Principles of Income Tax Law - Desklib

Running head: PRINCIPLES OF INCOME TAX LAW
Principles of Income Tax Law
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1PRINCIPLES OF INCOME TAX LAW
Table of Contents
Part I:..........................................................................................................................................2
Answer to question 1 A:.............................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................4
Part 2: Policy Based Question....................................................................................................8
Introduction:...........................................................................................................................8
Arguments against Negative Gearing:...................................................................................8
Arguments for Negative gearing:.........................................................................................10
Conclusion:..........................................................................................................................12
References for Part I:...............................................................................................................13
References for Part II:..............................................................................................................14

2PRINCIPLES OF INCOME TAX LAW
Part I:
Answer to question 1 A:
Issues:
Will the taxpayer be held liable for assessment relating to the profits that are obtained
from the disposal of the apartment under “section 6-5 of the ITAA 1997”?
Rule:
An individual taxpayer that obtains income from the sale of property is viewed as the
ordinary income depending on the situations where the taxpayer develops or enhances the
property for producing profit from the property development activities1. Taxpayers that are
engaged in the property development activities is usually held as property developers. When
the property is sold during the ordinary course of business, income derived from the sale of
property would be considered as the chargeable income for the gross earnings made under
“section 6-5 of the ITAA 1997”.
The “taxation ruling of 92/3” provides guidance to the taxpayer in determining
whether the proceeds that is obtained from the isolated transactions would be held profits and
hence assessable under the “subsection 25 (1) of the ITAA 1936”2. Profits obtained from the
isolated transactions is regularly held as earnings when the elements such as intent of entering
the transactions was to derive profit and the transaction was entered or profit made was in the
sequence of performing occupational or commercial transactions.
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Robin, H. Australian taxation law 2017. Oxford University Press, 2017.

3PRINCIPLES OF INCOME TAX LAW
The taxpayer must hold requisite intention while entering into the transaction. Sale of
revenue generating assets results in ordinary income for the taxpayers. The high court
decision in “Whitfords Beach Pty Ltd v FCT (1982)” held that a taxpayer is held liable for
taxation under “subsection 25 (1) of the ITAA 1936” relating to profits derived from the
disposal of land since the activities are held as the business of land development3. The
taxation commissioner states that profits from transactions of isolated nature give rise to
income which is held taxable under the ordinary meaning of “section 6-5 of the ITAA 1997”
as the execution of commercial transaction.
Application:
Kristie bought an investment property with the necessary purpose of making profit.
She also sought the service of professional planner for sketches and apartment plans. As
obvious, Kristie had the definitive purpose of entering the transaction with profit making
motive. The activities of activities of Kristie constitute performance of business activities or
commercial transaction for profit making scheme. Citing the reference of “Whitfords Beach
Pty Ltd v FCT (1982)” profit derived by Kristie from such activity is an income from
carrying on the business of land development4.
3 Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.
4 Martin, Fiona, and Margaret Connor. "Using Blended Learning to Aid Law and Business
Students' Understanding of Taxation Law Problems." J. Australasian Tax Tchrs. Ass'n 12
(2017): 53.