminar Expense
Danijela attended a week-long seminar to improve her managerial skills. This expense is entirely
deductible from her taxable income as it is considered an employment expense30. She might be
aiming for a promotion in the organization, and it was not a personal vacation. It is a form of
self-education expense where ATO defines it as a learning opportunity as an employee. In such a
case the type of claims should fall under these categories
 Fares
 Accommodation and meals
 Phone calls
 Parking fees
 Internet fees
Danijela entire expense for attending the seminar has been summed up to 10,000 with no other
costs being mentioned the whole sum is deductible from the taxable income since there is no
indication on the question that the organization allows for a $25 reduction in the claim31. Of all
29 Pulle, B., & John, T. (2008). Tax Laws Amendment (2008 Measures No. 4) Bill 2008. Parliamentary
Library
30 Self-education expenses. (2019). Retrieved from https://www.ato.gov.au/individuals/income-and-
deductions/deductions-you-can-claim/self-education-expenses/
31 Above 21; Ibid

Australian Law 13
the expenses only the personal expenses that are not related to the employment of Danijela will
not be deducted from the taxable income.
Part D
The main aim is to legally reduce the taxable income that will be incurred from the amount of
closing stock. ATO requires every organization to report a change in the assets by a minimum of
$ 5,000. Any small amount can be ignored but if it exceeds $5,000 it has to be reported so that
the necessary adjustments can be made. This is in accordance with section 70-35 of the ITAA
1977. All closing stock values must be accounted for in the taxable amount32. The stock is
accounted for whether it is paid for or not.
In the case of Frozen Foods Pty Ltd v. F.C. of T. (1990), the court issued a summary on the
ruling by defining the meaning of trading stock in hand. They defined it as any finished goods
that are located on the premises of the taxpayer33. ABC is a primary producer who may directly
supply the end product in the market. ATO allows for three ways of valuing the closing stock
 The cost price which values stock by accounting for all the expenses incurred to attain the
final product. This may include freight charges and other transportation charges
 Market value price which considers the price of the goods if they are sold in the market at
the current market price
 The replacement value is the value of an identical item located in the market specifical on
the last day of the income year.
32 Barkoczy, S. (2010). Australian tax casebook. CCH Australia Limited.
33 Pty Ltd v. F.C. of T. 1990

Australian Law 14
It will be very inaccurate for a direct producer to value closing stocks using market selling value
especially when the value of the product is high like in our case. For the purpose of taxation, the
company can state the cost of production as the actual cost of production as the value of the
closing stock. It will make the total value of the closing to be $5,800 (4000+1000+800). In all
the three options available for valuing ABC closing stock there are no significant changes in the
prices that they have to be reported to ATO. The company could pick the most suitable price
option and record it in their income statement as the value of closing stock. To pay as little tax as
possible, ABC will have to quote the lowest price for the closing stock to have a greater impact
on the amount of tax paid. It is well within the legal right for ABC to choose between the three
options.

Australian Law 15
Bibliographies
Alley, C. R., & Bentley, D. (1995). In Need of Reform? A Trans-Tasman Perspective on the
Definition of" Residence". Revenue Law Journal, 5(1), 6575.
Barkoczy, S. (2010). Australian tax casebook. CCH Australia Limited.
Burman, L. (2009). Taxing Capital Gains in Australia: Assessment and
Recommendations'. Australian Business Tax Reform in Retrospect and Prospect.
Chomik, R., & Piggott, J. (2016). Australian Superannuation: The Current State of
Play. Australian Economic Review, 49(4), 483-493. doi: 10.1111/1467-8462.12190
CORTESE, C. (2011). Taxation and the Australian Superannuation System: An International
Comparison. Australian Accounting Review, 16(39), 77-85.

Australian Law 16
Flanagan, R. (2013). The gambler: At home with David Walsh. Monthly, The, (Feb 2013), 16.
Hayes v. Federal Commissioner of Taxation 23rd May 1956
INCOME TAX ASSESSMENT ACT 1936 - SECT 6Interpretation. (2019). Retrieved from
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s6.html
Irc v Lysaght 1928 ac 234
Karim, A. M., Shaikh, J. M., Hock, O. Y., & Islam, M. R. Australian Academy of Accounting
and Finance Review Volume 2● Issue 3● July 2016 www. aaafr. com. au.
Kenny, P., Blissenden, M., & Villios, S. (2015). Residency and Australians working overseas:
can be an expensive lesson in tax Law.
Kelly v. FC of T (1985) 80 FLR 155
Kerrie Sadiq et al. Tax Kit 15(2019)
Murphy, K. (2002). Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity.
Paton, D., Siegel, D. S., & Williams, L. V. (2001). Gambling taxation: A comment. Australian
Economic Review, 34(4), 437-440.
Pulle, B., & John, T. (2008). Tax Laws Amendment (2008 Measures No. 4) Bill 2008.
Parliamentary Library.
Pty Ltd v. F.C. of T. 1990
Pope, J. (1993). The compliance costs of taxation in Australia and tax simplification: The
issues. Australian Journal of Management, 18(1), 69-89.
Self-education expenses. (2019). Retrieved from https://www.ato.gov.au/individuals/income-
and-deductions/deductions-you-can-claim/self-education-expenses/

Australian Law 17
Thampapillai, D. (2014). The Income Tax Assessment Act 1936 S23AG and Double Tax
Avoidance Agreements. SSRN Electronic Journal. doi: 10.2139/ssrn.2492052
Taxation. Adjudication of Domicile. Double Inheritance Taxation. (2000). Columbia Law
Review, 34(6), 1151. doi: 10.2307/1115831
Work out your tax residency. (2019). Retrieved from
https://www.ato.gov.au/Individuals/international-tax-for-individuals/work-out-your-tax-
residency/
Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2010). Australian taxation
law. CCH Australia.
Valuing trading stock. (2019). Retrieved from https://www.ato.gov.au/Business/Income-and-
deductions-for-business/Reconciliation-activities/Accounting-for-trading-stock/Valuing-trading-
stock/