Australian Tax Law Scenarios

This assignment delves into the complexities of Australian tax law through a series of case studies. Students must analyze situations involving timber sales, tax avoidance strategies, and apply relevant legal provisions such as Taxation Ruling 95/6 and sections from the ITAA 1997. The assignment emphasizes understanding the principles of assessable income, business operations, and the evolution of fiscal jurisprudence in Australia.

Assignment

TABLE OF CONTENTS
Answer 1....................................................................................................................................3
Analysis of facts of case.........................................................................................................3
Applicability of Provisions....................................................................................................3
Computation of capital gain or capital loss............................................................................3
Answer 2....................................................................................................................................5
Analysis of facts of case.........................................................................................................5
Applicability of Provisions....................................................................................................6
Computation of fringe benefit taxable amount......................................................................6
Answer 3....................................................................................................................................7
Analysis of facts of case.........................................................................................................7
Applicability of Provisions....................................................................................................8
Conclusion..............................................................................................................................8
Answer 4....................................................................................................................................9
Analysis of facts of case.........................................................................................................9
Applicability of Provisions....................................................................................................9
Computation of capital gain or capital loss............................................................................9
Answer 5....................................................................................................................................9
Analysis of facts of case.........................................................................................................9
Legal provisions.....................................................................................................................9
Applicability of Provisions....................................................................................................9
Conclusion..............................................................................................................................9

ANSWER 1
Analysis of facts of case
Eric has purchased the following asset over last twelve months at a specified price: an antique
vase -$2 000, shares of the listed company $5 000, home sound system, a painting for $9 000
and an antique chair for $3 000.
Further, the above-specified assets were sold at specified prices last week:
Particular Selling Price
An antique vase $3 000
An antique chair $1 000
Home sound system $11 000
Painting $1 000
Share of listed company $20 000
Total $36 000
Applicability of Provisions
Method of computation of capital gain tax depends on holding period for which asset has
been held by the assessee. As the same plays significant role in determining the liability of
tax relating to the capital gain. It has been specified in the provisions of Australian taxation
that if a person holds the asset for a period less than twelve months than no indexation or
discounting method is applied to same for ascertaining capital gain (Barkoczy, 2016). The
computation of capital gain or capital loss is done in an easy manner, i.e. through reducing
purchasing cost from consideration earned through the sale of the asset. However, it can be
said that discounting and indexation method applies only in case the asset is held for more
than twelve months.
Further, the net capital loss can be adjusted against net capital gains in present year as well as
upcoming years in case loss is carried forward to next year.

Computation of capital gain or capital loss
In the present scenario, Eric has held the asset for a period which is less than twelve months
thus, in accordance with above specified provisions computation of capital gain or capital
loss will be done in the following manner:
Particular Capital Gain
(working note 1)
Capital Loss
(working note 2)
An antique vase $1 000
An antique chair $2 000
Home sound system $1 000
Painting $8 000
Share of listed company $15 000
Total $16 000 $11 000
Working Note -1
Calculation of capital gain
1. Antique vase
Gain = Selling price – acquisition cost
=$3 000-$2 000
=$1 000
2. Share of listed company
Gain = Selling price – acquisition cost
= $20 000 -$5 000
= $15 000

Total capital gain
= $1 000+$15 000
= $16 000
Working Note -2
Calculation of capital loss
1. Antique Chair
Gain = Selling price – acquisition cost
= $1 000-$3 000
= $2 000
2. Home sound system
Gain = Selling price – acquisition cost
= $11 000-$12 000
= $1 000
3. Painting
Gain = Selling price – acquisition cost
=$1 000-$9 000
= $8 000
Total capital loss
= $2 000 + $1 000 + $8 000
= $ 11 000
As per above specified provisions; capital loss of $11 000 will be adjusted against capital
gain of $16000 and net capital gain of $5000 will be taxed as capital gain in present year.

ANSWER 2
Analysis of facts of case
The Brian has been provided with a three-year loan amounting to $1 million as a part of his
remuneration package as he is bank executive. The loan has been provided at a lower interest
rate of 1% on 1st April 2016. Further, 40% of the amount which has been received him as the
loan has been applied for income producing purpose and for accomplishing the interest
liability. He is required to pay the amount of interest in the form of monthly instalments.
Another situation is also provided in which he is liable to pay interest at the end of the loan
rather than monthly instalments, or he is released from the liability of paying interest.
Applicability of Provisions
Fringe Benefit Tax: The provisions relating to fringe benefits tax are applied in the event of
bank loan provided to an employee at a lower rate interest in comparison to the specified
statutory rate applicable in that period (King, 2016). The taxable value of the fringe benefit is
computed in the following manner:
Interest as per statutory rate− Actualinterest payable∗%of amount allocated for producing income .
In case the interest rate is equal or higher than specified statutory rate than no fringe benefit
tax provisions are applied to specified transactions.
Computation of fringe benefit taxable amount
Statutory Interest Rate for the year 2016 and year 2017 have been specified below;
Year 2016 5.65%
Year 2017 5.65%
In the present case, as provided in the facts that loan has been provided at a rate of 1% to the
Brian which is lower than statutory rate; thus the provision relating to fringe benefits tax will
be applied here in the following manner:
Computation of taxable fringe benefit
Interest in accordance with statutory rate:
= $1 million *5.75%

= $57 500
Actual interest charge by bank
= $ 1 million *1%
$10 000
Taxable fringe benefit value
= Interest as per statutory rate – Actual interest payable * % applied for producing income
= $ 56 500- $10 000 *40%
=$18 600
Further, in the second situation, there will be no change in fringe benefits taxable value as the
manner of payment of interest does not have any effect on the method of computation of
taxable liability.
In case no interest is charged by the Brain that fringe liability will be computed in the
following manner:
Taxable fringe benefit value
= Interest as per statutory rate – Actual interest payable * % applied for producing income
= $ 56 500- $0.00 (as no interest has been paid) *40%
=$22 600
ANSWER 3
Analysis of facts of case
Jack is an architect, and his wife is housewife has taken a loan for purchasing a rental
property. They are joint tenants of the property. Further, a partnership agreement has been
provided in written which specifies the distribution of profit and loss in the following
manner:
Profit

Jack 10% Jill 90%
Loss
Jack 100% Jill 0%
A loss of $1000 arose last year.
Computation of manner of allocating loss for income tax purposes is to be determined.
Further, in case of property is sold in future; the manner in which capital gain or capital loss
will require to determine is required to be ascertained.
Applicability of Provisions
TR 93 /32:
Taxation Ruling 93/ 32 specifies the manner in which net income or loss from rental property
is to be allocated between co-owners and the manner in which it is acceptable for income tax
purposes. Moreover, regulations relating to a business operation which is not treated as
carrying business in ordinary course are also comprised in the specified ruling.
The partnership has been explained in ITAT 96 as an association or group of persons who
continue business operation with the intention of earning profits, but the same does not
consist a company. McDonald ATR p 967, ATC p 4550 has same facts as the facts exist in
the present scenario. In this case, also partnership existed between husband and wife and
profit and loss were allocated in 25: 75. Further, the decision was made by the court that as
no partnership existed between them as per general law which is necessary for taxation
purpose (Buchanan and Consett, 2016). Due to same reason profit and losses were distributed
equally rather than accordance with the partnership agreement.
Further, it was provided that profits will be distributed in the ratio of 25: 75 and in case any
loss occurs then the same will be borne by Mr McDonald. However, it was concluded by the
court that loss and profits would be borne equally by both the partners for income tax
purposes even though the partnership agreement states different ratio relating to the allocation
of profit and loss. Further, in case, the property is sold in future than capital gain or capital
loss will also be equally allocated to them.

Conclusion
In accordance with the described case situation entire loss will not be applicable to Jack as
the same provisions of a case of Mr McDonald will be applied in present scenario according
to which profit and loss will be allocated equally to Jack and Jill. Further, in case, the
property is sold in future than capital gain or capital loss will also be equally allocated to
them.
ANSWER 4
Description of Case
The case titled as Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1 19
TC 490, indicated to a situation in which The Duke of Westminster has employed a gardener
who was paid out from Duke’s substantial post-tax income. The party has stopped paying to
the gardener and drew up a convent an equivalent amount. The case is cited in respect with
the issues of tax avoidance. As per the taxation laws, Duke was allowed to claim for
deduction so as to reduce own taxable income, therefore, he was able to reduce the tax
liability and surtax (Logue, 2005).
Principle applied and developed after the case of IRC v Duke of Westminster [1936] AC
1
The party Inland Revenue has lost the case against the Duke, in which Lord Tomlin, who was
the judge of the case, indicated that each and every man has a right or entitled if he can to
order his transactions, so that the tax attaching under the suitable acts is less as compared to
that, otherwise it would be. In case a person is successful to do so, he can avoid the tax
liability; however, in the present case unappreciative the Commissioners of Inland Revenue
cannot prove that the Duke is avoiding is liability so he was not compelled to pay an
increased tax (Pearce and Pinto, 2015). The rule grabs the attention of other tax payers so that
they can reduce the tax liability through creating complex tax structures. Therefore, court has
taken restrictive approach through making “Ramsay principle” in which transactions that are
pre-arranged artificial steps and are not related to commercial purpose cannot be entitled to
get tax rebate, thus are taxable.
Relevance of this principal in Australia

As per the decision taken based on The Duke of Westminster case, tax avoidance is
applicable as long as statutory laws are applied. As per the principle if companies in Australia
are using any device for the purpose of reducing taxable profit, are not allowed for being free
from tax liability (Braithwaite, 2017). The courts and Tribunals must check and consider that
the fiscal jurisprudence of the mentioned country are changed and extended to hold that any
tax planning that is done so as to avoidance tax, and the principle of The Duke of
Westminster [1936] AC 1 are not applicable now.
ANSWER 5
Analysis of facts of case
According to given case facts, Bill is the owner of huge land which produces timber. He has
two options for selling timber by logging company first is to get $1 000 for each 100-meter
land and the second option is to get lump sum payment of $ 50 000 in against of providing
rights for removal of timber as much as required by the company. Thus; the issue in the cited
case situation is taxability of sale of timber in both the cases.
Legal provisions
Taxation Ruling 95/6 deals with taxability of income earned through the sale of timber in all
manners by considering both aspects that are income as business forest operations and
income not in ordinary course of business forest operations (Dunne, Mason and Patto, 2014).
In this ruling section 25(1) ITAA 1997 states that sale of taxable even if the individual is not
engaged in forest operations. Further section 36(1) states that rights sold by individual
regarding extraction of timber will be part of assessable income.
Applicability of Provisions
Taxation ruling Section Assessability of
income
Option 1 $1 000 for each
100 meter land
Taxation Ruling
95/6
25 (1) Yes
Option 2 Lump sum
payment of $ 50
000 in against of
Taxation Ruling
95/6
36 (1) Yes

providing rights
Conclusion
Revenue earned by Bill in both the cases will be assessable, but taxability of income will be
in different sections.