Law of Taxation

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0LAW OF TAXATION
LAW OF TAXATION
Name of Student
Name of University
Author’s Note

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Table of Contents
Answer of Question 1:...............................................................................................................2
Answer A:..............................................................................................................................2
Answer B:..............................................................................................................................2
Answer C:..............................................................................................................................2
Answer D:..............................................................................................................................2
Answer E:..............................................................................................................................3
Answer F:..............................................................................................................................3
Answers G:............................................................................................................................3
Answer H:..............................................................................................................................4
Answer I:...............................................................................................................................4
Answer to Question 2:...............................................................................................................4
Answer A:..............................................................................................................................4
Answer B:..............................................................................................................................5
Answer C:..............................................................................................................................6
Answer D:..............................................................................................................................6
Answer E:..............................................................................................................................7
Answer to Question 3:...............................................................................................................7
Answer to Question A:..........................................................................................................7
Answer B:..............................................................................................................................8

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Answer C:..............................................................................................................................8
Answer D:..............................................................................................................................9
Answers to Questions 4:............................................................................................................9
Answers A:............................................................................................................................9
Answers B:..........................................................................................................................10
Answer C:............................................................................................................................10
Answer D:............................................................................................................................11
Answer E:............................................................................................................................11
Answer to Question 5:.............................................................................................................12
Issue:....................................................................................................................................12
Laws:...................................................................................................................................12
Application:.........................................................................................................................13
Conclusion:..........................................................................................................................14
References:..............................................................................................................................15

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Answer of Question 1:
Answer A:
According to the taxation rule of TR 2018/4, a description has been provided for the methods
utilized by tax commissioner to evaluate the life of effective assets for the purpose of
depreciation under “section 40-100 of the ITAA 1997”.
Answer B:
Details of tax offsets have been provided under “Division 13 of the ITAA 1997”.
Answer C:
The rate of tax that are applicable to the Australian resident is mentioned below:
Assessable Income Tax (AUD$)
$180,001 or more $54,097 + 45c for each $1 obove $180,000
Answer D:
A taxpayer is provided with exemptions where the capital gains or losses are reduced,
deferred or disregarded. According to the legislative provision of “section 118-10(1) of the
ITAA 1997” such as collectible assets that are bought at a cost of $500 or less are excluded from
CGT1.
1 Barkoczy, Stephen, Foundations Of Taxation Law 2014

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Answer E:
“CGT event B1 section 104-15 of the ITAA 1997” is connected with the usage and
enjoyment before the title passes. CGT event B1 happens when an individual enters into an
agreement with another entity where the right for use and enjoyment of the CGT assets that an
individual owns passes it to the other entity2. The CGT event B1 explains that the title in the
assets might gorge to another entity during or before the contract gets over.
Answer F:
Income tax = (Taxable Income x Rate) – Tax offsets
The above mentioned formula is provided under the section 4-10(3) of the ITAA 1997.
Answers G:
The court in “FC of T v Day 2008 ATC 20-064” explains that legal expenditure that was
barred by the taxpayer was for gaining the chargeable earnings and at the same time met the
conditions given under “paragraph 8-1(1)(a) of the ITAA 1997”3. The case relates with the tax
deduction of legal expense of a government employee that bared by the charges for saving the
conduct which happens out of daily activities. Under the legislative provision of “section 8-1,
ITAA 1997” the taxpayer are allowed for the deduction made on the legal expenditure which
expensed by him in the income year of 2002 for saving the taxpayer from the disciplinary action
imposed by the employer on him.
2 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
3 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)

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Answer H:
The marginal rate of tax assessed on the effects on the incentives, saves, invest, spend or earn
while the average tax assessed the burden of taxation4. The incremental income that is expensed
on increased income is a way to represent the marginal tax. Overall sum of tax divided by the
total income is a way to find assessed average rate of tax.
Answer I:
An expenditure tax imposed on the purchase of goods and services is known as consumption
tax. Consumption tax explains how the taxation system levied taxes for the people on their
consumption instead of the amount they have added to the economy.
Answer to Question 2:
Answer A:
As per Australian Taxation Office, while producing assemble income a taxpayer is liable
to claim deduction on the expenses incurred on the interest on loan. The amount incurred by the
taxpayer on the interests on loan taken for the purpose of business is considered as allowable
deduction under “section 8-1, ITAA 1997”5.
Brent accrued interests on loan for paying the wages to his employees. From the
reference of “Amalgamated Zinc Ltd v FC of T (1935)” we can say that the interest on loan
4 Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
5 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)

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accrued by Brent in generating the taxable earnings. Brent is liable to allowable deduction for the
interest on loan under the “section 8-1, ITAA 1997”.
Answer B:
In some case expenses or losses is required to be apportioned or practically deductible.
The court in “Ronpibon Tin NL v FC of T (1949)” it helps to desire the commissioner to
regulate the portion of expenses that was incurred in creating assessable income. The taxpayer is
only allowed to claim the expenses incurred for purpose of work only and not for personal
expenses6.
Julie bought a new cell phone which costs her of $500. Referring to “Ronpibon Tin NL v
FC of T (1949)” in this $500 60% of the phone calls she uses for working purpose and other
40% for the purpose of private life. So she is enabled to claim deduction on 60% of the phone
calls and other 40%, which she uses for the purpose of private calls not falls under the deduction
purview of the “section 8-1(2)”7.
Answer C:
The expense made on childcare does not falls under the deduction criteria of “section 8-1,
ITAA 1997”8. According to “Lodge v FC of T (1972)” the taxpayer is not levied for deduction
6 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
7 Neethling, André, Introduction To Income. (Tax For Individuals 2015).
8 Sadiq, Kerrie, Principles Of Taxation Law 2014

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on the childcare expenses while going for work because the expenses were not accidental or
relevant for creating taxable income.
Sally has hired a baby sitter for her child because she goes for work as she unable to give
time for her baby. The expenses incurred by her for babysitting is not deducting as it is domestic
in nature. The expense of Sally does not meet positive or negative limb under “section 8-1 (2)(b)
of the ITAA 1997”9.
Answer D:
“Section 8-1, ITAA 1997” is applicable to the losses incurred and expenses made by the
taxpayer. According to the case of “Charles Moore & Co (WA) Pty Ltd v FC of T (1956)”, the
court ordered that the taxpayer is enabled for the deduction of losses incurred from the theft of
the day’s money while going to bank10.
According to “section 8-1, ITAA 1997” Jerry is permissible for deduction claim for
goods which his long-term employee has taken. The loss incurred is associated doing business
and producing chargeable income.
Answer E:
Losses incurred or expenses made in the preliminary to the beginning of revenue creating
acts are treated and if did not took place during the course of activity are not permitted for
general deduction under “section 8-1, ITAA 1997”. According to “Maddalena v FCT (1971)”
9 Williams, George et al, Australian Constitutional Law And Theory. 2015
10 Woellner, R. H et al, Australian Taxation Law 2014

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expenses made while getting new job does not falls under the “section 8-1”11 because the
expenses made very soon than producing taxable income12.
The expenses made while fighting in election of the local government are non-deductible
under the legislative provision of “section 8-1, ITAA 1997” because the expense is done before
producing accessible income.
Answer to Question 3:
Answer to Question A:
“CGT event F2” is only applicable only to the taxpayer who renews, extends or grants the
lease which is made for long-term. The application is made on the owner of the land or the
taxpayer is provided with the sub-lease13. As evident Andy being the owner of land has been
provided for a lease of five-year term to Brian at a premium of $5,000. This happened because
for “CGT event F2”. For a above-mentioned reason Andy is not applicable to obtain the 50%
CGT discount since it is not applicable to CGT event F2.
Answer B:
As the ATO stated a “CGT event B1” occurs where the land acquired mainly by the new
owner. On the actual basis the use of land takes place the ownership of the land is made by the
11
12 Evans, Chris, John Minas, and Youngdeok Lim. "Taxing personal capital gains in Australia: an
alternative way forward." Austl. Tax F. 30 (2015): 735.
13 Feld, Lars P., et al. "Taxing away M&A: The effect of corporate capital gains taxes on
acquisition activity." (2016).

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new owner and from that date the new holder is assessable to profits and rents14. In exchange of
$40,000 Farm Ltd was provided with the option of purchasing the 100-acre farm for a sum of
$800,000. John’s occurrence is fully related with A CGT event B1. As a result, John is
permissible to 50% CGT discount on the above transaction.
Answer C:
According to the Australian Taxation Office, if a taxpayer’s is not residing in his habitat
for full time or using it for gaining income in such case the partial main residence levy is allowed
to the taxpayer. Jamie and Olivia bought a property and rented it for two years. After the
property was occupied, it was let out for generating income and also used as main residence
before selling it out in 2018. After the disposal of property, Jamie and Olivia are permissible to
get partial main residence exemption. A 50% of CGT discount method is used for Jamie and
Olivia to provide the net amount of capital gain tax.
Answer D:
Particulars Amount (AUD$) Amount (AUD$)
Proceeds from the sale of BHP Shares (CGT Event A1 (section 104-10(1)) 18,720.00$
Element 1: Cost of Acquisition (section 110-25(1)) 5,400.00$
Taxable Capital gains 13,320.00$
Proceeds from the sale of Wesfarmers Shares (CGT Event A1 (section 104-
10(1)) 10,500.00$
Element 1: Cost of Acquisition (section 110-25(1)) 26,000.00$
Loss on Sale -15,500.00$
Net capital loss -2,180.00$
Calculation of Capital Gains Tax
In the Books of Chris
For the year ended 2019
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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Selling of BHP shares resulted in capital gains of $6,660 and selling of Wesfarmers shares
led to a capital loss of $15,550. Capital loss is exempted from the deduction process from the
taxable income but on the other hand off-set against the capital gains during or in the future year
is under the taxable income15. As a result, Chris can offset the capital gains from BHP shares
against the capital loss made from Wesfarmers shares. As it is seen that the remaining amount of
$8,840 will be carried forward in the future years.
Answers to Questions 4:
Answers A:
From simple prize winnings the taxpayer is not held for assessment. On the other hand if
the taxpayer has won from prizes are under the purview of the assessable income if there is a
adequate relation with the income deriving acts of the taxpayer. According to “FCT v Kelly
(1985)” the award received by footballer from Channel 7 for the fairest and the best player was
seen as ordinary income because the taxpayer has used his skill and employment to gain that
prize16.
According to “section 6-5, ITAA 1997” after receiving the prize money of $2,000 by the
taxpayer for being the best advertisement of the year taken as an ordinary income. It is stated as
taxable because it is incidental to producing income activities of taxpayer’s work.
15 Burman, Leonard E., et al. "Financial transaction taxes in theory and practice." National Tax
Journal 69.1 (2016): 171.
16 Wanless, P. T. Taxation in centrally planned economies. Routledge, 2018.

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Answers B:
According to “section 6-1 of the ITAA 1936” earnings, wages, remunerations,
allowances, gratuities etc. are included in personal exertion income which are received by the
employee for the services made for carrying out the business17.
In this scenario, the employee received the amount of $500 from the employer that is
related to expenses that is expensed while travelling from Sydney to workplace. The income
included in the above mentioned journey will treated as income since it contains allowances
which will reimbursed by the employer to the employee later.
Answer C:
The gift received from anyone will not regarded as income because it does not meet the
criteria of income. In the case of “FCT v Scott (1966)” the court has ordered that receipt of
10,000 pounds received from the wife of client as a gift from the estate of husband will not be
considered as income18. Same goes with the case of the gift received from the client of the
taxpayer an iPhone worth $1,000 will not be counted as income because it does not possess the
character of income.
17 Arnason, Ragnar, and Hannes H. Gissurarson. Individual transferable quotas in theory and
practice. Vol. 4. Almenna bókafé lagið, 2017.
18 Graetz, Michael J. "Foundations of international income taxation." (2013).

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Answer D:
According to the “paragraph 118-37 (1) (b) of the ITAA 1997” an individual need to
contempt the receipts related with capital gains purpose where the amount is related to
compensation or damages for personal injuries, wrong or illness.
The taxpayer has met with a car accident and received a sum of $10,000 in the form of
compensation damages for personal injury it will be not be taxable because it is tax-free.
Answer E:
Assessable earnings that is derived or foreseen to be derived for future years as a reason of
being made presently entitled to income for the upcoming year is regarded as too remote to
establish a link with the current income year19. Shares, which were purchased by the taxpayer for
a sum of $5, while in the current year the shares were trading greater than the market value of
$7.50. This increase in share price will not be treated as income. This happened because the
income is yet to come so it will not be realised yet which is stated under the legislative provision
of “section 6-5, ITAA 1997”.
Answer to Question 5:
Issue:
The students who are arriving in Australia for the purpose of academics will be treated as
residents of Australia under the “section 6 (1), ITAA 1936”.
19 Milne, Janet E., and Mikael Skou Andersen, eds. Handbook of research on environmental
taxation. Edward Elgar Publishing, 2014.

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Laws:
According to “section 6-1 of the ITAA 1997” a person is treated as the Australian
resident that are residing in Australia and also includes those who have homes in Australia
except the when the commissioner of taxation is content that the taxpayer’s actual place of
residence is outside Australia. Four tests have an explanation where a person is treated as the
resident of Australia20. This includes, Ordinary concepts test, resides test, superannuation test and
183 day’s test. If a person qualifies for any one kind of tests then that person will be treated as
resident of Australia.
According to the resides test a person who is an inhabitant of Australia for a considerable
period of time regardless of nationality, citizenship or the location of their permanent home will
be treated as Australian resident. While according to the Domicile Test, a person is treated as the
Australian occupant if they have the Australian domicile unless they can prove that they have a
permanent place of abode out of Australia21. According to the case “Applegate v FCT (1979)”
that the taxpayer has a domicile outside Australia. The law court said that the permanent does not
mean lifelong and objectively assessed each year.
According to the 183 day’s test a person is treated as the resident of Australia if he/she has
been residing in Australia for more than six months in an income year unless it is be stated that
20 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
21 Olbert, Marcel, and Christoph Spengel. "International taxation in the digital economy:
challenge accepted." World tax journal9.1 (2017): 3-46.

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their residing place is outside Australia and the taxpayer has no interest in taking the residency
status of Australia.
Application:
Nisu who is a student arrived at Australia on 30th December 2018. Nisu planned to stay
for three years in Australia. However, Due to some problem Nisu has to returned to home
country Nepal. According to the ordinary concept test, Nisu cannot be termed as Australian
resident because Nisu is not resided in Australia for prolonged period. While according to the
Domicile Test Nisu does not have any permanent place of staying in Australia so he cannot be
termed as Australian resident.
Nisu will be treated as Australian resident in accordance with 183 day’s test. Nisu has been
residing in Australia for six months of an income year so Nisu can be termed as Australian
resident. Till Nishu was in Australia Nisu portrayed continuity or behaviour to stay. The six
months of residence in Australia qualifies Nisu to be the resident of Australia. According to the
definition of “section 6 (1) of the ITAA 1997” Nisu can be termed as an Australian resident.
Conclusion:
According to the “section 6 (1), ITAA 1936” of 193 day’s test Nisu is said to be the
Australian resident because Nisu resides in Australia for six months which satisfies the criteria of
residency in 183 day’s test.

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.

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References:
Barkoczy, Stephen, Foundations Of Taxation Law 2014
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Neethling, André, Introduction To Income. (Tax For Individuals 2015).
Sadiq, Kerrie, Principles Of Taxation Law 2014
Williams, George et al, Australian Constitutional Law And Theory. 2015
Woellner, R. H et al, Australian Taxation Law 2014
Evans, Chris, John Minas, and Youngdeok Lim. "Taxing personal capital gains in Australia: an
alternative way forward." Austl. Tax F. 30 (2015): 735.
Feld, Lars P., et al. "Taxing away M&A: The effect of corporate capital gains taxes on
acquisition activity." (2016).
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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Burman, Leonard E., et al. "Financial transaction taxes in theory and practice." National Tax
Journal 69.1 (2016): 171.
Wanless, P. T. Taxation in centrally planned economies. Routledge, 2018.
Arnason, Ragnar, and Hannes H. Gissurarson. Individual transferable quotas in theory and
practice. Vol. 4. Almenna bókafé lagið, 2017.
Graetz, Michael J. "Foundations of international income taxation." (2013).
Milne, Janet E., and Mikael Skou Andersen, eds. Handbook of research on environmental
taxation. Edward Elgar Publishing, 2014.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing,
2016.
Olbert, Marcel, and Christoph Spengel. "International taxation in the digital economy: challenge
accepted." World tax journal9.1 (2017): 3-46.
.

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