Australian Taxation Law: An Overview

The provided document is a collection of references on Australian Taxation Law. It covers a wide range of topics including the qualification of taxable entities, double taxation conventions, work-related travel expense deductions, environmental taxation, and the Federal taxation of S corporations. The document also includes insights into recent ATO case reviews and the tax treatment of executor's commission. Furthermore, it touches upon the compliance costs for taxpayers and the GAAR (General Anti-Avoidance Rule). Overall, this collection aims to provide a comprehensive understanding of various facets of Australian taxation law.

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
Assessable Income.....................................................................................................................3
Answer to question 1:.................................................................................................................3
Issues:.........................................................................................................................................3
Legislations:...............................................................................................................................3
Applications:..............................................................................................................................3
Conclusion:................................................................................................................................5
Answer to question 2:.................................................................................................................5
Issue............................................................................................................................................5
Legislation:.................................................................................................................................6
Applications:..............................................................................................................................6
Conclusion:................................................................................................................................7
Allowable deductions:................................................................................................................8
Answer to question 3:.................................................................................................................8
Issue:..........................................................................................................................................8
Legislation:.................................................................................................................................8
Application:................................................................................................................................8
Conclusion:..............................................................................................................................10
Answer to question 4:...............................................................................................................10
Issue:........................................................................................................................................10
Legislation:...............................................................................................................................10

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Application:..............................................................................................................................11
Conclusion:..............................................................................................................................13
Reference list:...........................................................................................................................14

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Assessable Income
Answer to question 1:
Issues:
The present issue is concerned with the determination of assessable income of Susie
from the royalties under subsection 6 (1) of the ITAA 1936(Barkoczy 2016).
Legislations:
a. subsection 6 (1) of the ITAA 1936
b. FC of T v. McNeil
c. Stanton v. Federal Commissioner of Taxation (1955) 92 CLR 630; (1955)
d. Taxation Determination of TD 96 /D5
e. Ashgrove Pty Ltd & Ors v. FC of T 94 ATC 4549
Applications:
According to the subsection 6 (1) of the ITAA 1936 defines royalties as a certain form
of payment that are considered as royalties for the purpose of Income Tax Assessment Act
(Braithwaite 2017). The Taxation rulings of TR 2660 defines royalties in Australia as the
Australian double tax agreements in the identical terms of the subsection 6 (1) of the
definition. As evident from the present case study of Susie, being the avid inventor of the
new lawnmower Dynamow which is capable of being activated by voice directions. From the
case study it is evident that Susie has patented the agreement with the Malaysian company for
the purpose of manufacture and sale in Malaysia. As defined under the subsection 6 (1)
royalty is also defined in the Australian double taxation agreement to the extent of the treaty

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definition and the views expressed in this ruling in relation to the domestic law definition will
be equally applicable to the definition in the double taxation agreement (Caoet al. 2015).
As evident from the current case study of Susie royalty is being paid to the resident of
Australia and hence it is considered as the taxable income. In compliance withSubsection 6
(1) of the ITAA 1936Susie consider the amount into her assessable income within the
ordinary meaning of the act (Saad2014). As defined in the case of FC of T v. McNeil the high
court in its judgement stated that the value of sell-back rights to the shareholder constitutes
income in nature under the ordinary concepts. The selling back of rights in the case
embedded the value of right to sell back the SGL shares for more than their market value
which could not be regarded as the dividends for the purpose of income tax law (Taylor and
Richardson 2013). This does not constitute preclude to the rights being an income in terms of
the general concepts. On arriving at the decision selling back of rights constituted income in
the hands of taxpayer and does not represented dividend. The judgement relied on
establishing the principles which determine the character of income.
In compliance with the Subsection 6 (1) of the ITAA 1936 royalty is viewed in the
case of Stanton v. Federal Commissioner of Taxation (1955) 92 CLR 630; (1955) where the
contemporary presentations of the word appears to fall within the two heads. They are
namely the outgoings that guarantees monopolies in the form of patents and copyrights
received under the heads of license and payments received by the owner. In compliance with
the paragraph (c) of Subsection 6 (1) of the ITAA 1936 a imbursement made to Susie from
the Malaysian firm represents a considerations for the supply of profitable information or
material that should be made to the holder and constitute a royalty (Lang 2014).
In accordance with the Taxation Determination of TD 96 /D5 disposal of right by
Susie to Malaysia Company represents that the right is granted (Miller and Oats 2016). As

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held in the Ashgrove Pty Ltd & Ors v. FC of T 94 ATC 4549 states that an agreement by
which person grants the right to another person to cut and remove the timber from the land of
the guarantor may accounts as profit. The disposal provided by the guarantor happens at the
time when the agreement is made, that grants the right to cut and remove the timber, which
subsequently creates an interest in the land.
As evident in the present case royalty is paid to Susie in Australian by a Malaysian
company and she is considered as an Australian resident. In compliance with Article 12 of
the Double Taxation Avoidance Agreementbetween Malaysia and Australia tax might be
imposed in Australia (Davison, Monotti and Wiseman 2015). The payment received by Susie
represents the payment that is made to Susie for the lawn mower with the purpose of not
making the technology available to others. Susie will have tax implications with reference to
Subsection 6 (1) of the ITAA 1936and will be considered for assessment either in Australia.
Conclusion:
To conclude with, the Malaysian company might withhold tax paid that is paid on
royalties however the sum should not exceed beyond 15% or $15,000 of the balance amount.
Therefore, for Susie tax might be imposed in Australia.
Answer to question 2:
Issue
The present issues is concerned with the income tax and capital gains application
under subsection 160M (6) and 160M (7) to restrictive covenants and trade ties under the
ITAA 1936.

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Legislation:
a. Taxation Ruling of TR 95/3
b. Subsection 160M (6) and 160M (7)
c. FC of T v. Woite 82 ATC 4578; (1982)
d. subsection 25 (1) or paragraph 26 (e)
e. Hepples v. FC of T (1991) 173 CLR 492
Applications:
As evident from the current case study of Baz Baxter who is leading rugby player
approached by the Queensland to play with them in the upcoming season. However, Baz did
not accepted the offer but agreed not to play with other club for a period of two years and in
return received $40,000. After a number of argumentsBaz decided to leave the club and
Rambos $20,000 to release from his contract and further $10,000 to release Baz to cover the
cost of moving from one club to another.
The Taxation Ruling of TR 95/3 is concerned with the income tax and capital gains
application under subsection 160M (6) and 160M (7) to preventive contracts and
employment ties under the ITAA 1936 (Tran-Nam, Evans and Lignier 2014).
Characterization of employment associated contracts and payments made under the contract
of service are stated under the case of FC of T v. Woite 82 ATC 4578; (1982). According to
the judgement stated under this case defined the sum was for depriving the player of a chance
that could else have been available to him. However, this paves the question that whether the
sum that is received for one of the preventive agreements or for any kind of separate positive
or negative covenants where a minimum part of payments received represents an assessable
income.

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Given the fact that the restrictive covenants is related to both the present period of
service and to the phase following the conclusion of the service the share of the
considerations received related to the phase of the service shall be considered as the
assessable income under subsection 25 (1) or paragraph 26 (e). In the present case of Bax
Baxter the part of considerations which is related to the period following the conclusion of
the service shall be considered taxable underneath the new subsection 160 M (6)(Woellneret
al. 2016).
With reference to the present scenario of Baz the ruling provides the consequences of
the decision of the high court of Australia in Hepples v. FC of T (1991) 173 CLR 492 for the
tax assessment of the considerations that is received in regard to the restrictive covenants
(Robin 2017). The restrictive covenants of Baz is related to both the current period of
employment and after the period of that employ and the portion of considerations received by
Baz shall be considered for assessment under subsection 25 (1) since it relates to the period
of employment.
Conclusion:
On arriving at the conclusion for Baz the restrictive covenants is related to the period
of current service and phase following the employment with the part of considerations
received is related to the period of employment and shall be considered for assessment under
subsection 25 (1).

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Allowable deductions:
Answer to question 3:
Issue:
The present case study is concerned with the expenses incurred by the tax payer to
prevent the quota on the yearly number of components imported into Australia for bikes.
Legislation:
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)
Application:
The Income tax ruling of ID 2001/83 determines that legal expenditure incurred in
challenging the validity of the decision are considered as the allowable deductions under the
subsection 51 (1) of the ITAA 1936(Vann 2016). As evident from the following scenario it
can be stated that the Gonzales Ltd had incurred expenditure for challenging the quota
imposed by the federal government for yearly number of quota imported in Australia for
racing bike. The company in response to the quota imposed challenged the federal
government announcement and spent $750,000 on placing the advertisement in the Australian
media attacking the system of quota to demand for its repeal.

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The taxpayer encourages these practices in order to make the good commercial sense.
The Gonzalez Ltd does not incur the legal expenditurefor any other purpose instead the
expenditure was incurredfor defending its business method. The decision by Gonzalez Ltd
was to challenge the announcement of quota that is imposed by the federal government is
henceforth related with to the essential portion of the taxpayers business namely receiving of
income to insure the expected outlay (Anderson, Dickfos and Brown 2016). The expenditure
incurred by Gonzalez Ltd was for carrying on of trade with the objective of attaining the
taxable earnings.
In addition to this, 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 (Snape and Souza 2016). The expenditure incurred by Gonzalez Ltd does
not generate an advantage of a continuing nature nor is it related for the preservation of
capital asset. Citing the reference of FC of T v Snowden and Wilson Pty Ltd (1958) 99 CLR
431)the fact the expenditure are infrequent and the taxpayer during the preceding instance did
not required to take into the considerations the legal actions and this does not prevent the
expenditure incurred from being deductible.
As defined under section 8-1 of the ITAA 1997 a deductions is considered as
permissible for all the losses and outgoings to the amount to which they are occurred at the
time of deriving and producing the assessable income apart from the extent where the
expenses are in the nature of capital, private or domestic in nature (James 2016). As held
inHerald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113 the legal costs are
considered for deductions given that the legal actions arises out of the daily income
generating activities of the taxpayer.

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An important considerations stated under section Herald and Weekly Times Ltd v.
FC of T (1932) 48 CLR 113legal expenditure are considered for deductions however it may
not be subjected to deductions if it is not undertaken for the purpose of protecting the profit
making structure of the taxpayer (Xynaset al. 2014). Hence, legal expenditure are deductible
provided that the expenditure are incurred possess further than the outlying association to the
trade of the taxpayers. As defined under Magna Alloys and Research Pty Ltd v. FC of
T (1980) legal expenditure might be considered as deductible provided that the legal
expenditure has arise out of the litigation regarding the professional conduct.
Conclusion:
With reference to the section 8-1 of the ITAA 1997 legal expenditure occurred by
Gonzalez ltd is in the process of gaining and generating the taxable income, is considered for
deductions. Since the expenditure incurred was for protecting the purpose of profit making
structure.
Answer to question 4:
Issue:
The present issue is concerned with the deductibility of the expenses occurred
following the cessation of the business. The subject brings forward the question whether the
taxpayer shall be allowed for an allowable deduction under the section 8-1 of the Income
Tax Assessment Act 1997 for the legal expenditure occurred following the end of business
(Peiros and Smyth 2017).
Legislation:
a. Section 8-1 of the Income Tax Assessment Act 1997

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b. Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459; (1995) 31 ATR 253
c. AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975)
d. Taxation Income ID 2003/210
Application:
The interpretative decision defined under the ID 2003/210 takes into the
considerations the entitlement of the deductions defined under the section 8-1 of the Income
Tax Assessment Act 1997 concerning the legal outlay occurred following the cessation of the
business (Burnett, Taylor and Wong 2015). The ruling provides that the taxpayer shall be
considered entitled for allowable deduction under the section 8-1 of the ITAA 1997 for the
legal expenditure that is occurred following the end of the business where the circumstances
of the outgoing in incurred in their preceding commercial activities. The taxpayer in the
present case study is operated the business of shipbuilding in business. However, because of
the downturn in the business it ceased operations shortly before the Christmas. Shortly, all the
assets of the company was disposed and Waterside Investment Pty Ltd was formed.
Waterside Investment Pty Ltd paid the workers a compensation amount in the form of
settlement after the parent company has been wounded up.
As defined under the Section 8-1 of the Income Tax Assessment Act 1997a deduction
is considered as the allowable deductions to the degree to which they were occurred in
generating and producing the taxable returns (Dunneet al. 2016). However, Section 8-1 of the
Income Tax Assessment Act 1997 is not applicable under circumstances where the expenses
are in the nature of capital, private or domestic nature.
As held in the case of Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459;
(1995) 31 ATR 253 the taxpayer was considered as the producer of the conveyor belt system.
It undertook the decision of selling up the trade to another entity (Martin 2015). As the

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portion of the sales contract, the company continued to be accountable for any forms of
repairs that arise from the setting up of the system before the sale. After some time the
business was sold in the form of claim that was made against the tax payer. A settlement was
reached where it made an payment of $325,000 and subsequently incurred the expenditure of
legal outlays of 58,379.
In order to make the deductions allowable for both the expenditure incurred the
federal court by referring to the judgement made under the case of AGC (Advances) Ltd v.
Federal Commissioner of Taxation (1975) unanimously passed its judgement (Schenk
2016). In its opinion, AGC must be considered as creating the proposal which provided the
circumstances of commercial outgoing to be found in the trade operations that is in the
direction of producing the taxable income. The circumstances that the outgoing was occurred
in the later part of the year in which the income was generated and evidently, in the mean
time the trade under the regular sense might have been ended would not determine the issue
of the deductibility. If the circumstances for loss or outgoing form the part of the business
operations directed in the process of gaining and generating the taxable income such losses
and operations would be considered for deductions.
The circumstances of the taxpayer outgoing is noticed under the preceding business
functions. In the present case, the reality compensation claim was in the nature of outgoing
after the business has been ceased does not sever this association (Murphy and Higgins
2014). In accordance with the subsection 8-1 of the ITAA 1997Waterside Investment Pty Ltd
is entitled to deduction for the compensation claims that arose for the settlement of the
payment company that had been wounded up.

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Conclusion:
To arrive at the conclusion legal expenditure in the present context of Waterside
Investment Pty Ltd will be considered deductible since it was incurred in the settling of
payment for the cessation of their business.

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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.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Burnett, C., Taylor, C.J. and Wong, J., 2015. Qualification of Taxable Entities and Treaty
Protection: National Report for Australia.
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.
Davison, M., Monotti, A. and Wiseman, L., 2015. Australian intellectual property law.
Cambridge University Press.
Dunne, J., Taylor, H., Batten, N. and Krapivensky, N., 2016. 2015 case review: High ATO
success rate continues. Taxation in Australia, 50(10), p.609.
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.
Lang, M., 2014. Introduction to the law of double taxation conventions. LindeVerlag GmbH.
Martin, F., 2015. Overseas travel by employees: When does FBT apply?. Taxation in
Australia, 49(7), p.382.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

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Murphy, K.E. and Higgins, M., 2014. Concepts in Federal Taxation 2015. Cengage
Learning.
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), p.394.
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.
Schenk, D.H., 2016. Federal Taxation of S Corporations. Law Journal Press.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice.
Routledge.
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.
Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent
evidence from Australia. Austl. Tax F., 29, p.137.
Vann, R.J., 2016. Hybrid Entities in Australia: Resource Capital Fund III LP Case.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.
Xynas, L., Blissenden, M., Villios, S. and Kenny, P., 2014. Allowable deductions, cost base
of CGT assets and the GAAR: a minefiled for taxpayers and their advisers. Australian Tax
Law Bulletin, 1(5), pp.94-98.

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