THE AUSTRALIAN TAXATION LAW

Running Head: AUSTRALIAN TAXATION LAW
Australian Taxation Law
Name of the Student:
Name of the University:
Author Note:

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AUSTRALIAN TAXATION LAW
Table of Contents
Answer to question 1...........................................................................................................2
Answer to question 2...........................................................................................................6
Reference list.......................................................................................................................9

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Answer to question 1
From the sale of capital asset when any profit or loss arises, it is known as the capital
gain or capital loss. With the rise of capital gain, taxpayer has to pay tax which is known as
capital gain tax. It can be a short-term or long-term gain or loss. It is usually the difference
between the cost paid and the cost of sell. Both capital gain and losses is need to be reported in
the income tax return and if any gain is arise then tax on it has to be paid. When capital gain
arises it is added to the assessable income to make the taxable income. If capital loss arises then
the taxpayer cannot claim it against any other income but it can used to reduce the capital gain.
All assets, which are acquired before the tax on capital gain started which is 20th September
1985, are exempted from the capital gain tax (Grudnoff 2015).
Issues: Sophia sales some of her capital assets in the financial year 2018 which consist of a
block of land, shares, stamps and a piano. The block of land which was purchased by Sophia in
1991 as an investment and made some expenses to purchase the land. She also took bank loon
for the purpose of purchase. Before selling the property she had made some expenses to make
the land sellable. Shares of ABC co. that was purchased by Sophia in 1993 is sold by paying 1
percent brokerage. Then Sophia’s stamp collection has been sold in an auction which she has
brought in 2018 after paying certain amount of auction fees. She also sold a guitar which she has
brought in 2003.
Law: Capital gain tax is applicable on all the capital assets which includes real estate, shares,
investments, crypto currencies, goodwill, collectable items, foreign currency and personal assets
of certain values (Evans, Minas and Lim 2015). Capital gain tax is applicable to all the Australian
resident assets which is situated anywhere in the world and for the Norfolk Island resident capital

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gain tax is applicable if the asset is purchased from 23rd October 2015. Capital gain tax is also
applicable to the foreign resident if the capital gain has been arise from the sale of Australian
taxable property. Capital gain or loss for an asset is need to be reported in the tax return of the
year when the taxpayer enters into the contract to sell the investment property rather than when
the asset is originally disposed off (Burkhauser, Hahn and Wilkins 2015). However, some of the
capital assets are exempted from the capital gain tax which are as follows:
 Personal assets which includes residential property, car and personnel furniture.
 Depreciable assets which is solely used for the taxable purpose
 Assets which are acquired before 20th September 1985
 Personnel assets which is acquired with the amount less than $10000
 Collectable items whose value is less than $500
 Motor vehicle that is designed to carry goods of less than 1 ton and nine passengers
Taxpayer need to keep record of all his capital assets and maintain all the transaction related to it
in order to calculate the capital gain tax. Purchase price and the selling price is an essential data
which is needed to calculate the capital gain or loss. Purchase price of the asset includes all the
cost which is paid for the asset during its buying and selling. Once the purchase price is
determined then few methods are used to calculate the capital gain tax. These are the three
method which is used to calculating capital gain:
1. Discounting method – This method is applicable when the taxpayer holds the asset for
more than 12 month. Under this method, capital gain is calculated by reducing the entire
cost and 50 percent discount from the selling price (Blunden, H., 2016). This method is
applicable only for the individual who did not choose the indexation method, but non-

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resident can also apply for this after removing the discount rule. Companies cannot avail
this discount method as they pays 30 percent tax on the net capital gain.
2. Indexation method – This method is eligible when the asset is held for more than 12
month or the asset has been acquired before 21st September 1999. This method helps to
increase the cost base of the asset by applying the price index method. It is calculated by
deducting the index cost from the sale price to get the capital gain. This method is
applicable for company and also individual if they fulfill the condition (Minas, Lim and
Evans 2018).
3. Others method – This method is applicable when the asset is held for less than 12 month
and it is the simplest method of all other method of calculating capital gain. It is
calculated by deducting the cost from the sale price.
Application: Sofia block of land is eligible for the capital gain as it fulfills all the requirement.
Purchase price consist of interest on borrowing, council rate, insurance and legal disputes as it
make the total cost of purchase. Then all eligible capital cost are deducted which includes stamp
duty, advertising charges, legal fees and other expense which is required to make the land
saleable. Then the eligible discount at the rate of 50 percent is deducted as the asset is hold by
Sophia for more than 12 month and she is an Australian resident. From the sale of shares Sophia
earned the capital gain which is not form the part of capital gain tax as it was purchased in 1983.
From the sale of stamps and guitar, Sophia has incurred capital loss which is need to be adjusted
with the other capital gain items.
Conclusion: Sophia is an Australian resident made capital gain which is eligible for capital gain.
Capital losses which are incurred from the sale of stamps and Guitar are reduced with the capital
gain earned from the sale of land. While the sale of shares is ineligible for the capital gain tax

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calculation as it does not satisfy the conditions. Her capital gain is calculated by using the
discounting method. Which is arrived after deducting all the eligible cost and 50 percent discount
from the sale amount. Then capital gain tax has been calculated at the prescribed rate which is
paid on the net capital gain at the rate of individual pays tax
Sale of land : 800,000.00$
less purchase 130,000.00$
interest on borrowing 27000
council rate, water rates and insurance 18500
legal dispute 8000 183,500.00$
less cost of removing the trees 1500
stamp duty 800
advertising cost 25000
legal fees 1200 28,500.00$
capital gain from sale of land 588,000.00$
Sale of shares: 64,400.00$
less purchase 3,000.00$
less brokerage 644.00$
capital gain from sale of shares 60,756.00$
Sale of stamps: 23,000.00$
less purchase 33,000.00$
less auction expenses 3,000.00$
capital loss from sale of stamps (13,000.00)$
Sale of Guitar: 45,000.00$
less purchase 70,000.00$
capital loss from sale of piano (25,000.00)$

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Total capital gain 610,756.00$
less capital gain from shares 60,756.00$
550,000.00$
less 50 % discount 275,000.00$
275,000.00$
less capital gain tax ($ 54097+ $ 42750) 96847
net capital gain after tax 178,153.00$
Answer to question 2
Australian taxation system are mainly relied on personal income tax and it is considered
to be an important for the Australian economy. So calculating correct taxable income is also
necessary upon which tax need to be calculated. Taxable income consists of salaries, wages,
bonuses, investment income and unearned incomes. A taxpayer can reduce his taxable income
by various deduction to reduce the tax payment (Chardon, Freudenberg and Brimble 2016).
Deductions are allowed by the government to encourage the taxpayer in paying their taxes on
time.
Issues: Ava has medical degree and taken employment in Sunshine Hospital. During her
employment she incurred expenses like travelling expenses, moving expenses, uniform cost,
childcare expenses of her own, phone call expenses, food expenses, late fees and other expenses
while travel from and to work. Ava needs to know the amount of deduction that she can make
from her total income.
Law: Income tax is paid on the money which is received in the form of salary income. This
income can be reduced by claiming deduction for expenses which are related to the income and
offset certain amount in the form of government rebates. Ava is receiving employment income
which she received from her working. It includes all types of payment like cash in hand, bank
transfer or any other ways (Dixon and Nassios 2016). It is also applicable to full time, part time or

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casual jobs as the basic condition is the employment income which must be included in the tax
return. According to the income tax incomes which is needed to be declared in the income
statement as income are employment salary or wages, pensions, annuities, investment income,
trust income, foreign income and some other incomes.
While computing taxable income taxpayer can claim the deduction for the expenses
which are directly related to the income earned. The condition for claiming deduction which is
work related is that the money must be spent by the taxpayer himself and it must not be
reimbursed by the employer, expenses must be directly related to the income earned by the
taxpayer and there must be some record to prove the expenses made by the taxpayer. If the
expense is related to both work and personnel purpose than the deduction is allowed for the
expenses which is related to the work. Deduction like vehicle expenses, clothing expenses,
travelling expenses, home or office expenses, education of self expenses and work related
expenses could be claimed as expenses which is directly related to the work. If the taxpayer has
not received any income until the next financial year but he incurred some expenses in the
current year then the taxpayer can avail the benefit of claiming the deduction in the next financial
year for the expenses incurred in the current year. Employing someone to assist in the taxpayer
employment can be claimed as expenses by the taxpayer as work related expenses (Datt and
Keating 2018). Some tax offsets which can be directly reduced from the taxable amount like
health insurance, any government benefit, low-income earner, income tests, any medical
expenses and any other tax offset.
Application: Ava traveling expenses to sunshine hospital for the job interview is not deductible
as it is related to personal expenses. Relocation expenses is not related to the income earned and
it is a private income so it cannot be claimed as deduction. Payment for the white uniform which

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is compulsory for doctor to wear at work is a claimable deduction for Ava as it is not born by the
employer. Ava expenses as childcare for her daughter cannot be claimed as deduction as it is a
private related expenses. Ava phone call expenses from her home to the hospital to check on the
patient is a claimable deduction if its cost is not born by the employer and Ava must have records
to support the claims. Ava purchased food items from the hospital café during her shift hour
cannot be claimed as deduction as deduction is allowed for overtime meals. She paid late fines
for running late at work cannot be claimed as deduction. Ava cannot claim for deduction in
traveling expenses to and from work as it is considered as private travel. But in some case
deduction can be claimed for travel expenses to and from work.
Conclusion: Earning income as a medical professional or specialist by Ava is need to be
declared as income in the tax return which includes salary, wages, bonus and all allowances. She
can also claim for the deduction which is directly related to her work and the amount must not
have been reimbursed. Ava can claim for deduction only for the uniform expenses and phone call
expenses from her total income as they are related to the income earned by Ava. Other expenses
like relocation expenses and traveling expense for interview is private related so it cannot be
claimed for deduction. Her child care expenses is also private related so it cannot be allowed for
deduction. Food expenses during shift hour is not allowed as deduction but if the food expenses
has been incurred after the shift hour then it can be claimed as deduction. Late fine is considered
as private as expenses as it occurred due to own reasons so it cannot be claimed. Traveling from
and to work is considered as private expenses making it as non-deductible expenses. So Ava can
claim for only $400 as deduction from her total income.

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Traveling expenses for interview Not deductible
relocation expenses Not deductible
Uniform cost 200.00$
Child care expenses Not deductible
phone call expenses 200.00$
Food expenses during shift hour Not deductible
Late arrival fines Not deductible
Traveling expenses from or to work Not deductible
Total amount allowed as deduction 400.00$
Deductible amount from total income

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Reference list
Blunden, H., 2016. Discourses around negative gearing of investment properties in
Australia. Housing Studies, 31(3), pp.340-357.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record
data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Datt, K.H. and Keating, M., 2018, April. The Commissioner’s obligation to make compensating
adjustments for income tax and GST in Australia and New Zealand. In Australian Tax
Forum (Vol. 33, No. 3).
Dixon, J. and Nassios, J., 2016. Modelling the impacts of a cut to company tax in Australia.
Centre of Policy Studies (CoPS), Victoria University.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: An alternative
way forward. Austl. Tax F., 30, p.735.
Grudnoff, M., 2015. Top gears: how negative gearing and the capital gains tax discount benefit
the top 10 per cent and drive up house prices.
Hasseldine, J. and Fatemi, D., 2018. Tax practitioner judgements and client advocacy: the
blurred boundary between capital gains vs. ordinary income. eJTR, 16, p.303.

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Mahar, F., 2016. The distortive effects of the capital gains tax regime. Tax Specialist, 20(1),
p.16.
Maleki, B., Sameti, M., Sameti, M. and Ranjbar, H., 2017. The Effect of Capital Gain Tax on
Capital Formation, Financial Development and Economic Growth. Journal of Economic &
Management Perspectives, 11(4), pp.1365-1376.
Minas, J., Lim, Y. and Evans, C., 2018, August. The impact of tax rate changes on capital gains
realisations: evidence from Australia. In Australian Tax Forum (Vol. 33, No. 4).
Mintz, J., Bazel, P., Chen, D. and Crisan, D., 2017. With global company tax reform in the air,
will Australia finally respond?. Minerals Council of Australia, Melbourne, Australia, March.
Warren, N., 2016. E-filing and compliance risk: Evidence from Australian personal income tax
deductions. Austl. Tax F., 31, p.577.
Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic
Review, 48(1), pp.93-102.