Taxation Law Answers - Assignment

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

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................4
Reference List:...........................................................................................................................7

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Answer to question 1:
Section 6 of the ITAA 1936 provides that income derived from the personal exertion
or income that is derived from the personal exertion generally consist of bonus, fees, salaries
or proceeds received from business or any other sum received as the bounty. Section 6-5 of
the ITAA 1997 defines that usually most of the income that comes to the taxpayer is regarded
as the ordinary income (Woellner et al., 2016). As evident in the current situation of Jenny
she was offered a sum of $1 million for narrating the story of her husband who was the
famous jazz singer that passed away recently. Initially, she was paid a sum of $500,000 as the
advance by the publisher for an interview.
Section 6-5 of the ITAA 1997 defines that an item having the character of income that
comes home to the taxpayer. An item having the character of income should be adjusted
based on the circumstances of its derivation by the taxpayer (Barkoczy, 2016). As held in the
case of “Brent v Federal Commissioner of Taxation (1971) ATC 4195” payment that is
received for the making herself available for the interview by the journalist in order to
disclose the facts related to her life with her husband and lending her name to stories written
by the journalist will be considered as the assessable income (Tan et al., 2016 pp-329-344).
Similarly in the case of “Federal Commissioner of Taxation v Holmes (1995) ATC 4476”
held that the receipts of salvage reward payment by the marine engineer would be held as
reward for service and forms the part of income.
Receipts relating to the sponsorship money from the commercial firms and receipts
relating to appearance fees for attendance in a function by the taxpayer may offer the
instances of receipts that are for the services rendered and does not constitute employment
(Cao et al., 2015). Similarly in the case of Jenny, the receipts for making herself available for
the interview constitute receipts for reward of service but does not involve employment. Such
receipts constitute income and attracts tax liability. The payment that is received by Jenny
was the ordinary income based on the provision of personal service and would be considered
taxable under section 6-5 of the ITAA 1997.
The taxation ruling of TR 2005/01 is concerned with the carrying on the business of
the professional artist (Saad 2014 pp-1069-1075). In regard to the distinctive nature of the
arts profession the ruling lay down the guidance based on the principles to be implemented in
ascertaining whether the person is an artist and carrying on the business as the professional
artist.

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The question of Jenny is relevant as if she had written the story herself it would have
constituted the business of professional artist and the amount received from such business
would be held as income according to ordinary concepts under section 6-5 of the ITAA 1997.
This is because it has been earned by Jenny in the ordinary course of carrying on the
business. For example people that indulge in the business of professional arts are generally
motivated by purpose of creativity with the desire of influencing the opinion of public. If
Jenny had written the book herself it would have been held as the work of professional artist
and the income derived from it would be held assessable in accordance with the ordinary
concepts of section 6-5 of the ITAA 1997.
Answer to question 2:
According to section 8-1 of the ITAA 1997 an individual is allowed to claim
deductions from their taxable income relating to the loss or outgoings up to the extent that
such expenses are occurred in generating the taxable income or being necessarily occurred in
carrying on the business for generating the taxable income (Robin & Barkoczy, 2018).
However, section 8-1 (2) of the ITAA 1997 describes that an individual taxpayer is denied
deductions relating to outgoings up to the extent that the outgoings are in the nature of
capital.
Additionally section 8-1 (2) of the ITAA 1997 an individual taxpayer is not allowed
to claim deductions relating to expenses that are in the nature of private or domestic and
occurred in producing the exempted income (Robin, 2018). As evident in the current situation
of Sally who is a single parent and employed as the accountant incurs childcare expenditure
in order to attend her work.
An important consideration of section 8-1 (2) (b) is that any form of loss or outgoings
that are in nature of private or domestic will not be allowed as deductions. These expenditure
does not meet either the positive limbs or the same is not allowed for deductions under the
second negative limb. Referring to the judgement of the court in “Lodge v Federal
Commissioner of Taxation (1972) ATC 4174” held that the child care expenditure was not
allowed as deductions (Blakelock et al., 2017, p 6-37). This is because the child care
expenditure is neither considered relevant nor it held as incidental in producing or gaining the
taxable income and hence these expenditure are not allowed as deductions.
Subsection 51 (1) allows a taxpayer to claim allowable deductions relating to
outgoings that are occurred in producing taxable income except where the expenditure are

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domestic or private in nature (Coleman & Sadiq, 2013). The court held that the expenditure
constituted domestic or private in nature. Similarly in the situation of Sally the child care
expenditure that is incurred by her would not be allowed as deductions. The reason for this is
that the child care expenditure is neither measured as significant nor it held as incidental in
generating or gaining the assessable earnings henceforth these expenditure would not be
allowed as deductions for sally under section 8-1 of the ITAA 1997.
Answer to question 3:
The taxation ruling of TR 97/11 is concerned with the business of primary production.
The ruling provides guidance to the relevant indicators that are considered necessary in
determining whether the person is carrying on the business of primary production. Subsection
995-1 (1) of the ITAA 1997 provides understanding of primary production business as
carrying on the business of cultivation or propagation of plants or their products under any
physical environment (Kenny, 2013). While each situation may provide its own particular
facts the ascertainment of question is usually held as the result or the procedure of
considering all the necessary indicators. Paragraph 25 of the TR 97/11 explains the necessary
indicators that are relevant in determining the facts of venture (Morgan et al., 2013). This
includes whether the activity possess significant commercial purpose or has the character of
business. Additionally it also comprises of whether the taxpayer has the intention of profit
along with the prospect of profit from such venture.
As evident in the current situation of Joseph considering his view of future retirement
he bought a land and commences planting of wildflowers that he intends to harvest and sell.
Paragraph 14 of the Taxation ruling of TR 98/17 states that a taxpayer is not required to
derive most of their income from the business of primary production (Woellner, 2013). The
taxpayer might be employed in certain other profession or business. However an important
factor is that the activities of primary production accounts as carrying on of the business. The
court of law in “Evans v Federal Commissioner of Taxation (1953) AITR 548” held that
whether the business is performed is reliant on the general impression gained and whether the
activities undertaken provides the nature of commercial flavour.
The court of law in “Ferguson v Federal Commissioner of Taxation (1979) ATC
4261” held that the nature of activity or the intention of the taxpayer along with the method
of operation forms a significant factor in determining whether the business of primary
production is carried on (Coleman & Sadiq, 2013). The purpose of profit making along with

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the organization of the activities in the business manner serves an indication that a business
being carried on by Joseph in the current question. It is often noticed that taxpayer that derive
income from employment or any other sources enter into some form of primary production.
Similarly in the current situation of Joseph there is an existence of significant
commercial purpose. Similarly in case of Joseph the scale of the activity was big enough to
makes sure that the venture was profitable. There was clear the existence of generating profit
even though it would take a five year time to take place. The purpose of making profit was on
the reasonable grounds. The plantation of wildflowers were in a manner that were consistent
with the activities of business. Joseph established and carried out the activity of planting
wildflowers in a business manner.
The profits generated from such activities by Joseph would be liable for taxation
under the ordinary course of section 6-5 of the ITAA 1997 as proceeds from business. Joseph
can claim allowable deductions under section 8-1 of the ITAA 1997 on the expenses incurred
on interest on loan, fertilizer costs and the cost that are incurred in acquiring the native
seeding since these expenses are incurred in running the business it is directly related to
earnings of taxable income.

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Reference List:
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Blakelock, Sarah, and Peter King. (2017) "Taxation law: The advance of ATO data
matching." 6-37: 18.
Cao, Liangyue, et al. (2015). "Understanding the economy-wide efficiency and incidence of
major Australian taxes." Canberra: Treasury working paper 2001.
Coleman, C., & Sadiq, K. (2013) Principles of taxation law.
Kenny, P. (2013). Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Morgan, A., Mortimer, C., & Pinto, D. (2013). A practical introduction to Australian
taxation law. North Ryde [N.S.W.]: CCH Australia.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.). Australian taxation law
2018. Oxford university Press, 2018.
Robin, H. Australian taxation law 2017. Oxford University Press, 2017.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business taxpayers
stay with their practitioners? Trust, competence and aggressive advice." International
Small Business Journal 34.3 (2016): 329-344.
Woellner, R. (2013). Australian taxation law select 2013. North Ryde, N.S.W.: CCH
Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.