Introduction to Income Tax Law - Doc

Introduction to income
tax law

Table of Contents
INTRODUCTION ..........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................1
QUESTION 3...................................................................................................................................1
QUESTION 4...................................................................................................................................1
QUESTION 5...................................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
In the term of finance, the tax is defined as the compulsory fees that is levy by the
government on specific income, services, activities or financial transactions. Income tax is the
most important form of taxation in Australia, which cover the main sources like personal
earning, business earning and capital gains (Buchanan, 2017). It is one of the most progressive
approach of tax system in Australia that demonstrate the more income earned by individual they
more amount of tax needs to be paid.
QUESTION 1
Section S6-5(2) & S6-10(4) defines the rules relating to all ordinary income and statutory
income of an ‘Australian Resident’. In the Context of Australian Taxation an individual visiting
Australia and travelling and living at number of places to perform several kind of work is
consider to a foreign resident for tax purpose.
The case Federal Commissioner of Taxation v. Applegate, Federal Court of Australia, Full
Court, 29 June 1979 the opinion was made that due to some non-abandoned circumstances
Applegate was not able to establish a permanent place of above in the sense abovementioned
outside the Australia. Considering this he was considered as “Non-resident” and his income will
derived from sources outside of Australia (Kenny, Blissenden and Villios, 2015).
From the case of Taite, it has been discovered that he live is different location within
Australia for the purpose of doing various kind of jobs from 1 August 2017 to 30 June 2018
(About Foreign Resident, 2019). In search of work he use to live in backpacker hotels and other
accommodation services that are offered by company. So in case if Taxable Income is
Taxable income Tax on this income
0 – $90,000 32.5c for each $1
$90,001 – $180,000 $29,250 plus 37c for each $1 over $90,000
$180,001 and over $62,550 plus 45c for each $1 over $180,000
It is the duty of Taite to declare any income that is earned in Australia on Tax return
which must includes:
 Employment Income
 Capital gain on Assets.
But as a foreign resident he have following advantages such as:
 No Tax Free Threshold
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 Not need to pay any levy on Medicare
QUESTION 2
Deductions:
Division 8 of Australian taxation covers the rules relating to the general deductions S8-1
and S8-5 Specific deductions. Section S6-5(2) & S6-10(4) is formed for residents and S6-5(3) &
S6-10(5) for Foreign Residents.
As per Australian taxation rule, it is the Capital gain tax on selling of shares in a company
or units are capital gain tax (Rose and Karran, 2018). As per case of commissioner of taxation
vs La Rosa in 2003 decision form the Federal Court of Australia was given that only special and
general deductions are allowable for deductions form taxable income. As Frank La Rosa asked
for deductions for $220000 of stolen money during a drug deal.
As per the Australian taxation, calculation amount of deductions that can be claim by
Derek (resident individual) are as follows:
General Deductions:
Particulars Amount (In $)
Depreciation (Note 1) 4530
Specific Deductions:
Particulars Amount (In $)
Payment of Rental bond 3600
Repairing existing walls 3500
Repair to fittings 2000
Repair computer system 950
Legal cost (Note 2) 2000
Borrowing fees (note3) 1250
Repainting existing wall 3500
Total 16800
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Note1: As per Australian income tax act, depreciation rate on fixed assets which are given in the
questions is 15 percentage (Tax Deductions, 2019). Therefore, this rate of depreciation is to be
apply.
Note2: Legal cost paid for business is a business expense and deduction of this shall be given to
the individual assesses.
Note3: borrowing cost paid for taking business loan falls in the category of specific deduction
subject to some condition as may be provided in act. There specific deduction shall be given in
this respect.
Note4: Repair to existing walls and computer system is not capitalised because it does not
provide the any economical benefits in future. Therefore, specific deduction is to be given for
this.
QUESTION 3.
“HAYES v. FEDERAL COMMISSIONER OF TAXATION, High Court of Australia, 23
May 1956” In this case the taxpayer get 12000 fully paid shares of 5s each in company of
George Richardson (Encino, 2013). The face value of shares was £3000 in taxpayer’s assessable
income for the same year. in this case the court review was considered in favour of considering
the face value of shares in assessable income.
It is applicable on those shares and units, which were acquired after 20 September 1985.
Profit on sale of shares taxed as ordinary income rather than capital gains.
Assessment of taxable income for the year 2017/18
Particular Amoun
t ($)
Amount ($)
Proceeds form sale of LSD ltd shares as on 6 Sep 2017 150000
Sale of Shares in Mirage Pharmaceuticals Pty Ltd as on 8th Nov
2017
80000
Sale of shares in Wondersoft Instruments as on 15th may 2018 120000
Gross proceeds 350000
Less: Allowed expenses
Acquisition cost of shares acquire on 6 Sep 2017 110000
Acquisition cost of share purchase on 1st April 1988 140000
Acquisition cost of shares of Wonder soft Instruments on 10th
Oct 1984
10000 260000
Net Taxable capital proceeds before deductions 190000
Less: Carry forward trading loss form sweet shop for assessment -15000
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year 2017/18
Net taxable capital gain 175000
QUESTION 4
According to the case of Scott v FCT (1966) 117 CLR 514, Payers provided full
professional charges for their facilities and a £ 10,000 donation. It can therefore be asserted that
the $2000 donation is not an assessable ordinary income by using as a precedent the case of Scott
v FCT (1966) (Burton, 2017).
Assessable income: In case if an individual is carrying business that most of the part that
is earned during a year is must be assessable under income tax purpose. The income that is
earned by a person is subject to taxation as per a specific rate. In the context of assessable profit
it is mainly calculated to identify an taxable income based depending in gain and losses in funds
that are held in taxable investment accounts (Thuronyi and Brooks, 2016).
Calculation of assessable income for frankie
Particulars
Amt. In
AUD
Gross income 150000
Lottery win 1200000
prize 500
Army pay 10000
per. Loan 15000
Frank net 7500
[10000*75/100]
Gross up
franking credit 2500
[7500*25/100]
capital gain 10000
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QUESTION 5
There are some useful articles from different sources related with taxation are discussed
below (Articles related to taxation concepts, 2019).
Simon- A migrant from England Changed his Mind.
A) Facts
Simon was to lived with his family in England and decided to shift Australia on
permanent basis (Pogge and Mehta, 2016). They arrived in Sydney where he find a respective
job in accounting firm and bought house and children start going to private school. As time
passes, his family was not happy while living in Australia and decided to return England. They
live for only 4 months therefore they will still be treated as British Citizens.
B) Taxation concept
The tax legislative related with Simon case will be according to Taxation Ruling TR
98/17 which states that calculation of income tax is on the basis of resident status of individual
entering in Australia shows the circumstances in which a person is considered as residing in
Australia (Taxation Ruling TR 98/17, 2019). This law mainly have different factors that
determine the living of an individual such as:
 Intention of presence
 Family and business or employment ties
 Maintenance and location of assets
 social and living arrangements.
As Simon and his family lives for short duration and they comes in the factors intention
or purpose of presence thus they are not be consider an Australian resident for income Tax
Purpose.
C) In the article the taxation concept states that Simon was not liable to any income Tax as they
he and his family live only for 4 months, which is, not long enough to qualify for citizenship.
Bronwyn- An Extended job Overseas.
A) Facts
Bronwyn is an Australian resident have a job offer to work in other country for three
years with the option to get extension for more 3 years. They have house in Australia and
decided to come back one day and move with her husband and three children. She is not ready to
make extension decision as she wanted to first look weather her family is ready to live or not. To
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live in other country they have rent a house with an accommodation allowance that is provided in
contract (Mares and Queralt, 2015).
B) Taxation concept
From the income tax prospectus, the total amount received by Bronwyn from her house
that is given on rent will be computed as a part of taxable income. She also took a overseas house
for rent which allowances are paid by company so she will not be able to get any redemption in
case of income generated from house in Australia.
C) There is a connection between taxation concept and indicators of good tax policy as there are
five basic situation that can be maximized to the superlative extent accomplishment.
CONCLUSION
From the above report it has been calculated that income tax is mainly paid on total
revenue that is received by an individual like salary, wages, investments, interest, profit and
payments from rent. An individual can get deduction from paying tax in case if they are eligible
for specific tac offsets and government rebates. There are different treatment for an individual
that is visit Australia for work and business purpose.
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REFERENCES
Books and Journals:
Kenny, P., Blissenden, M. and Villios, S., 2015. Residency and Australians working overseas:
can be an expensive lesson in tax Law.
Encino, M., 2013. Holy Profits: How Federal Law Allows for the Abuse of the Church Tax-
Exempt Status. Hous. Bus. & Tax LJ. 14. p.78.
Burton, M., 2017. A Review of Judicial References to the Dictum of Jordan CJ, Expressed in
Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the
Purposes of the Australian Income Tax. J. Austl. Tax'n. 19. p.50.
Buchanan, A., 2017. A critical introduction to Rawls’ theory of justice. In Distributive Justice
(pp. 175-211). Routledge.
Mares, I. and Queralt, D., 2015. The non-democratic origins of income taxation. Comparative
Political Studies. 48(14). pp.1974-2009.
Pogge, T. and Mehta, K. eds., 2016. Global tax fairness. Oxford University Press.
Rose, R. and Karran, T., 2018. Taxation by political inertia: Financing the growth of
government in Britain. Routledge.
Thuronyi, V. and Brooks, K., 2016. Comparative tax law. Kluwer Law International BV.
Online
Taxation Ruling TR 98/17. 2019. [Online] Available Through:
<https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/
Residency/Examples-of-residents-and-foreign-residents/>.
Articles related to taxation concepts. 2019. [Online] Available Through:
<https://economictimes.indiatimes.com/nri/nri-tax/are-you-earning-abroad-know-the-
tax-rules/slideshow/59860408.cms>.
Tax Deductions. 2019. [Online] Available Through:
<http://taxsummaries.pwc.com/ID/Australia-Individual-Deductions>.
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