Australian Taxation Law Analysis

This assignment delves into the complexities of Australian Taxation Law. It presents a variety of legal cases, ATO rulings (including TR 95/3), and scholarly articles that examine various aspects of taxation. Topics covered include Division 7A structuring, work-related travel expense deductions, unpaid present entitlements, tax disputes, offshore hubs, and environmental taxation. Students are expected to analyze these resources, draw connections between different areas of taxation law, and demonstrate a comprehensive understanding of the subject.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
CATEGORY 1 ASSESSABLE INCOME.................................................................................2
Answer to question 2:.................................................................................................................2
Issue............................................................................................................................................2
Legislation:.................................................................................................................................2
Applications:..............................................................................................................................2
Conclusion:................................................................................................................................4
Answer to question 4:.................................................................................................................4
Issue:..........................................................................................................................................4
Legislation:.................................................................................................................................4
Application:................................................................................................................................5
Conclusion:................................................................................................................................6
Category 2: Assessable Income and Deductions.......................................................................6
Answer to question 3:.................................................................................................................6
Introduction:...............................................................................................................................6
Discussion:.................................................................................................................................7
Conclusion:................................................................................................................................9
Reference List:.........................................................................................................................10

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CATEGORY 1 ASSESSABLE INCOME
Answer to question 2:
Issue
This issue deals with the consequences of income tax and capital gains stated under
subsection 160M (6) and 160M (7) to preventive contracts and business relations under the
ITAA 1936.
Legislation:
a. Subsection 160M (6) and 160M (7)
b. subsection 25 (1) or paragraph 26 (e)
c. Taxation Ruling of TR 95/3
d. Hepples v. FC of T (1991) 173 CLR 492
e. FC of T v. Woite 82 ATC 4578; (1982)
Applications:
As defined under the Taxation Ruling of TR 95/3 it is concerned with the
consequences of income tax and capital gains applicable within subsection 160M (6) and
160M (7) to restrictive covenants and ties of employment defined under the ITAA 1936
(Barkoczy 2016). Characteristics of employment are connected with the contracts and
payments that is defined under the agreement of service is illustrated in the case of FC of T v.
Woite 82 ATC 4578; (1982) (Ato.gov.au 2017). As per verdict explained in this case it can be
stated that the sum for depriving the player from an opportunity to play which could have
been else obtainable to him (Braithwaite 2017). This brings forward the query whether the

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receipt of amount for one of the preventive agreements or for any form of separate or positive
covenants where a least amount of payment that is received is viewed as an assessable
income.
As evident from the fact that preventive agreement is associated with current period
of employment as well as the concluding period of the employment the portion of
considerations that is received for the period of employment will be regarded as taxable
income under subsection 25 (1) or paragraph 26 (e) (Cao et al. 2015).
Computation of Assessable Income of Baz Baxter
For the year ended 2016/17
Particulars Amount ($) Amount ($)
Gross Salary 40000
Allowable Deductions Nil
Total Assessable Income 40000
Tax on Taxable Income 4547
Medicare Levy 800
Total Tax Payable 5347
From the present scenario of Baz Bazter being a leading rugby player was approached
by the Queensland to play with them in the forthcoming season. But Baz declined to accepted
the offer and agreed to not play for a phase of two years and in return received a sum of
$40,000. Following several arguments Baz undertook the decision of leaving the club and
Rambos on the other hand paid $20,000 from to discharge from his agreement and
additionally 10,000 to let go Baz in order to wrap up the cost of moving from one club to
another club. Therefore in accordance with the subsection 160 M (6) receipt of part
considerations which is associated with the phase of employment after the conclusion of
service shall be considered as assessable income (Woellner et al. 2016).
Considering the reference of Baz in the current case study the Taxation ruling of
Taxation Ruling of TR 95/3 states the consequences of the decision of high court passed in

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the case of Hepples v. FC of T (1991) 173 CLR 492 for treatment of taxable income for the
receipt of considerations received in relation to the restrictive covenants (Robin 2017). The
receipt of payment for restrictive covenants by Baz is associated with the period of present
employment and after the phase of employment for the considerations received will be
regarded for assessment under the subsection 25 (1) because it is related to the phase of
employment.
Conclusion:
The receipt of restrictive payment by Baz is associated with the period of present
service and phase following the service with part of the considerations that is received is
associated with the period of employment and will viewed as taxable income under
subsection 25 (1).
Answer to question 4:
Issue:
This issue is related with the deductibility of the expenditure that is occurred after the
end of the business. The issues introduces the query whether or not the taxpayer shall be
allowed deductions in agreement with the section 8-1 of the Income Tax Assessment Act
1997 for the legal expenses incurred after the end of the business (Fry 2017).
Legislation:
a. Taxation Income ID 2003/210
b. Section 8-1 of the Income Tax Assessment Act 1997
c. AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975)
d. Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459; (1995) 31 ATR 253

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Application:
The interpretative decision stated in ID 2003/210 considers the entitlement of
deductions stated under the section 8-1 of the Income Tax Assessment Act 1997 regarding
the legal expenses that is occurred after the end of the business activities (Barkoczy et al.
2016). The ruling defines that the taxpayer will be able to consider the expenses for allowable
deductions stated under section 8-1 of the ITAA 1997 since it is occurred after the cessation
of business that is incurred in the preceding business activities.
As evident from the case study the taxpayer performed the business of shipbuilding.
Due to the onset of recession the taxpayer ceased the business operations shortly prior to
Christmas (Anderson et al. 2016). Shortly after disposing all the assets of the company
Waterside Investment Pty Ltd was formed. Waterside Investment Pty Ltd paid the workers
with amount of compensation for the settlement following the winding up of the parent
company.
As defined under the case of Placer Pacific Management Pty Ltd v. FC of T 95 ATC
4459; (1995) 31 ATR 253 the taxpayer was the producer of conveyor belt system. It took the
decision of selling the business to another entity. As the portion of contract sales contract, the
company continued to be held responsible for the repairs that originated from the setting up
of the system prior to sale (Tran-Nam and Walpole 2016). To consider the deductions as
allowable for expenses occurred the Federal court by referring to the verdict passed in the
case of AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975) collectively
passed the verdict. The situations that the expenses occurred in the later part of the year may
have ended and would not be regarded as the issue of deductibility (Snape and De Souza
2016). In the current scenario, the compensation claim was in the form of outgoing after the
business has been winded up (Ato.gov.au 2017). In compliance with the subsection 8-1 of
the ITAA 1997Waterside Investment Pty Ltd will be able to claim deductions for the

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compensation that originated for the purpose of settlement of Payment Company that has
been winded up.
Conclusion:
To conclude with, the legal expenses in the scenario of Waterside Investment Pty Ltd
shall be regarded as allowable deductions because it incurred in settlement of payment for the
cessation of their business.
Category 2: Assessable Income and Deductions
Answer to question 3:
Introduction:
In the year 2016/17 the government announced by stating that it will make the
targeted amendments in order to improve the operations and administrations of the Division
7A of the Income tax assessment act 1936 (Somers and Eynaud 2015). The amendment shall
be considered for application from the year 1st July 2018 and will introduce the methods of
self-correction mechanism in order to help the taxpayers in corrective the unintentional
violations of the Division 7A.
The amendments that have been laid down under Division 7A targets to provide safe
harbour rules by implementing certainty and ease of compliance for the taxpayers. The
objective of the amendment is to simplify the rules regarding the Division 7A loans along
with the span of loan and the least amount of interest (James 2016). There is also a minimum
amount of amendments so the amendment can improve the integrity and operations of the
Division 7A in order to offer augmented assurance to the taxpayers. The proposed sum of

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alterations brings down the sum of recommendations from the board of taxation after the
review of implementations under Division 7A.
Discussion:
As per the indications of the government it has highlighted that it will bring targeted
improvements in the process and management of the Division 7A of the ITAA 1997. It is
depicted that the intended changes will offer clear guidelines to the taxpayers so that it can
help in easing out the compliance burden by maintaining the integrity and policy intent of the
Division 7A (Parker 2015). It is worth mentioning that Division 7A is viewed as very
effective provision of integrity which is designed to ascertain that the profits are not
distributed to the owners of the company under the effectual method.
If it is found that Division 7A is breached then the taxpayer will be viewed to have
been paid a dividend out of the profits on which taxes are levied but it is exclusive of the
benefits of franking credits. It is worth mentioning that the Division 7A rules are very
difficult to understand since they are very long (Parker 2015). An individual can commit the
mistake and corrective actions are required to be undertaken in order to avoid the harshness
regarding the rules that is not easy to implement. In the current situations if the taxpayers are
caught under the Division 7A the alternatives of undertaking corrective actions is extremely
restricted. These usually comprises of the treating the amount that is drawn from the
company as loan with minimum sum of principle and terms of repayment of interest.
Taxpayers are offered with the options of applying to the commissioner for relief. This
comprises of applying to the commissioner in order to exercise his discretion to ignore the
deemed dividend or allow it to be franked under given circumstances.
The commissioner power is to do so in discretionary manner and extensively it is only
available to the taxpayers that have honest mistake or an accidental omission. It is also

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comprises of the circumstances that is beyond the control of the taxpayers and they may
suffer hardships if the loans are considered as dividend. The federal government indicated
that it will impose the changes that may make it simple to mend and inadvertent liability of
the Division 7A.
As defined under Jorgensen (2017), the measures adopted are in the direction of
improving the functions of and administration of the Division 7A that will be accepted by the
companies and tax advisors. Division 7A is viewed as one of the most multifaceted and
problematic areas of the laws of tax which effect on the private companies. The measures will
facilitate in self-correction for inadvertent breeches and safe harbour rules that will be viewed
in the form of relief from the probable severity of Division 7A.
As per the board of taxation it is understood that there is a significant amount of scope
in enhancing the division in a way that would be complemented with the help of the longer
reformations. The first step that is defined under Division 7A is to create a logical set of
policy principles. It should not be advantageous concerning the investment which is funded
by the profits and the same is taxed at a corporate rate over the reinvestment which of the
business revenues from the inactive business revenues.
As stated by Parker (2015), the board considers protecting the progressiveness of the
system of taxation that should not be at the cost of the obstructing the ability of the business
in order to reinvest their income as working capital. Providing this kind of reinvestment
strategies helps in assisting the enhanced productivity and entrepreneurial growth. In contrast
to this the personal use of the business proceeds serves a different purpose especially in the
accumulation of private wealth. The higher level of tax policy helps in creating efficiency,
simplicity and equity as the board has created a framework of policy which is in agreement
with the private business designed to offer a correct balance between the rival firms. It is

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specifically designed to measure the present regime and developing the models of
reformation. As stated by Jorgensen (2017) the board considers the higher level of policy of
taxation for the purpose of achieving simplicity and equity that can be served by adopting the
principles of private business.
Conclusion:
On arriving at the conclusion, the corporate structure of business obtains the benefit of
limiting the tax to company rate without distributing the profits out of the unit. If the business
operates with the help of the discretionary trust then it will be difficult in achieving the
corporate tax rate cap at the stage where the tax distribution to the individuals would go
beyond the rate of the company. It can be concluded that Division 7A helps in encouraging
the company to distribute the profits under the circumstances where the shareholders can gain
the access of the profits.

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Reference List:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role
does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), pp.127-140.
Ato.gov.au. (2017). Legal Database. [online] Available at:
https://www.ato.gov.au/law/view/document?docid=PAC/19970038/8-1 [Accessed 7 Sep.
2017].
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax
Pack 3 2016. Oxford University Press Australia & New Zealand.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and
Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major
Australian taxes. Treasury WP, 1.
Fry, M., 2017. Australian taxation of offshore hubs: an examination of the law on the ability
of Australia to tax economic activity in offshore hubs and the position of the Australian
Taxation Office. The APPEA Journal, 57(1), pp.49-63.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense
deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Jorgensen, R., 2017. Division 7A structuring: The contortionist revisited. Tax
Specialist, 20(3), p.118.

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Law.ato.gov.au. (2017). ATO ID 2003/210 (Withdrawn) - Deductibility of legal expenses
incurred after cessation of business. [online] Available at:
http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2003210/00001 [Accessed 7 Sep.
2017].
Law.ato.gov.au. (2017). TR 95/3 - Income tax and capital gains: application of subsections
160M(6) and 160M(7) to restrictive covenants and trade ties (As at 29 October 2006).
[online] Available at:
http://law.ato.gov.au/atolaw/view.htm?locid=%27TXR/TR953/NAT/ATO%27 [Accessed 7
Sep. 2017].
Parker, M., 2015. Division 7A and winding up structures. Taxation in Australia, 50(6), p.312.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice.
Routledge.
Somers, R. and Eynaud, A., 2015. A matter of trusts: The ATO's proposed treatment of
unpaid present entitlements: Part 1. Taxation in Australia, 50(2), p.90.
Tran-Nam, B. and Walpole, M., 2016. Tax disputes, litigation costs and access to tax
justice. eJournal of Tax Research, 14(2), p.319.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.

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