Negative Gearing Policy: Arguments Against

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Part 1 - Question 1 A:.................................................................................................................2
Issues:.........................................................................................................................................2
Rule:...........................................................................................................................................2
Applications:..............................................................................................................................3
Conclusion:................................................................................................................................3
Answer to question 1 B:.............................................................................................................4
Part 2: Policy Based Question:...................................................................................................9
Introduction:...............................................................................................................................9
Argument against the negative gearing:...................................................................................10
Arguments for Negative Gearing:............................................................................................12
Conclusion:..............................................................................................................................13
References:...............................................................................................................................15

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Part 1 - Question 1 A:
Issues:
Is the taxpayer taxable under “section 6-5 of the ITAA 1997” for the profits made
from the sale of block of apartment?
Rule:
Income derived from the sale of property is generally considered as the ordinary
income whether the taxpayer enhances and develops the property with the objective of
generating profit from the activities of development. Taxpayers that are indulged in such
activities are usually held as the property developers. When the property is sold as the portion
of ordinary business course, any incomes derived from sale of the property would be treated
as the taxable income based on the gross proceeds basis under “section 6-5 of the ITAA
1997”1. The “taxation ruling of TR 92/3” states that whether any profit obtained from the
isolated transactions is considered as the earnings under the ordinary meaning is reliant on the
circumstances of the event. A profit from the isolated transactions would be treated as the
ordinary earnings given the purpose of the taxpayers was to enter into such transactions with
the objective of making profit.
The sale of revenue assets results in ordinary income for the taxpayer. The court of
law in “FCT v Whitfords Beach Pty Ltd (1982)” held that the taxpayer taxable for the
profits generated from the sale of land under “section 25 (1)” since its activities represent
performing of the business of land development2. The taxation commissioner explains that
that profit from the isolated transactions would be treated as ordinary earnings under “section
1 Sadiq, Kerrie et al, Principles Of Taxation Law 2018
2 Woellner, R. H et al, Australian Taxation Law 2018

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6-5 of the ITAA 1997” because the profit was made in carrying out the transaction of
commercial in nature.
Applications:
The present case study of Kristie explains that the investment property was bought
with the intention of making profit. Instances obtained suggest that she also sought the
service of professional planner to draft the sketches and plans of proposed apartment. This
represents that Kristie developed the investment property with view of generating income
from the developmental activity. Citing the reference of “FCT v Whitfords Beach Pty Ltd
(1982)” Kristie activities can be referred as property developer and the sale of property
amounts carrying of business of land development3. Kristie entered the transaction with the
objective of making profit. The profit made by Kristie from the sale of apartment block
would be assessable according to the “ordinary concepts” of “section 6-5 of the ITAA
1997”.
Conclusion:
Conclusively, the profit from the sale of apartment block is taxable as ordinary
earnings under “section 6-5 of the ITAA 1997” act.
3 Woellner, Robin, Stephen Barkoczy and Shirley Murphy, Australian Taxation Law 2018 Ebook
28E (OUPANZ, 2018)