Taxation Law

TAXATION LAW 1
Taxation Law
Name
Professor
Institution
Submission Date

TAXATION LAW 2
{1} In terms of tax policy arguments, what is the justification for the Labor Party
approach? Which of the two opposing policy on negative gearing do you prefer?
Negative gearing refers to a policy which provides an opportunity for an investor to
borrow a loan in order to acquire an investment which is in return going to produce income. In a
short term, the gross revenue that is generated by the investment is lower than the acquisition
price as well as the premise management cost. This includes the interest charged on the loan
acquired as well as the depreciation value (Blunden, 2016, pp.340-357). An investor may be
engaged in a negative gearing policy for the purpose of expecting tax benefits or a capital gain
benefit once the selling price of the premise will exceed the accumulated costs and losses of
managing and holding the investment.
In Australia the negative gearing rather than being in the support of boosting the
construction of more houses and houses supply and also boosting the construction-related
employment, this policy promotes speculations as well as the boosted cost of housing in the
nation. In the country, only a few investors are able to generate sufficient returns from the
investment to cover their initial cost of acquiring and managing the premises. ATO reports that
in 2012 and 2011 the country had more than 1.9 million investors in the real estate business but
they failed to recover their investment as well as the costs incurred in managing the houses and
suffered a cumulative loss of more than $6.8 billion rental net loss (Davidson and Evans, 2015,
p.58).
Most investors nowadays in Australia are still in property investment just because of the
tax benefits as well as capital gain but not about the rental yields of the premises. The withdrawal
of the negative gearing in Australia can be a way to boost ownership of homes by making the

TAXATION LAW 3
houses more affordable. Investors use the negative gearing ratio to inflate the rental fees which
are on the other hand a challenge to the clients. By removing this policy most of the investors
would sell out the houses. Most of the political regime in the country has failed to address this
issue. In removing this policy most of the investors would be left vulnerable to the change of tax
codes. Hence the labor party approach is right t by not affecting the existing investors and only
touching on the newly developed houses or under construction hence limiting the exposure of the
current investors (Davidson and Evans, 2015, p.29). Through this, the party will allow the prices
to change on a gradual phase.
{2} advise Paul as any tax liability he may have on the sale of each house and land
package. Support your answer with any legislative and case references.
In Australia, the sale of a subdivided land is taken to several considerations. The tax
office of Australia gave out several factors to look into when the tax decision is being made for a
subdivided land for sale. The given factors included; the purpose or the intention behind the
owner decided to rezone and subdivide the land if the subdivision is part of the owners business,
the amount of money used to rezone, the way in which the subdivision is done and finally who is
actually they rezone. In this case, if the subdivision has become revenue in nature after all the
above concerns are considered, then further analysis will be approved (Braithwaite and Reinhart,
2019, p.989). If the intention of developing the land was for profit making the CGT capital gain
tax will be applied.
Considering the case of Paul his decision to engage another company already makes him
qualify for the capital gain tax. Moreover, the intention of subdividing not constructing houses