Understanding Australian Constitution and Taxation Laws

This document provides an in-depth understanding of the Australian constitution and taxation laws. It covers the powers of the parliament, tax legislation requirements, and double tax avoidance agreements. It also discusses the taxation of business profits, property sales, and deductions for interest on loans. The document includes a computation of net capital gain/loss and explores the impact of Labor and Liberal tax plans.

Contents
QUESTION 1:..........................................................................................................................................2
PART A...............................................................................................................................................2
PART B:..............................................................................................................................................2
QUESTION 2:..........................................................................................................................................2
Business Profits..................................................................................................................................3
QUESTION 3:..........................................................................................................................................3
PART A...................................................................................................................................................3
Scenario 1..........................................................................................................................................3
Scenario 2..........................................................................................................................................4
Scenario 3..........................................................................................................................................4
QUESTION 4:..........................................................................................................................................4
QUESTION 5:..........................................................................................................................................5
QUESTION 6:..........................................................................................................................................6
QUESTION 7:..........................................................................................................................................6

QUESTION 1:
PART A:
The Australian constitution is a written constitution and was pen down on 09-07-1900 and is
in force from 01-01-1901. The constitution provides powers to the parliament to tax in
terms of section 51 section (ii), Section 53, Section 55, Section 90 and Section 96 of the
Australian constitution. In addition, Australia being a federal country wherein the power to
levy tax has been handed over to both the states and the centre i.e common wealth.
(Constitutional provisions, 2019)
Section 51(ii): This section provides areas where the commonwealth have an upper hand in
deliberating the matters. There are 39 articles contained in the section under which the
powers of the commonwealth shall be supreme and commonwealth shall frame laws.
In addition in terms of section 53 & 55 of the constitution, basic requirement of tax
legislation has been prescribed. In terms of section 53 of the constitution, the senate is
prohibited to make any changes in the bill which relates to revenue and taxation. However,
the scope of section is restricted and does not apply to late fees, levy of penalty, fines etc.
(Constitutional provisions, 2019)
Section 55 states that the law in relation to imposition of taxation shall deal with only
imposition of taxation and furthermore the legislation shall deal with only one subject to
taxation (Constitutional provisions, 2019)
Further, Section 90 of the constitution grants power to the parliament to regulate trade and
manufacturing the country through levy of custom duty and excise duty.
Also, in terms of Section 96, which is not in direct relation to tax, harps on areas and
condition under which central or the commonwealth can grant any financial help to the
different states of the country.
PART B:
In the constitution of Australia, power has been divided in three wings mainly Judiciary, Legislature
i.e. Parliament and Executive. The division of powers among these wings is known as separation of
power. The said distribution has been carried out to maintain balance of power in the country. Also,
work of one wing shall/may be cross verified by the other wing in order to maintain a check and
misuse of power. ( Commonwealth of Australia, 2019)
The role of the Parliament, the Executive and the Judiciary has been stated here-in-below:
(a) Parliament is the legislating body empowered to frame laws for the country. The composition of
the parliament is (a) Queen of the Country (b) Members of Senate and (c) the elected House of
Representatives.
(b) Executive: The executive is enforcing body of the country entitled with the role of enforcing the
laws set up the legislating body in a proper manner. The members of the executive body is
generally the Queen of Country, the elected ministers and Prime Minister of Country.

(c) Judiciary: Judiciary is justice seeking body where in the laws framed by legislature, enforced by
judiciary are analysed, amended and negated if required. The members of judiciary comprise
High courts and federal courts.
QUESTION 2:
Double Tax Avoidance Agreement or Treaty is a mutual agreement between the revenue authorities
of two countries regarding tax implication of a particular transaction. The agreement is entered in
order to avoid multiple tax dispute and promote ease of doing business between the concerned
countries. One of the major objective of such agreements is to avoid double taxation of a same
transaction. For instance, if Mr. Sagar is a tax resident of Australia and has receipt of income from
USA. Under, such circumstance tax shall be levied in USA and credit of taxes shall be available in
Australia for taxes paid in USA.
The benefit of operation of treaty has been detailed here-in-below:
 Reduces the impact of double taxation
 Transparency of tax rules and reduced litigation;
 Promotes business and cross border transactions;
 Prevents tax avoidance and evasion.
Business Profits
In terms of Article 5 of Double Tax Avoidance Agreement between India and Australia, any business
income shall be taxable in the source state only when the entity has permanent establishment in
that country. Further, the article states that only those portion of the business income shall be
taxable in the source state which can be attributable to Permanent Establishment. Thus, in terms of
Double Tax Avoidance Agreement for taxability of income under the head business income,
permanent establishment shall be present.
Further, in case the income is taxed in the source country, the said income shall be eligible for credit
in the home country
In the present scenario, the US Resident manufactures its income based on its operation in Australia.
Also, the service agents of the company procuring orders in Australia are dependent agents and not
independent. Thus, the company shall said to have a permanent establishment in Australia.
Accordingly, the income earned in Australia shall be charged to tax in Australia and credit of taxes
paid in Australia in terms of DTAA.
QUESTION 3:
PART A
The present case pertains to Indianna who is an Australian Tax resident. She has been residing in
Australia and owns 22 hectares of land in Australia which has always been used by the assesse for
the purpose of producing income which is assessable to tax. The assesse is now proposing to use the

land for the purpose of building in a residential building. For the purpose of achieving the desired
outcome, Indianna has considered there alternatives:
(a) Selling the property to a property developer;
(b) Selling 80 blocks individually to highest bidder;
(c) Entering into an agreement with the developing company to build the building and transfer 65%
of the proceeds to the developer. (Commonwealth of Australia, 2019)
Alternative 1: Selling the property to a property developer
In the present case, the land shall qualify as capital asset on the basis of following facts:
(a) The land sold is greater than 2 hectares of land;
(b) The land has been used for the purpose of generating assessable income;
(c) Not used for residential accommodation
Further, in terms of Income Tax Assessment Act, 1997 of Australia capital gain tax shall be levied on
the sale of capital asset provided the asset disposed is acquired on or after 20 September, 1985. In
the present case, the asset has been acquired by Indianna before the mentioned date i.e. on 1 st
November, 1976. Thus, there shall be no capital gain tax charged on the sale of property by Indianna
and the sale shall be treated as capital receipt. (Commonwealth of Australia, 2019)
If Property acquired on 01-11-1986, capital gain tax shall be levied.
Alternative 2: Selling 80 blocks individually to highest bidder
In the present case, the land shall qualify as capital asset on the basis of following facts:
(a) The land sold is greater than 2 hectares of land;
(b) The land has been used for the purpose of generating assessable income; (Commonwealth of
Australia, 2019)
(c) Not used for residential accommodation
Further, in terms of Income Tax Assessment Act, 1997 of Australia capital gain tax shall be levied on
the sale of capital asset provided the asset disposed is acquired on or after 20 September, 1985. In
the present case, the asset has been acquired by Indianna before the mentioned date i.e. on 1 st
November, 1976. Thus, there shall be no capital gain tax charged on the sale of property by Indianna
and the sale shall be treated as capital receipt.
If Property acquired on 01-11-1986, capital gain tax shall be levied.
Alternative 3: Entering into an agreement with the developing
company to build the building and transfer 65% of the proceeds to
the developer
In the present case, the land shall qualify as capital asset on the basis of following facts:
(d) The land sold is greater than 2 hectares of land;
(e) The land has been used for the purpose of generating assessable income;
(f) Not used for residential accommodation

Further, in terms of Income Tax Assessment Act, 1997 of Australia capital gain tax shall be levied on
the sale of capital asset provided the asset disposed is acquired on or after 20 September, 1985. In
the present case, the asset has been acquired by Indianna before the mentioned date i.e. on 1 st
November, 1976. Thus, there shall be no capital gain tax charged on the sale of property by Indianna
and the sale shall be treated as capital receipt.
If Property acquired on 01-11-1986, capital gain tax shall be levied. Since no consideration is
received no tax shall be levied.
Further, the agreement entered shall result in business income for Indianna on the sale of finished
houses to clients as the intention of disposing property was to construct a building and earn
revenue. Thus, the revenue derived from contract entered into by Indianna with the property
developer shall be subject to tax under the head business income.
PART B
Alternative-1
In terms of Alternative 1, tax shall be levied on the date of capital gain tax accrues I.e in the year of
transfer to land to developer.
Alternative-2
In terms of Alternative 1, tax shall be levied on the date of capital gain tax accrues I.e in the year of
transfer to land to highest bidder.
Alternative-3
In terms of Alternative 3, tax shall be levied on the date of capital gain tax accrues I.e in the year of
transfer to land to highest bidder.
Further, w.r.t business income tax shall be paid when sale is actually made i.e. 2 years after.
Also, it shall be noted that no taxes shall be paid under scenario 1 and 2.
QUESTION 4:
Facts of Case
Amity is purchasing land in Adelaide hills for the purpose of accommodation business with an
intention to use the land for developing accommodation business. Further, the land shall be
purchased by using loan and interest shall be paid on such loan from time to time. The land has also
been used by Amity for the purpose of doing business by bringing some cattle and alpacas which
would have been sold once the development was underway
Issue
Can interest on loan paid by Amity be claimed as deduction while filing his tax return over the three
year period.

Analysis
In terms of Section 8-1 of Australian Income Tax Assessment Act, 1997, an assesse is allowed to
deduct only those expenses which have been incurred in the course of generating assessable
income. Also in terms of Section 25-5 of Australian Income Tax Assessment Act, 1997:
(Commonwealth Consolidated Acts, 2019)
You can deduct expenditure you incur for * borrowing money, to the extent that you use the money
for the * purpose of producing assessable income. In most cases the deduction is spread over the *
period of the loan.
Since, in the present case Amity always had an intention to generate assessable income from the
said activity, though the business was not able to generate the same in account of multiple reasons.
Thus, the conditions stated in section 8-1 of the Act is satisfied. (Commonwealth Consolidated Acts,
2019)
Conclusion
Amity shall be eligible to claim deduction for interest paid on loan taken in terms of Section 8-1 of
the Income Tax Assessment Act, 1997.
QUESTION 5:
The computation of net capital gain / loss has been presented as under:
Determination of Net Gain/ Loss
Maurice- Individual
Tax Year 2017-18
Sl. No Particulars Amount Reason
1 Home - Sale Nil
Residential House Exemption and never
used for business purpose
2 Disposal of Shares in Full Pty Limited Nil
Acquired before 20th September, 1985,
the date of introduction of Capital Gain
Tax law in Australia
3 Furniture-Sale -4500 Assuming not a depreciating asset
4 Vacant Land- Sale -10000 Taxable
5 Net Capital Loss -14500
6 Carry forward capital loss -17500 Assuming eligible
7 Total loss carry forward -32000
The loss has been computed by taking difference between purchase price and selling price.

QUESTION 6:
Q&A audience members push Chris Bowen on Labor's
tax plans
In this Article, before the third commitment made by Chris Bowen in regard to announcement of $ 4
billion package for child care has been dealt. The Article presents that how the ambitious plan shall
be funded with the help of franking credits, negative gearing and superannuation. The article also
the criticism faced by Bowen with regard to proposed change of franking credit in order to funding
the ambitious plan of Child Care of $4 billion. (Q&A audience members push Chris Bowen on Labor's
tax plans, 2019)
The report also presents an analysis that about 50,000 pensioners shall be hit by 7000 a year on
account of the scheme.
High-income earners would receive $77bn in tax cuts
under Liberal plan
There is a coalition plan in Australia to flatten the tax bracket which shall result in more than 50% tax
cut benefits to pass on the richest 20% of the society. The said revenue has been totalled at $ 77
Billion which will pass on over a tenure of 10 years.
Further, the new liberal plan those who are earning more than $41,000 shall receive a tax deduction
and from 2024 the tax rate shall flatten to 30% for individuals earning between 45000$ to 200,000 $.
The impact of the said decision shall be $ 1205 loss per person to the revenue for individual earning
$ 50,000 and $ 1955 for individual earning $ 80,000 etc. (9 Guardian News & Media Limited , 2019)
QUESTION 7:
The code of conduct are principal guidelines which governs the behaviour of registered tax agents,
tax advisors and other agents. The code contains principles which helps in ensuring compliance with
relevant laws:
(A) Integrity and Honesty: The code of conduct expects tax agents to act with honesty and integrity
while dealing and advising clients. Further, it expects them to comply with relevant laws and
regulations.
(B) Independence: It is expected that tax agent act independently and lawfully. Further, they are
expect to act in best interest of client without violating the law. It is also expected that the tax
agent shall properly manage any conflict of interest.
(C) Confidentiality: The third most important code of conduct is to maintain confidentiality of client
information unless there is a tax evasion or false information.

(D) Competence: The code of conduct of tax agent seeks that tax agent must be competent. Tax
agent must have good knowledge of law and skills to provide good advise to client. Further,
there must be compliance with relevant laws and regulations to ensure proper compliances.
(E) Other responsibilities: Other responsibilities of the tax agent comprise advising the client on
the rights and liability of tax agent under the tax law in relation to service provided. Also, the
tax agent shall be required to maintain indemnity insurance of professional nature.

References
Commonwealth of Australia. (2019, May 3). Separation of Powers: Parliament, Executive and
Judiciary. Retrieved from www.peo.gov.au:
https://www.peo.gov.au/learning/fact-sheets/separation-of-powers.html
9 Guardian News & Media Limited . (2019, MAy 3). High-income earners would receive $77bn in tax
cuts under Liberal plan. Retrieved from www.theguardian.com:
https://www.theguardian.com/australia-news/2019/apr/18/high-income-earners-would-
receive-77bn-in-tax-cuts-under-liberal-plan
Commonwealth Consolidated Acts. (2019, MAy 3). Retrieved from classic.austlii.edu.au:
http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html
Commonwealth of Australia. (2019, May 3). CGT assets and exemptions. Retrieved from
www.ato.gov.au: https://www.ato.gov.au/General/Capital-gains-tax/CGT-assets-and-
exemptions/
Constitutional provisions. (2019, MAy 3). Retrieved from www.aph.gov.au:
https://www.aph.gov.au/About_Parliament/House_of_Representatives/Powers_practice_a
nd_procedure/Practice7/HTML/Chapter11/Constitutional_provisions
Q&A audience members push Chris Bowen on Labor's tax plans. (2019, May 3). Retrieved from
www.theguardian.com/: https://www.theguardian.com/australia-news/2019/apr/30/qa-
audience-members-push-chris-bowen-on-labors-tax-plans