Australian Tax Law Analysis and Cases

This assignment delves into various facets of Australian tax law. It examines relevant case studies, including those concerning Division 7A structuring, foreign government entities, restrictive covenants, and unpaid present entitlements within trusts. The analysis also touches upon the impact of board oversight on corporate tax aggressiveness, the perception of tax knowledge and compliance by taxpayers, and the complexities of tax legislation for small businesses. Finally, it considers the influence of religiosity on tax compliance in a broader context.

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

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Table of Contents
Category-1: Assessable Income:......................................................................................................2
Answer 1..........................................................................................................................................2
Answer 2:.....................................................................................................................................3
Answer 4:.....................................................................................................................................7
References......................................................................................................................................11

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Category-1: Assessable Income:
Answer 1
Issue:
The main issue here is impact implications of Susie and the issue will be highlighted based on
Australian taxation rules.
Law
The section 6-1 of the Income Tax Assessment Act 1936 provides list of certain payments that
should be treated as royalty for the purpose of the act. The section 15-20 of the Income tax
Assessment Act 1997 states that assessable income of the taxpayer should include the amount
that is received as royalty as per the ordinary meaning of the term. The section also states that it
is not applicable for the payment received for which section 15-22 or 15-23 is applicable1
Application
In this case, Susie has received an amount from Malaysian company for developing a product.
The amount received by Susie is royalty income and hence taxable under section 15-20 of the
1 Palil, Mohd Rizal, M. R. Akir, and W. F. B. A. Ahmad. "The Perception of Tax Payers on Tax Knowledge and
Tax Education with Level of Tax Compliance: A Study the Influences of Religiosity." ASEAN Journal of
Economics, Management and Accounting 1.1 (2013): 118-129.

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act. The advance received by her was nonrefundable and was to be adjusted against the future
royalty income hence it is a revenue received in advance that should be taxable. If royalty is
received in future Susie is not required to pay tax on the part she has already paid tax.2
Conclusion
The royalty income of Susie can be therefore considered as taxable as the given sections.
.
Answer 2:
Issue:
The problem as stated in the question, deals broadly with the consequences of the capital
gains and income tax, as has been written in the subsections “160 M (6) and 160 M (7)”, under
the ITAA 1936, which ventures in the preventive business relations and contractual relations3 .
Laws:
2 Anderson, Colin, and Catherine Brown. "Mind the Insolvency gap: Lessons to be learned from audit expectations
gap theory." Insolvency Law Journal 22.4 (2014): 178-191.
3 Palil, Mohd Rizal, M. R. Akir, and W. F. B. A. Ahmad. "The Perception of Tax Payers on Tax Knowledge and
Tax Education with Level of Tax Compliance: A Study the Influences of Religiosity." ASEAN Journal of
Economics, Management and Accounting 1.1 (2013): 118-129.

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1. “Taxation Ruling of the TR 95/34”
2. “Subsections- 160 M (6) and 160 M (7)”
3. “FC of T v. Woite 82 ATC 4578 (1982)”
4. “Paragraph 26 (e) or subsection 25 (1)”
5. “Hepples v. FC of T (1991), 173 CLR 492”
Discussion:
The above legislations can be applied to deal with the concerned problem in the
following way:
The problem is concerned with the overall consequences of the capital gains and income
tax, as is applicable in the subsections “160 M (6)” and that of “160 M (7)”, under the
definitions of the “Taxation Ruling of TR 95/3”. It is applicable to the restrictive ties of
employments and covenants as has been defined the ITAA (1936). The “FC of T v. Woite 82
ATC 4578; (1982)”, illustrates the service agreements, which in turn defines the nature of the
payments and contract types, which have connections with the employment characteristics,
which is the main issue to be dealt with in this portion of the assignment5. The verdict, which
was given in the above case, in this scenario, reflects on the relevance of the assessable income
concept with the sum of money for depriving the person from the opportunity of playing, which
4 ato.gov.au, 'Home Page' (Ato.gov.au, 2017) <https://www.ato.gov.au/> accessed 13 September 2017
5 ato.gov.au, 'Home Page' (Ato.gov.au, 2017) <https://www.ato.gov.au/> accessed 13 September 2017

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would have been received by the player. In other words, the section deals with the doubts
regarding the consideration of the amount of money, which a player receives in the form of a
preventive type of contract or agreement or for a separate type or positive type of covenant, as a
type of assessable income6.
It is evident from the fact that the preventive agreements and contracts are generally
connected with the employment of the concerned person in the current period as well as the
employment in the concluding period. Therefore, under the “paragraph 26 (e)” or under the
“subsection 25 (1)” the part of the considerations, which is received by the person within the
employment period of the concerned person, is considered as a taxable income. The assessable
income of the concerned individual, Baz Baxter for the year ended 2016/2017, can be shown as
follows:
Given the scenario, the Queensland approached Baz Baxter, one of the leading rugby
players, to play for them in the coming season. Bac Baxter, however, did not accept the offer of
Queensland to play with them, in the next season. Instead he agreed to refrain himself from
playing on behalf of any club, in the next two years. In lieu of this agreement, Queensland gave
him a sum of 40,000 dollars. However, Baz had arguments with the club and decided to leave the
club and join Rambos. The latter club, in its turn, paid 20,000 dollars for discharging the player
from his previous agreement and an additional amount of $10,000 to cover the cost of moving
the player from the previous club to the new one.
6 Mellon, Andrew W. Taxation: the people’s business. Pickle Partners Publishing, 2016.

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With reference to the subsection 160 M (6), the portion of the payments received by the
player, which has association with the employment phase after the service has been concluded,
will be taken to be an assessable income. The current scenario of Baz can be studied under the
domain of the taxation ruling. As stated by the “Taxation Ruling of TR 95/3”, the decision
passed by the high court in the “Hepples v. FC of T (1991) 173 CLR 492” case, has
consequences for treating the taxable sum for receiving the considerations related to restrictive
covenants (Law.ato.gov.au 2017). As can be derived from the decision of the court in the above
case, in case of Baz, the payment received by him for restrictive covenants are related to the
present period of his employment. Therefore, those considerations shall be treated as assessable
income under subsection 25 (1), as it is associated with the employment phase7.
Conclusion:
7 Anderson, Colin, and Catherine Brown. "Mind the Insolvency gap: Lessons to be learned from audit expectations
gap theory." Insolvency Law Journal 22.4 (2014): 178-191.

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The payment received by Baz Baxter, having the nature of restrictive payments, which is
associated with current employment period and the post-service, including those considerations
which are received, will be viewed as taxable income under the “subsection 25 (1)”, as the
payments are associated with the employment period.
Answer 3
Issue
The main issue in the given case deals with the expenses incurred by the tax payer to prevent the
quota on the yearly number of components imported into Australia for bikes
Law
a. “Income tax ruling of ID 2001/83”
b. “Subsection 51 (1) of the ITAA 1936”
c. “FC of T v Snowden and Wilson Pty Ltd (1958) 99 CLR 431)”
d. “8-1 of the ITAA 1997”
e. “Herald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113”
f. “Magna Alloys and Research Pty Ltd v. FC of T (1980)”

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Application
The concept of the negative limbs defined under subsection 51 (1) of the Income tax
Assessment Act 1936 does not possess any application because the legal expenditure are not
capital in nature. Therefore, expenditure incurred by Gonzalez Ltd cannot be considered as
advantage in case of preservation of the asset8.
On the contrary, as per the case, Herald and Weekly Times Ltd v. FC of T (1932) 48
CLR 113 the legal costs needs to be considered for deductions given that the legal actions arises
out of the daily income generating activities of the taxpayer.
Conclusion
It can be concluded that legal expenditure occurred by Gonzalez ltd is in the process of gaining
and generating the taxable income, is considered for deductions as the above rules and
regulations.
Answer 4:
Issue:
8 Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance
structures: Evidence from Australian firms. Journal of International Accounting, Auditing and
Taxation, 22(1), pp.12-25.

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The issue in this problem deals with the deductibility of those expenditures, which occur
at the end of business in general. The section answers to the query regarding the allowance of the
taxpayer to receive deductions in the legal expenditures that are incurred after the termination of
a business, in agreement with “section 8-1 of the Income Tax Assessment Act 1997”9.
Laws:
1. “Section 8-1 of the Income Tax Assessment Act 1997”10
2. “Taxation Income ID – 2003/210”
3. “Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459; (1995) 31 ATR 253”
4. “AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975)”
Discussion:
The Taxation Income ID – 2003/210, has the imperative decisions included in it, which
deals with the deductions entitlements regarding the legal expenditures which occurs at the
termination of any kind of business activities, which are stated under “section 8-1 of the Income
Tax Assessment Act 1997”11. According to the taxation ruling, defined under the concerned
9 ato.gov.au, 'Home Page' (Ato.gov.au, 2017) <https://www.ato.gov.au/> accessed 13 September 2017
10 ato.gov.au, 'Home Page' (Ato.gov.au, 2017) <https://www.ato.gov.au/> accessed 13 September 2017
11 Law.ato.gov.au, 'ATO ID 2003/1027 - Whether A Foreign Government Can Be Characterised As A 'Company'
Where It Owns An Australian Resident Company That Carries On Commercial Activities In Australia'
(Law.ato.gov.au, 2017) <http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID20031027/00001> accessed 13

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section, the taxpayers should be entitled to receive allowable deductions in the legal expenses,
which they incur at the end of their business activities, because the expenses are occurring after
the termination of the business activities12.
In the concerned case study, the taxpayer taken to be Waterside Pty Ltd operated a
shipbuilding business in Brisbane, which they decided to stop shortly before the Christmas. The
reason behind their cessation of their business activities is the onset of a recessionary situation.
The new company, Waterside Investment Private Limited was formed shortly after the disposal
of the previous assets. The new company compensated the workers for settlement after the parent
company winded up.
The case of the “Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459; (1995)
31 ATR 253”, shows that the taxpayer involved in this case was a conveyor belt produces, who
decided to sell the business to another party. The contract being of selling a portion, the company
still handled the repairing activities, which originated from the system set up before the company
was sold to another party13. The Federal Court referred to the verdict that was passed in the case
of “AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975)”, to consider the
allowable deductions for legal expenditures and then the court passed the verdict collectively. In
September 2017
12 Lignier, Philip, and Chris Evans. "The rise and rise of tax compliance costs for the small business sector in
Australia." (2012).
13 Somers, Renuka, and Ashleigh Eynaud. "A matter of trusts: The ATO's proposed treatment of unpaid present
entitlements: Part 2." Taxation in Australia 50.3 (2015): 147.

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this scenario, the expenses, which occurred in the last part of the year, were not considered to be
included in the issue of the deductibility entitlement14.
In the present case, the claim for compensation was in the outgoing form after the wind
up of the parent business. Therefore, as suggested under the “subsection 8-1 of the ITAA 1997”,
the company, Waterside Investment Private Limited, should be eligible to claim the deductions
for the compensations, which were done to settle the payments of the winded up company15.
Conclusion:
The legal expenditures, as seen in this scenario, shall be taken to be eligible to deductions
as the expenditures were incurred for settling the claims for the cessation of the business of the
parent company.
14 King, Margot. "Offshore hubs: Developments in multinational corporate tax anti-avoidance." Australian
Resources and Energy Law Journal 35.2 (2016): 142.
15 Brown, Christine, and Kevin Davis. "Taxes, tenders and the design of Australian off‐market share
repurchases." Accounting & Finance 52.s1 (2012): 109-135.

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References
Alstadsæter, Annette, and Martin Jacob. "The effect of awareness and incentives on tax evasion."
(2013).
Anderson, Colin, and Catherine Brown. "Mind the Insolvency gap: Lessons to be learned from
audit expectations gap theory." Insolvency Law Journal 22.4 (2014): 178-191.
ato.gov.au, 'Home Page' (Ato.gov.au, 2017) <https://www.ato.gov.au/> accessed 13 September
2017
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
Brown, Christine, and Kevin Davis. "Taxes, tenders and the design of Australian off‐market
share repurchases." Accounting & Finance 52.s1 (2012): 109-135.
Figot, Bryce. "Self-managed super: Deductible personal contributions: A critical
trap!." Professional Planner 72 (2015): 32.
Jorgensen, Ron. "Division 7A structuring: The contortionist revisited." Tax Specialist 20.3
(2017): 118.
King, Margot. "Offshore hubs: Developments in multinational corporate tax anti-
avoidance." Australian Resources and Energy Law Journal 35.2 (2016): 142.

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Law.ato.gov.au, 'ATO ID 2003/1027 - Whether A Foreign Government Can Be Characterised As
A 'Company' Where It Owns An Australian Resident Company That Carries On Commercial
Activities In Australia' (Law.ato.gov.au, 2017) <http://law.ato.gov.au/atolaw/view.htm?
docid=AID/AID20031027/00001> accessed 13 September 2017
Law.ato.gov.au, 'TR 95/3 - Income Tax And Capital Gains: Application Of Subsections 160M(6)
And 160M(7) To Restrictive Covenants And Trade Ties (As At 29 October 2006)'
(Law.ato.gov.au, 2017) <http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR953/NAT/ATO>
accessed 13 September 2017
Lignier, Philip, and Chris Evans. "The rise and rise of tax compliance costs for the small
business sector in Australia." (2012).
Mellon, Andrew W. Taxation: the people’s business. Pickle Partners Publishing, 2016.
Palil, Mohd Rizal, M. R. Akir, and W. F. B. A. Ahmad. "The Perception of Tax Payers on Tax
Knowledge and Tax Education with Level of Tax Compliance: A Study the Influences of
Religiosity." ASEAN Journal of Economics, Management and Accounting 1.1 (2013): 118-129.
Richardson, Grant, Grantley Taylor, and Roman Lanis. "The impact of board of director
oversight characteristics on corporate tax aggressiveness: An empirical analysis." Journal of
Accounting and Public Policy 32.3 (2013): 68-88.
Richardson, Ivor. "Simplicity in legislative drafting and rewriting tax legislation." (2012).
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view." Procedia-
Social and Behavioral Sciences 109 (2014): 1069-1075.

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Somers, Renuka, and Ashleigh Eynaud. "A matter of trusts: The ATO's proposed treatment of
unpaid present entitlements: Part 2." Taxation in Australia 50.3 (2015): 147.
Tucker, John. "Draft legislation to enhance flexibility for small business to restructure." Bulletin
(Law Society of South Australia) 38.1 (2016): 28.
Update, Family Law Cases. "DIVISION 7A." (2016).
Vann, Richard J. "Corporate Tax Reform in Australia: Lucky Escape for Lucky Country?."
(2013).