Taxation Law

This text discusses the residential status of an individual in Australia, the taxation of gifts and prizes, and allowable deductions for interest on loans. It also includes a computation of net income from business and taxable income. The text cites relevant cases and sections of the ITAA 1936 and ITAA 1997. The subject is Taxation Law and the course code and college/university are not mentioned.

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
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................4
Answer to question 3:.................................................................................................................4
Answer to A:..........................................................................................................................4
Answer to B:..........................................................................................................................4
Answer to question 4:.................................................................................................................5
Answer to 4.1:........................................................................................................................5
Answer to 4.2:........................................................................................................................6
References:.................................................................................................................................7

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Answer to question 1:
As defined under the “section 6 (1) of the ITAA 1936” resident of Australia refers to
the person that have their domicile in Australia, except the commissioner of taxation is
contented that the person’s permanent place of residence is out of Australia (Robin, 2017). In
other words the an Australian resident includes person that have been in Australia for more
one-half of the year either constantly or in breaks will be regarded as Australian resident
except the commissioner of taxation is contented that the person’s permanent place of
residence is out of Australia and does not have any intention of taking up the Australian
residency.
The current case is based on determining the residential status of Amity who left
Australia in 2015 with the intention of at least living in Kiribati for two years and then decide
on whether to stay longer depending upon the life style. To determine the residential status of
an individual there are relevant test conducted namely;
Resides Test: The word reside refers to dwelling permanently for a considerable period of
time. Under resides test to determine the quality of an individuals residence it is necessary to
understand the taxpayers original intention or the purpose of presence (Woellner et al., 2016).
Further considerations should be paid on factors such as the taxpayer’s family and business or
employment ties along with the taxpayer’s social and living arrangements.
Domicile Test: Under the domicile test a person is said to be an Australian resident if his or
her domicile is in Australia, except the commissioner is content that an individual has their
permanent place of abode out of Australia. An individual’s domicile is determined under the
“Domicile Act 1982” or based on Domicile of choice i.e. the country where the taxpayer has
the intention of making home. Similarly the court in “Applegate v FC of T (1979)” held that
permanent does not represent everlasting or forever and the objectively is determined every

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year (Grange et al., 2014). The taxpayer was had the permanent place of abode out of
Australia in spite of the fact that he intended to come back to Australia and eventually
returned when he became ill.
183 days Test: Under the 183 days test an individual is treated as the Australian resident if
the person has been in Australia for a continuous period of at least half of the income year
except the commissioner of taxation is contented that the person’s permanent place of
residence is out of Australia (Kenny et al., 2018).
As evident in the existing situation of Amity she went to Kiribati for a period of two
years with the exercisable options of extending her stay for another three years. Her salary
was paid into the Asia-Pacific bank and rented her Adelaide home for a period of 12 months.
However, after her 18 months stay the couple eventually returned Australia. Citing the case
of “Applegate v FC of T (1979)” the original intention of Amity was to live out of Australia
at least for a minimum period of two years and eventually Amity thought of living
permanently if the lifestyle was enjoyable (Jover-Ledesma, 2015). Amity social and living
arrangement reflected the behaviour of continuity of residing out of Australia without having
any definite intention of returning Australia.
Conclusive, Amity would not be regarded as the Australian resident for the year
ended 30 June 2016 under “section 6 (1) of the ITAA 1936” as neither does she qualifies for
the Domicile Test nor does she met the criteria set under 183 days.
Answer to question 2:
Answer to A:
A game which is a mere gift is not regarded as income. As held in “Hayes v FCT” the
receipt of shares in the company by the business owner was not regarded as income.
Similarly in “Scott v FCT” the solicitor receiving 10,000 pounds as gift from the client’s

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wife was not regarded as income (Sadiq, 2018). In the current case the receipt of computer
game by an employee dentist is not an ordinary income under “section 6-5 of the ITAA
1997”.
Answer to B:
As per the ATO winning from prize draw or lottery run by bank must be included for
assessment as ordinary income. This may include the cash, cars or interest free loans.
Similarly in “Kelly v FCT” the amount received as award by tax payer was held for
assessment since it was related to the taxpayer employment (Taylor, 2018). In another
example of “FCT v Stone” the prize winning from the policewomen was treated as income
since the taxpayer was found to be carrying on the business of professional athlete. The
receipt of car as prize to a bank customer constitute an ordinary income under “section 6-5 of
the ITAA 1997”.
Answer to question 3:
Answer to A:
According to the “section 8-1 of the ITAA 1997” a permissible deduction is allowed
to the taxpayer for the expenses incurred as outgoing or loss while deriving the assessable
income (Woellner, 2018). According to the Australian Taxation Office if a person takes loan
to be used for both the private and business purpose then it is necessary to apportion the
interest on loan. Under such situation the interest on loan should be divided into deductible
and non-deductible category. Evident, Betty and Barney in the current case can obtained
deduction for the interest on loan under “section 8-1 of the ITAA 1997” only for the amount
that is used for income generating activities. While the interest on loan for private portion
shall be excluded from deductions.

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Answer to B:
As per “section 8-1 of the ITAA 1997” a taxpayer is allowed to claim deduction for
expenses if the occasion of loss or outgoing is found to be in the business operations that was
previously carried on by the taxpayer with the objective of generating taxable income. As
held in “FCT v Brown 1999 ATC” the taxpayer was allowed to claim deduction even after
the business was sold because the loan was entered while carrying on the business for
generating taxable income (Robin, 2017).
i. Robert will be allowed to claim deduction under “section 8-1 of the ITAA 1997”
for interest on loan when the business was at continuous
ii. Robert would be allowed to claim deduction for interest on loan under “section 8-
1 of the ITAA 1997” when the business has ceased because the transaction was
entered into while carrying on the business with the aim of generating income.
Answer to question 4:
Answer to 4.1:
Particulars Amount ($) Section Explanation
Assessable Receipts
Receipts from Sale 527000 Section 6-5 of the ITAA 1997 Ordinary Income
Proceeds from loan 500000
Receipts from Supplier 10000
Total Assesable Income Section 6-5 of the ITAA 1997 Ordinary Income
Total Assessable Receipts 1037000
Allowable Deductions
Purchase of Trading Stock 275000 Section 8-1 of the ITAA 1997 General Deductions
Wages paid to employees 42000 Section 8-1 of the ITAA 1997 General Deductions
Loan repayment interest 21890 Section 8-1 of the ITAA 1997 General Deductions
Rent on premises 145000 Section 8-1 of the ITAA 1997 General Deductions
Other Expenses 75000 Section 8-1 of the ITAA 1997 General Deductions
Cost of Goods Sold 254900 Section 8-1 of the ITAA 1997 General Deductions
Total Allowable Deductions 813790
Total Income 223210
Computation of Net Income from Business

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As held in “FCT v Harris” a mere windfall gain does not has the nature of income
(Jover-Ledesma, 2015). Therefore the winning from lottery is not included for assessment
since it is regarded as mere windfall gain and not an income. Lincoln further reports receipts
of incentive to display the game console in his window. The amount will be treated as
ordinary income within the ordinary concept of “section 6-5 of the ITAA 1997” since it was
received as the part of business activities.
Answer to 4.2:
Particulars Amount ($) Amount ($)
Assessable Income
Profit from Business 223210
Australian Sourced Dividend Income
Fully Franked (Net) 3780
Franking Credits 1620 5400
Total Assessable Income 228610
Allowable Deductions Nil
Total Taxable Income 228610
Tax on taxable Income 76106.5
Medicare levy 4572.2
Less: Franking Credits 1620
Total tax payable 79058.7
Computation of Taxable Income
In the books of Lincoln
For the year Ended 2016/17
Particulars Amount ($)
PAYG Installments Paid 57500
Total PAYG Payments 57500
PAYG Payment Balance

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References:
Grange, Janet, Geralyn A Jover-Ledesma, and Gary L Maydew. (2014) principles of business
taxation, n.d.
Jover-Ledesma, Geralyn. Principles of business taxation (2015). Cch Incorporated.
Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018, n.d.
Robin, H., (2017). Australian taxation law. Oxford University Press.
Sadiq, Kerrie et al. (2018) Principles of taxation law.
Taylor, C. J et al. (2018) Understanding taxation law.
Woellner, R. H et al. (2018) Australian taxation law.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. & Pinto, D., (2016). Australian Taxation
Law 2016. OUP Catalogue.