University Income Tax Law Assignment: Analysis and Policy Review

This assignment solution for an Income Tax Law course, likely MLC703, addresses two main parts: a problem-solving section and a policy-based essay. Part 1 analyzes income tax implications, including capital gains tax (CGT) and the application of small business concessions under Australian tax law. It examines scenarios involving restrictive agreements, the sale of goodwill, land and buildings, and office assets, providing detailed explanations and referencing relevant cases like Dickenson v FCT and Pritchard v Arundale. Part 2 delves into policy questions surrounding Goods and Services Tax (GST) in Australia, discussing the impact of GST on different income groups, the potential effects of increasing the GST rate, and the arguments for and against GST reform, referencing data from sources like NATSEM and KPMG. The assignment demonstrates a strong understanding of tax principles and the ability to apply them to practical situations and policy debates.

Running head: INCOME TAX
Income Tax
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Part 1................................................................................................................................................2
Answer to question 1 A-..................................................................................................................2
Requirement A:............................................................................................................................2
Answer to B:................................................................................................................................3
Answer to question 1 B:..................................................................................................................3
Part 2: Policy Based Questions........................................................................................................6
Introduction:....................................................................................................................................6
Discussion:.......................................................................................................................................7
Conclusion:....................................................................................................................................12
References:....................................................................................................................................13

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Part 1
Answer to question 1 A-
Requirement A:
The payment cannot be considered as income, if the taxpayer receives any restriction or
relinquish any rights. For example – Suppose, if a person received an amount of money without
doing anything, then it cannot be considered as income. There can be a restriction of the
taxpayers on the income which is coming from the producing activities, which sometimes
considered as an agreement1. When a taxpayer enters into a contractual agreement, then the
payment which is received are known as capital in nature. To limit the sale of the products, the
proprietor of service station i.e. the tax payer entered into an agreement with the Shell Oil Co, it
was held in court of law in “Dickenson v FCT (1958)”. In that agreement, it was mentioned that
the taxpayer will not form any identical service station for his current business within five miles.
Thus the payment which is considered by the court is treated as Capital in nature.
Similarly, in another case a tax specialist named Deb who entered into a contract for a
supermarket chain, is giving up his contractual right in exchange of $20,000 each month. The
huge amount which is received in exchange of giving the contractual right will be treated as the
capital in nature and will not assessable, as referred from the case of “Dickenson v FCT
(1958)”2. Thus, there is a restriction which is imposed on the producing activities that generates
income and on the rights as well, the cause is that the amount is to a restrictive agreement.
1 Evans, Chris, John Minas, and Youngdeok Lim. "Taxing personal capital gains in Australia: An alternative way
forward." Austl. Tax F. 30 (2015): 735.
2 Weisbach, David A. "Capital Gains Taxation and Corporate Investment." University of Chicago Coase-Sandor Institute for Law
& Economics Research Paper 740 (2016).

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Answer to B:
From the other scenario, it is seen that if Deb continued to follow the agreement and
carrying the tax business then there can be a deterioration during the working week in job
performance. The payment which is given to the accountant for leaving the private practice and
while working for the company for the time period of six months, will not be considered as
income, this case was held in the court “Pritchard v Arundale (1972)”3. Likewise, as per the
case of “Pritchard v Arundale (1972)”, Deb gave up her tax business and the amount of $10,000
which is received will not be considered as capital in nature, thus it will not be assessable.
Answer to question 1 B:
The capital gain can be reduced on the basis of numerous concessions which are given
under Division 152, if the basic condition can be met for relief, in assisting the small business.
The four of the small business concessions which are as follows:
a. Under “Sub-division 152-B”, there is a CGT exemption of 15-year ownership.
b. Under “Sub-division 152-C”, a 50% reduction is done in capital gains tax.
c. Under “Sub-division 152-D”, there is an exemption in retirement capital gains tax.
d. Under “Sub-division 152-E”, there is roll-over relief asset replacement.
Under the “subsection 102-5 (1)”, if the capital gain meets the criteria for 15% exemption,
then it is not considered and is completely disregarded.
3 Long, Brendan, Jon Campbell, and Carolyn Kelshaw. "The justice lens on taxation policy in Australia." St Mark's Review 235
(2016): 94.

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Goodwill: At the time of agreement, the goodwill of the business was valued at $150,000 at the
time when Greg was selling the business4. If the business is ceased on a permanent basis, then
the CGT event C1 takes place in the views if ATO, this is done with respect to the Goodwill.
There can be a loss or a destruction of goodwill of a company, if the business operations are
stopped on a permanent basis, whether it is based on voluntary or involuntary act, according to
“TR 1999/16”. If the business is permanently ceased or there is a temporary closure, then it can
be mentioned that it will result in CGT event C15. When Greg was selling the goodwill of the
business, it was ceased on the permanent basis. Thus, 50% active asset reduction can be obtained
by Greg under “Sub-division 152-C”.
Land and Buildings: In the case of Greg, the 15 year exemption cannot be availed because the
land and building was sold for $1,100,000 in February 2019. Thus, in this regard the assets are
not owned by the Greg continuously for 15 years, ending that prior to CGT event. Under
“subsection 102-5 (1)”6, for small business CGT concession Greg can apply 50%. The basic
conditions of “subdivision 152-A” which was provided is fulfilled as Greg was the owner of the
asset for more than 12 months.
Restrictive Contract: The agreement between the Rachel and Greg is done for 3 years for not
competing with the exchange for $200,000. The capital gains discount is not allowed if it is
originated from the specific CGT. The contractual right is created as it comprises of CGT event
4 Krever, Richard, and Kerrie Sadiq. "Non-residents and capital gains tax in Australia." Canadian Tax Journal/Revue fiscale
canadienne 67.1 (2019).
5 Brydges, Neil, and Kelvin Yuen. "A matter of trusts: Trusts, income tax, CGT and foreign residents." Taxation in Australia 53.2
(2018): 80.
6 Campbell, Sam. "Personal liability of a trustee to tax on trust income: Part 1." Taxation in Australia 53.5 (2018): 263.

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D1. This CGT event D1 occurs as the agreement which is done by Greg and Rachel and it was
not completed with the exchange of $200,0007. Meanwhile, Greg does not agreed to the contract
where it was stated that he cannot operate identical business for three years, thus there is a
restriction of trade. Therefore, in this case Greg did not receive 50% CGT discount.
Office Desk: The office desk was sold by Greg for $13,000. For the consideration of the
eligibility of 50% CGT reduction, the asset has to be under the ownership of Greg for 12 months.
Hence, Greg fulfils all the basic conditions and is eligible for the claim of 50% active asset under
the “subdivision 152-A”. By applying a small business retirement exemption or through a small
business rollover the capital gain can be reduced by Greg.
Subdivision 152-E Small business roll-over:
The taxpayer should have the system of purchase replacement asset, as there is the
occurrence of CGT event for several businesses and as per “section 152-400” the small business
rollover is enabled to taxpayer for deferring the capital gains8. Under the “subdivision 152-A”
the basic conditions for the capital gains should be met, so that the roll over can be obtained by
the individual which is stated under “section 152-405”. Inside the time period of one to two
years, the taxpayer should purchase the process of assets replacement, so that it can obtain the
small-business roll over.
After selling the company, it is observed form the case that Greg already has bought
some of the shares of the company named Asset Pvt Ltd during the time of May, 2019. Some of
the part of the assets which was purchased was rented to the third party for $300,000 and the
7 Jones, Daryl. "Mid market focus: Income or capital?: Taxpayer draws a blank." Taxation in Australia 51.7 (2017): 357.
8 Jones, Daryl. "Tax and accounting income-Worlds apart?." Taxation in Australia 52.1 (2017): 14.

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premises which were used by the company for conducting the clothing store was rented for
$700,000. As the basic conditions of “Subdivision 152-A” was fulfilled, therefore Greg can
obtain the roll-over under sub-division 152-E9. When Greg will acquire all the share of Assets
Pvt Ltd, then the replacement assets will be transferred to active assets. Because Greg has the
controlling authority the company is trying to have a contact with Greg.
Hence, under “subdivision 152-E” Greg is eligible for claiming the rollover relief. The
capital gains which are not similar from rollover, it should not go beyond the sum of the first and
second element of cost base replacement. Following the last CGT event, the asset was eventually
acquired within the period of one year.
Part 2: Policy Based Questions
Introduction:
A tax which is comprised of the Income tax, capital gains tax and fringe benefit tax is
known as Goods and Service Tax (GST). As stated by the henry, many organisations play
different role inside the system so that there it can be reliable all over, and the people are assured
that there is equity in the tax system and all the person should be treated equally. GST is there in
an experiment as it has gone through several changes and before putting tax on the basic foods,
the reviewing is done before applying it10. GST is likely in a state to reformation because
Australian states and territories think that there is a dispute and this structure of tax should be
reformed. The GST should not be increased as there can be an increase in the monetary problem
which will be faced by the consumers and there can be a problem of distributing the government
9 Douglas, Justin, and Amy Land Pejoska. "Regulation and small business." Economic Round-up 2017 (2017): 1.
10 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).

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facilities. Thus, there can be an unequal distribution of revenue in the developing territories of
Australia and the citizens will suffer.
Discussion:
For widening the base of the GST, there is wide range of economic models which
provided for the measurement of the effect of revenue and the rate of the households will be
increased. A survey was carried out by the “National Centre for Social and Economic
Modelling” at Canberra University, from there it can be seen that in an average the payment of
GST which is paid by the South Australian presently is $5,019 which is almost equal to the 6.2%
of the disposable income11. A reverting character of the GST is formed in model of NETSEM.
For the lower income household 9.8% of GST is being disposable and for higher income
households 4.9 % is disposable, this data is provided as per the research in South Australia.
The base of the GST should be increased so that it would result in the tax system highly
aggressive, which will include education, health, fresh food, and other goods and services. The
effect of GST on the lower income household is much higher as they pay 41.8% more GST,
compared to the high income group of households they pay 36.37% more, this effect of the GST
is noticed as per NATSEM modelling. If the GST rate is bumped up to 15%, then the average
household in Australia would have to pay $48 for each week. In the current scenario, the GST
rate of the household expenses is at the rate of 6.2% country all over the nation, but in South
Australia only 6.4% is to be accounted12. The GST is the main reason in which it resulted in the
bigger deficits and public debts. This is caused because of the wrong allocation of the revenues
11 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
12 West, Mark, and Dung Lam. "Small business restructure roll-over-Opportunities and traps." Taxation in Australia 50.9 (2016):
521.

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which is received from the higher authorities from the Commonwealth Grants Commission.
Therefore, there should be a developing reformation which will help in recovering the deficits
and the public debts. Thus, for this incident the prices of basic commodities and the consumer
will suffer the burden.
A suggestion has been provided by chief accountancy group in Australia, where it says
that if there is an increase in the GST, i.e. 15% GST on all the goods and services then it will
$27.5 billion a year. From another research which is conducted by the KPMG, it is stated that if
the 15% rate is being implemented on all the goods and services then $42.9 billion revenue will
be raised during the first year13. It can be seen from the other situations that if the exemptions is
kept at a rate of 15% GST is maintained then there is an increase of $26 to $36.8 billion. If the
GST rate is kept same at 10% and if the same has to be extended it will be beneficial for the
government and will help in raising the estimated $12.1 billion.
If the revenue is being raised as per CPA Alex Malley, then this will help in the
elimination of the wide range of taxes14. This will also help in cutting down the personal income
tax and in respect to the economic benefits there will be a boost in the gross domestic product.
According to CPA Alex Malley, it is suggested that the GST revenue can help in the elimination
of various state tax and further it will also help in personal income tax which will be beneficial
for the lower income households and will also benefit in the advancement of the economic
development.
13 Pfitzner, Darius M., and John McLaren. "Microbusinesses in Australia: a robust definition." Australasian Accounting Business
& Finance Journal 12.3 (2018): 4-18.
14 Chardon, Toni, Brett Freudenberg, and Mark Brimble. "Tax literacy in Australia: not knowing your deduction from your
offset." Austl. Tax F. 31 (2016): 321.

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Thus, if there is an increase of 15% GST on all the goods and services, then the insurance
taxes and the same duties can be totally eliminated. If the income tax rate is decreased in the
future, then there will be some kind of increase in the welfare payments that will be allowed by
the average Australian household up to $750 each year. Therefore, the economy is being
benefitted by $27.5 billion bigger by 2029-30.
Many economists have stated that there will be a decrease rate of the unemployment,
there are a large part of economic benefits and income benefits while will help in many
employment opportunities15. On the other hand, if there is an increase in the rate of the GST,
CPA states that it would lead to a positive effect for all the households at all level of income. It
can be found from the research that a large amount of reduction is there in the tax rate for the
lower income brackets, when it is measured in terms of percentage there is a reduction in overall
amount of tax burdens. There is a sufficient amount of revenues which is returned to household
as there is a decrease in the rate of income tax or the if there is a benefit which is received by the
lower income households.
The marginal amount of tax rate steady at 47 per cent, this rate is for them who earn
$180,000 or more, this happens if the 15 per cent GST is levied on everything, and this report is
entirely based on this16. Although, the lowest tax bracket is of 13.5 per cent to 19 per cent, while
the next tax bracket is at the rate of 33.1% from 37% below to 32 from 32.5%. Some of the
scholar suggested that if there is an increase in the rate of the GST it will potentially results in a
15 Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.
16 Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.

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greater tax cuts for the lower income earners. This is because of the higher income household
which usually starts from a bigger income base.
From the researcher’s point of view, it is seen that if there are any mistakes for the
increase of the rate of the GST, then it will be beneficial for the economy. It will be much
beneficial if the other taxes are being cut, and by increasing the less consistent tax. Most of the
people thinks that the effect of GST generally hits the lower income group, thus compensation is
required if the GST increases17. It can be seen that in the part of compensation, it has its own
causes by which it has been targeted. The compensation those who work more, their
compensation will fall as well. Therefore, it is one of the major cause through which it is seen
that there is no encouragement of the individuals in the work place.
Moreover, in order to secure the greater share of the revenue the Government of Western
Australia is trying to reform the GST. However, the prime minister has understood that there is
no benefit in increasing the rate of the GST, and there will be no economic boost. The main
sufferer will be the consumers and the citizens, they will have to suffer the burden, so the prime
minister have no interest for increasing the rate of the GST18. Thus, the government will also
have to look out for the citizens, so that they should not face any issue with the GST and have to
assure that the distribution of the resources should be done equally.
There can be a lower impact on the Southern Australia compared to any other parts of the
Australia, if the widening of GST happens. There could be a rise of points from 2.2 to 2.5 in the
proportion of the household expenses in Southern Australia, if the GST is increased. The poor
17 Miller, John A. The Fundamentals of Federal Taxation: Problems and Materials. Carolina Academic Press, 2018.
18 Siebert, Horst. Reforming capital income taxation. Routledge, 2019.

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people in the country will suffer more, if there is any proposal of increasing the base of the GST
which will also put to an end to some of the taxes such as business or progressive income tax.
Hence, there should be a rejection of the proposal.
If there is no increase of the subsidies provided by the Government of Australia in
addition to the increase of the GST, then it will be not give a positive result for the consumers
and it will have a negative effect on the economic position of the state19. With the increase of the
GST, if there are no benefits provided for the individuals whose living is dependent on the
pension, it will lower the living cost. If the government is thinking about the increasing of rate
the GST, most affected will be on the consumers. So there are many ways through which the tax
reformations can be done, without effecting the federal structure of the country.
As per the situation, it can be seen that if the GAT is increased the it will not be
beneficial for the economy, small business units and the consumers as well. The main reason is
that the normal citizens of the country is facing the problem, because ether will be a rise in the
price of goods and services. If the GST is imposed on the food items, then a larger subsidy will
be required which has to be provided by the Government. The Government is giving subsidy for
the activities like health and education, thus the teachers, professors and doctors can claim the
amount of subsidies which is provided by the Government20. Henceforth, the subsidy which the
Government is providing can be considered, but if the tax rate which is imposed on the education
and health is increased, then this collaboration of the increasing of GST and providing subsidies
cannot be considered as progress in the economic structure.
19 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation. Wolters Kluwer Law & Business,
2015.
20 Lieuallen, Gwendolyn Griffith, and Nancy E. Shurtz. Emanuel Law Outlines for Basic Federal Income Tax. Aspen Publishers,
2018.