Taxation Law and Practice

This document provides an overview of taxation laws and practices in Australia. It covers topics such as primary sources of commonwealth parliament, tax deductions, assessable income, and more. The document also includes case studies and calculations to help understand the application of taxation laws. Whether you are a student studying taxation law or a professional looking for guidance, this document will provide valuable insights.

TAXATION LAW AND PRACTICE

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Primary sources of commonwealth parliament............................................................................1
Tax law primary source................................................................................................................1
Taxation ruling TR 98/17.............................................................................................................2
Measurements of Medicare levy..................................................................................................2
Commonwealth and legislations..................................................................................................2
Specific deductions by ITAA 97 25-45.......................................................................................2
Case law and the significance of high court................................................................................3
Stock on hand and their valuation................................................................................................3
Tax to be paid for $45000 earning...............................................................................................3
PAYG collections........................................................................................................................4
PART B...........................................................................................................................................4
PART C...........................................................................................................................................5
PART D...........................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Every country imposes different types of taxes classified mainly into two direct and
indirect taxes so as to obtain revenues and spend it in the social welfare and economic growth.
Australian Federal Government collects high proportion of their revenue in the form of income
tax. Evidencing it from the statistical data, in 2015-16, Australian government received $194.3
billion from individual income tax (Li, 2016). It is tax that government charges on the personal
income of an individual according to the designed tax framework and legislative system. The
main aim of the current assignment is to emphasize upon Australian taxation provision along
with its application for the different case studies. The report discusses various key aspects such
as commonwealth parliament’s taxation, commonwealth consumer legislation, medicare levy
and others. Besides this, different kind of allowable tax deductions that are available to an
individual will be provided and also properly evidenced by either the section or taxation ruling.
Applying the key provisions of Income Tax Assessment Act, the report will also compute
assessable income and tax deductions available to the person.
PART A
Primary sources of commonwealth parliament
The constitution of the commonwealth taxation is under section 51 of the parliament
ATO. It includes all the power and legislation of these law but without residual powers of
commonwealth. Federation from 1901 the laws have began to granting the powers to various
states of Australia (Porter, Allen & Thompson, 2014). The power to make laws and rules had
been described in the section 39-51 which facilitates the laws with all the legal rules and
regulations to be followed. The financial power and interest trade laws are described in various
sections of commonwealth law and ATO is in under ITCP (s51(1)) that provide necessary
information regarding trade and commerce in states and several foreign nations.
Tax law primary source
Public laws, internal revenue and income tax treaties are the various codes of federal laws
which are highly authorised and the primary sources of taxation. The treasury regulation can be
known by the IRS which made various rules and regulation. This facilitate the support to codes
and includes various taxation or revenue rulings, treasury decisions made by the taxation
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authority (Tran-Nam, Evans & Lignier, 2014). The taxation related rule and decisions are to be
made with the help of technical advices, revenue procedures and private latter.
Taxation ruling TR 98/17
Taxation rulings helps the ATO in deciding the various laws, rules and regulations
imposed over several acts and they provide rights and authority to such taxation acts. Rulings
fixed by federal legislation can be described under s6(i) of income tax assessment act 1936 and
ITAA 1997. TR98/17 of the acts provides information about the taxation policies to be followed
for residential in Australia which can be described as several different individuals who residence
in Australia such as Migrants from this nation, people come from different country for work and
employment purpose, students residents in Australia come from different nation for gaining the
education or enrolled in any college or university (Magnusson, 2014). It also includes tourists
who came in Australia for temporary visit or stay.
Measurements of Medicare levy
Medicare levy is a rebate that has been charged by the Australian government over
assessable income gain by the individuals which in context with facilitating or providing the
benefits health and care security to such individuals (Apps, Long & Rees, 2014). It can be
calculated by adding 2% of the taxable earning by persons. If an individual has gain the
insurance cover from the medical unit of registered hospital of Australia than he will not be
liable add any surcharge over his income. Medicare levy can be assign to those who are residents
in Australia, non residents are not facilitate with it.
Commonwealth and legislations
As per the Competition and consumer act 2010 of ITAA 1997 has facilitates many rules
and regulation to deal with the case in which a company is misleading or deducting cost of the
fine charged by the government which can be described under various parts of the section such
as XI Application of ACL as commonwealth law, IV Anti-competitive practice and etc. are the
parts which provides the necessary informations regarding this context.
Specific deductions by ITAA 97 25-45
ITAA 97 has many laws and rules that will facilitate the individual in claiming the
exemption or deductions over the income and expenditures made by him. As per section 25-45
the laws has facilitate the deduction for losses occurred by theft or robbery to a person or a
business (Hattingh, Low & Forrester, 2013). This helps in exempting the amount that has
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occurred the losses in assessment year by theft, deflation, stealing, embezzlement, larceny and
misappropriation etc. these all are the losses which can be deductible under the these section.
Case law and the significance of high court
Deduction must be allowed as on repair and maintenance of newly acquired or purchased
building was discussed under the case of W Thomas & Co Pty Ltd V. Federal Commission 1995.
these can be go with rulings of capital nature expenditures over maintenance and repair of the old
building, reconstructing the premises can be the issue as in section 25-10 of Income tax
assessment act 1997, renewal and repairing of the building which was not in commercial use
before acquisition (Mitchell & et. al., 2016).
Stock on hand and their valuation
Valuation of the stock in hand must be calculated by the tax practitioner by the three
methods.
Cost pricing method: method is consist of fixing the cots over the product that will help
to measure and bring the product to its recent position. These consists of the prices or costs of
various insurance, freight, delivery charges , custom duties and the excise duties.
Market sales value method: value can be measured under this method is that the market
value or the selling price of product must meet the priced planned by the managers and the taxes
are to be paid by tax payer on the gains he had due to selling of products (Hattingh, Low &
Forrester, 2013).
Replacement value method: The replacement cost can be fixed on the basis of identified
product exist in market which will be on the last day of income year, as it will help in measuring
the cost of replacing the product.
Tax to be paid for $45000 earning
As per the acts of ATO including ITAA 97 and ITAA 36 the legislation authorities has
fixed the taxation slab for the individuals who made earnings and their applicable percentage of
taxation (James, Wallschutzky & Alley,2013). Here the income is $45000 which comes under
the slab of 37000 to 80000 which has the taxation rate of 32.5% and additional 3572 as per the
ruling which describes that any single dollar more than the 37000 than the taxpayer has to made
payment for 3572 in addition.
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PAYG collections
The taxes must be paid by tax practitioner on the basis of the earnings he made on the
regular basis (Magnusson, 2014). Thus it say pay as you go which means the earning of the
individual cam ne deposited in the accounts and the government do not need to go for paper
work over implying the taxation on earnings it can easily be done by deducting directly through
their accounts.
PART B
As per the case study, during the given financial year, Ram has paid his tax agent with a
fee of $1,000 to complete his income tax return for tax filling. Along with this, he also paid
$2,000 to his legal solicitor in order to create an objection draft to an ATO assessment that is
received by him before two years and paid $50,000 as income tax. Referring the Income Tax
Assessment Act, section D10 states clearly all the tax deductions that are being available to the
party with regards to managing his or her tax affairs. Referring to the section, it is clearly stated
that if an assessee pays fees to a tax advisor, interest charge and any other expenditures in order
to comply with the legal obligations then, he or she can obtain tax deductions from his assessable
income for the expenses paid (The Top 5 Forgotten Tax Deductions, 2015). Applying it to the
provided case, it seems clear that Ram can get tax deductions for the fees that he had paid to their
tax advisor so as to file his income taxation return to the ATO. Thus, for the tax purpose, it will
be considered as a deductible expense.
Besides this, as per ITAA, an individual can claim for the tax deductions for the fees that
he or she had paid to the solicitor (Tran-Nam, Evans & Lignier, 2014). In the available case,
Ram had contacted a legal solicitor for preparing an objection draft, on which, he can claim tax
deductions for the solicitor fees worth $2000 and reduce his taxable income.
Income tax refers to the taxation liabilities levied by the taxation authority on the amount
of taxable income as per the taxation rate. As per progressive structure of Australian income tax,
person who earns higher level of income is charged at high rate or vice-versa (Porter, Allen &
Thompson, 2014). Moreover, it follows equality principle, as per which, people whose income
falls under the same slab is levied at the same rate of tax. Tax deductions are available from the
assessable income and on the rest, tax is charged as per the applied tax rate. Here, Ram has paid
income tax liability worth $50,000, on which, no deductions is available.
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PART C
As per Income Taxation Assessment Act, 1997, assessable income constitutes all the
income received by the individual in the given tax year. It comprises salary, commission, bonus,
awards, allowances and employee fringe benefits as well. It is different from the taxable income
because out of assessable income, all the tax deductions which are allowed to the assessee is
deducted to find out the taxable income on which, tax is charged at prevailing rates (Mitchell &
et.al., 2016). According to the Australian Taxation Office (ATO), all the earnings or proceed that
are the result of the ordinary course of business is included in the assessable income. It includes
personal service income, commission, incentives payment, interest revenue, governmental
payment, rental income, prizes and awards, capital gain and others. However, prizes that are not
related to the business are not the part of assessable income. Moreover, receipts from the hobby,
inheritance, gambling are excluded from the AI. For the given case scenario, Jimmy who is an
Australian university client is a part-time restaurant worker and earns various incomes from the
restaurant employment. His assessable income is computed here as under:
Particulars Amount ($)
Income received from the restaurant 27000
Cash tips derived from the customers 750
Gift received from a satisfied customer (Scotch
alcohol)
250
Fringe benefit (Dinner) 645
Total assessable income 28645
Less: Tax deductions
Gift to Eva 250
Fringe benefits 645
Taxable income 27,750
As per the results derived from the calculations made above, it becomes clear that salary
from working in restaurant is the main source of income for Jimmy. Besides this, cash tips
received as well as gifts given by an extremely satisfied client belong to his course of
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employment therefore, they are considered as the part of assessable income. However, on the
other side, consider ITAA, gifts that are not related to the employment is excluded. Applying the
same rule to the givens scenario, gifts worth $15,000 received from his parents is not added
while calculating his assessable income. However, dinner provided by the employer at his
expenditures is included, however, at the same time, on fringe benefits tax deductions is also
allowed, therefore, it is subtracted to determine taxable income (Min & LV, 2017). Besides this,
under section D9 of the ITAA, it is mentioned a person can claim for the voluntary gift costing
$2 or more. Referring the same to the scenario, Jimmy gave gift to EVA on which, tax
deductions has been provided to him. As per the findings, Jimmy’s total assessable and taxable
income has been derived to $28,645 and $27,750 respectively.
According to the current income tax rules, tax is levied at following rate in Australia
mentioned below:
Taxable income (In $AUD) Taxation rate mentioned in the ACT
18,201-37,000 19c for every AUD for the income over $18,200
37,001-80,000 $3572 + 32.5c on each AUD for the income over
$37,000
80,001-180,000 $17,547 + 37c on each AUD for the receipts over
$80,000
180,001 and above $54,547 + 45c on each $1 above the income of
$180,000
Considering the above income tax rate, Jimmy’s taxable income is computed to $27,750
which comes in the first income slab of $18,201-$37,000, therefore, it should be taxed at 19c
(Hayward, 2014). His taxation liability for the given taxation 7year is computed here as under:
Particulars Amount ( In $ AUD)
Taxable income $27,750
Tax @ 19c for the income above $18,200
($27,750-$18,200) = $9550*19% $1814.5
Tax payable $1814.5
According to the results, Jimmy is accountable to pay tax at the rate $1814.5 to the
Australia’s principle tax collection authority, ATO.
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PART D
Case: Josie is an Australian she is self employees and do work from her residential place.
She works as an mortgage broker which in role to provide loans and mortgage to buyers from
banks. She gains her earnings through commission from banks. 15% of her premises is used by
her for office purpose and dealings with the consumers. She has claimed various expenditures to
get the favourable deductions over taxes levied on such expenses.
Particulars Expenditure ($) Deduction ($ &%) Taxable amount ($)
Council rates 4900 2000 2900
Interest on loan
(residence)
18900 50.00% 9450
Electricity and Heating
expenses
6800 45.00% 3740
Cleaner 3400 nil 3400
Telephone (home)
(60% office use)
2700 1620 1080
Telephone (mobile)
(90% office use)
7200 6480 720
Total taxation 21290
Interpretation: As per the above calculation it is to be interpreted that expense occurred
by Josie with the maximum of the expense occurred by her for office use. On which she has
claimed the deductions as per ITAA 97 S8(I) and S 8(II). The council rate is of 4900 which has
the allowable exemption of 2000 which she has claimed and here she has to made payment for
the remaining cost of the 2900. loan interest rate can be deductible at 50% of the allowance
which is 18900 of 50% equals to 9450. electricity and heating expenses can be exempted for
45% of the total expenses on this context. She is not liable to claim the cleaning lady expense as
it is her residence too she will not claim the deduction it is fully taxable. The uses of telephone of
home and mobile can be use of the 60% and 90% for office. She can only claim the amount
which is in use for the office purpose the remaining amount has to be paid by her.
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CONCLUSION
The above discussion made in the report concluded that income tax is the key or main
source of revenue for the common law. Besides this, there are three methods, cost price method,
market selling value and replacement value which an individual can use for trading stock
valuation for the tax purpose. Under the ITAA, it is founded that tax agent fees and solicitor fees
are considered as tax deductible on which, Ram can obtain deductions. With the practical
calculations, it is determined that Ram is obliged to pay tax worth $1814.5 to ATO on the due
date. Lastly, it is founded that Josie is liable to pay tax worth $21,290. In this, he has veen
provided with tax exemptions on home telephone expenditures because it is under the limit of
$5,000 whilst no deductions are available on mobile bills.
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REFERENCES
Books and Journals
Apps, P., Long, N., & Rees, R. (2014). Optimal piecewise linear income taxation. Journal of
Public Economic Theory. 16(4). PP.523-545.
Hattingh, L., Low, J. S., & Forrester, K. (2013). Australian pharmacy law and practice. Elsevier
Health Sciences.
Hayward, R. (Ed.). (2014). Valuation: principles into practice. Taylor & Francis.
James, S., Wallschutzky, I., & Alley, C. (2013). The Henry Report and the taxation of work
related expenses: Principles versus practice.
Min, S. H. E. N., & LV, L. Q. (2017). English-Chinese Translation for Tax Vocabularies in
Business English. DEStech Transactions on Social Science, Education and Human
Science, (meit).
Mitchell, R. & et.al., (2016). Law, corporate governance and partnerships at work: a study of
australian regulatory style and business practice. Routledge.
Porter, D., Allen, B., & Thompson, G. (2014). Development in Practice (Routledge Revivals):
Paved with Good Intentions. Routledge.
Tran-Nam, B., Evans, C., & Lignier, P. (2014). Personal taxpayer compliance costs: Recent
evidence from Australia. Austl. Tax F.. 29. 137.
Online
Li, J. (2016). Why are Australia’s taxes high, and what do they cover? [Online]. Available
through: https://www.quora.com/Why-are-Australias-taxes-high-and-what-do-they-cover.
[Accessed on 13th September 2017].
The Top 5 Forgotten Tax Deductions. (2015). [Online]. Available through: <
https://www.etax.com.au/5-forgotten-tax-deductions/>. [Accessed on 13th September
2017].
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