Australian Taxation Laws and Exemptions

The assignment discusses the complexities of Australian taxation laws, particularly in the case of a Nisu resident who lives in Australia for 183 days or less. It explains how to determine residency status and provides information on exemptions, deductions, and capital gains tax. The document also references relevant laws and regulations, including the Income Tax Assessment Act 1997.

Taxation Law Of
Australia

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
A) Taxation ruling TR 2018/4 ....................................................................................................1
B) Division of income tax assessment act 1997 details available tax offset...............................1
C) Top tax rate applicable to a resident taxpayer in the 2018/19 tax year...................................1
D) Example of an asset that is exempt from capital gains tax, including its legislative reference
......................................................................................................................................................1
E) CGT event B1 s104-15 tax......................................................................................................2
F) Formula contained in s4-10(3) ITAA 1997.............................................................................2
G) Significance of the High Court case, FC of T v Day 2008 ATC 20-064 in the topic of
deductions....................................................................................................................................2
H) Difference between marginal rate of tax and average rate of tax...........................................2
I) Consumption tax......................................................................................................................3
QUESTION 2...................................................................................................................................4
a....................................................................................................................................................4
b....................................................................................................................................................4
c....................................................................................................................................................4
d....................................................................................................................................................4
e....................................................................................................................................................5
QUESTION 3 ..................................................................................................................................5
a. Andy owns some land along with grants a lease to Brian for five years with premium of
$5000............................................................................................................................................5
b. Purchase of 100 acre farm outside Adelaide............................................................................5
C) sale of house that was purchased in 2006...............................................................................5
D) net gain of Chris......................................................................................................................6
QUESTION 4...................................................................................................................................6
A) Prize received worth $2,000 for the best TV advertisement of the year................................6
B) Amount received for business travel.......................................................................................6
C) Phone received from client.....................................................................................................7

D) Damage received for personal injury......................................................................................7
E) Income from shares and securities..........................................................................................7
QUESTION 5...................................................................................................................................8
Nisu case study............................................................................................................................8
REFERENCES..............................................................................................................................10

QUESTION 1
A) Taxation ruling TR 2018/4
This is related to income tax and It is helpful in determining effective life of depreciating
assets. Commissioner calculates declining value of assets over a period of time (Graetz and
Warren, 2016).
B) Division of income tax assessment act 1997 details available tax offset
Division 13 of income tax assessment act 1997 have detail about tax offset (Mangioni,
2015).
C) Top tax rate applicable to a resident taxpayer in the 2018/19 tax year
Taxable income ($) Tax on particular income
0-18200 No tax applicable
18201-31000 People those fall into this category will have to
pay 19c for each $1 over 18200
37001-90000 Residents who have income between 37001-
9000 have to pay $3572 plus 32.5c (for each
$1) over 37000 (Individual income tax rates,
2019)
90001-180000 People fall into this category will have to pay
20797 plus 37c over $90000 (for each $1)
180001 and above this Residents those who have income more than
180001 and above have to pay tax rate
$54097plus 45c over 180000 (for each $1)
(Basu, 2016)
D) Example of an asset that is exempt from capital gains tax, including its legislative reference
Car or motorcycle get exemption from capital gains tax (CGT). Car or motorcycle carry
less than one tonne load and less than 9 passengers travel by such vehicle hence it has exemption
from tax. Section 104-230 of income tax assessment act 1997 explain this exemption element
(CGT assets and exemptions, 2019).
1

E) CGT event B1 s104-15 tax
This event is applicable if the organisation make contract with other enterprise. In this first
party can enjoy and use the CGT asset before passing rights to other entity. Title or ownership of
that asset will be passed to other party or entity at the time of end of agreement (Berns, 2018).
F) Formula contained in s4-10(3) ITAA 1997
It is very important for resident and non-resident that to pay income tax if they fall in tax
category. Tax payers calculate their income by using specific formula. Formula of income tax
calculation set is”
Income tax= taxable income*rate)- tax offsets (It is set in s4-10(3))
Taxable income= assessable income- deduction
G) Significance of the High Court case, FC of T v Day 2008 ATC 20-064 in the topic of
deductions
FC of T v Day 2008 was the case in which person was working as compliance officer in
Australian custom service department (Clibborn, 2018). It is essential for a public servant that to
fulfil their duties carefully, if individual gets failed to complete their duty on time with efficiency
then individual will be liable to pay compensation for the same. This compensation or legal
expenses are in the form of dismissal, demotion, salary deduction etc. Respondent was charged
in the year 1998 for the first time and in the year 1999 third charges were applicable for him.
Section8-1 (1) of ITA 1997 explains that deduction from assessable income is done only when it
is incurred for gaining additional income (FC of T v DAY, High Court of Australia, 12 November
2008, 2019).
It is essential for each public officer that to complete their duties carefully, they have to
fulfil those obligations for that they are accountable. If they fail to do the same then they may
have to [ay legal expenses in the form of salary deduction or demotion. This application is very
important as it guides officers those who are public servant that they have to work with
dedication otherwise they may lose their job.
H) Difference between marginal rate of tax and average rate of tax
Marginal rate of tax Average rate of tax
It analyses how tax impact on incentive
earning, savings and interest .
It analyses household’s tax burden that means
it measure impact of tax on household’s ability
to consume.
2

It is incremental tax that is paid on additional
income (incremental income)
It is calculated by dividing total amount of tax
from actual (total) income.
It is the percentage of tax which is paid by
person on their next dollar of taxable income.
It is percentage of actual taxable income of
person which is paid by individual.
I) Consumption tax
It is the tax which is paid by person on purchasing of particular goods and services. It is in
the form of sales taxes, excise, import duties etc. Such kind of taxes are paid by consumers those
who pay higher retail prices for their purchased goods. Vendors, local or state government
collect that tax fund. Different tax rates are applicable on different commodities that highly
depends upon the luxury or necessity of item. There is huge difference between consumption and
income tax, as consumption tax is applicable when a person spends some money whereas income
tax is applicable when individual earn some money. Consumption tax helps in raising economic
efficiency.
3

QUESTION 2
Assessment of allowable tax deduction is enumerated below:
a.
Given case presents that Brett incurred interest expenses on loan with regards to meet
obligation pertaining to employee wages. In this regard, business entity can claim for deduction
pertaining to expenditure associated with business activities. ATO’s guidelines clearly present
that one can claim for deduction when all the expenses are incurred for running or carry out
business (Deductions, 2019). Thus, it can be stated that deductions are allowed on interest
amount associated with loan.
b.
As per the Australian taxation office (ATO), one can claim for deduction if phone or
internet is used for work related aspects. By doing assessment, it has found that when phone is
used for both work and private purpose then deduction considered by ATO up to the amount
related to working practices (Claiming mobile phone, internet and home phone expenses, 2019).
In the current case, Julie incurred $500 as mobile phone charge but out of this 40% relates to
personal work. On the basis of this, only $300 ($500 * 60%) comes under the category of
allowable deduction during the current tax period.
c.
On the basis of given case scenario Sally paid $1200 to babysitter for looking after her
children. As per ATO rules and regulations, Sally can claim for deduction or childcare tax credit.
As, Sally incurred such expenses for the sake of employment which in turn fulfils the conditions
imposed by ATO (Can You Write Off Babysitting Expenses?, 2019). Referring all such aspects, it
can be stated that Sally can reduce the level of taxes owed due to babysitter expenses.
d.
Referring Income Tax Assessment Act (1997), it can be presented that losses occurred
due to theft falls under the category of tax deduction. According to ATO , one can deduct loss
only when it occurred in the income year. Further, deduction is allowed when loss occurred due
to employee’s theft. Cited case situation clearly presents that loss of $20000 occurred as Jerry’s
long term employee stole goods. Thus, according to income tax rules Jerry can claim for
deduction.
4

e.
In accordance with ATO rules candidate, who participating in election, is allowable to do
claim for deduction purpose. As per the cited case, expenditure incurred in local government
election and party accounts for $5000 & $2000 respectively. ATO states that only $1000
deduction is allowed that incurred in local government election (Election expenses, 2019). On
the basis of such aspect, out of $5000, election expenses of $4000 will be the part of taxable
income. Further, tax will also be calculated on the expenses of $2000 as no deduction are
allowed on this.
QUESTION 3
a. Andy owns some land along with grants a lease to Brian for five years with premium of $5000
It is short lease as computation of CGT as short lease is slightly very complex. The lease
with useful life is less than 50 years as wasting asset. This depreciate over time with allowable
base cost for CGT with objective to imply lease depreciation. The allowable cost of base is
original cost of acquisition multiplied with fraction of S/P where S is percentage through lease
depreciation table for years of lease with assignment of date. However, P is replicated as
percentage through lease depreciation table for years of lease remaining purchase date. The
grants for short lease as premium retained with grant must split among amount chargeable to
income tax (Capital gains tax on property leases, 2019). (Property income rule ITTOIA 2005 S
277 (4)) along with amount chargeable to CGT. The capital element chargeable to CGT is 2% *
(N-1) * P. N is number of years of the lease and P as premium retained.
b. Purchase of 100 acre farm outside Adelaide
There was exchange for sum of $40000 to Farm Ltd, as per time value concept its value
would increase. Thus, it would be excluded from sum of $800000 and chargeable from capital
gain tax.
C) sale of house that was purchased in 2006
If the property is being purchased after September 21, 1999, and the individual was in the
ownership condition for more than 12 months, the 50% CGT discount will be applicable over the
property.
Jemie and Oliva purchased house in January 2006 and put it into the rent. They were in
the ownership condition for more than 12 months. In this regard, it completes the consequence of
2018/19 tax and hence, 50% discount would be applicable for Jamie and Olivia
5

D) net gain of Chris
particulars amount
purchasing price 5.65
selling price 3.66
net capital gain -1.99
As per the CGT consequences outlines, Chris is suffering a capital loss from the trading
of shares.
QUESTION 4
A) Prize received worth $2,000 for the best TV advertisement of the year.
As per the rules of Australian taxation, no tax is needed to be paid for gifts and
inheritance received by the tax payer (Clibborn, 2018). Any gift received from any relative,
employer or any other person is fully exempted from tax in the Australian taxation law.
In the present case scenario, a prize is being received by the tax payer for best TV
advertisement of the year. It can be taken in the category of gifts. In this regard, it would be
included in the exempted income while calculating total amount of tax to be paid by taxpayer.
Hence, no tax would be assessable on the amount received for the prize.
B) Amount received for business travel
As per the taxation rules relating to the business travel expenses, if any employee gets
sum for the amount for travelling somewhere for business purpose, the amount would be
exempted from tax. Further, as per the policy of exemption rules of Australian taxation policies,
the sum provided by the employer for travelling expenses would be taxable to the extent of sum
used by taxpayer for business purpose.
On the other hand, it can be said that sum used by the business for personal use would be
covered under the head of taxable income while computing tax to be paid by the taxpayer.
In the present case, the employer paid a sum of $500 to employee. $120 was used for
business travelling purpose only. As the rest amount was being used by the employee for the
personal use as per their agreement, in this regard, $120 would be covered under exempted
incomes of employees. On the other hand amount used for personal purpose i.e $380 ( $500 -
6

$120 ) would be considered under taxable incomes while calculating total tax liability of the
employee
C) Phone received from client
The Australian taxation system has included all types of gifts and grants received within
the previous year would be exempted from tax (Berns, 2018). These gifts and grants can be
received by the taxpayer from any individual either employer, any supplier, customers, etc.
in the present case, client has provided iPhone worth $1000. it would be included in the
gifts and grants category and hence would be exempted from tax.
D) Damage received for personal injury
As per the clauses of ATO in context to the damages or claims received by a person for
personal injury, would be covered under tax free incomes. In the present case, the taxpayer has
been awarded for the personal injury by an individual for car accident. Therefore, the amount
would be covered under tax free incomes of taxpayer.
E) Income from shares and securities
According to the rules of federal legislations of Australia, of if any trader of shares and
securities gains, any trader gains income due to change in the market condition, the amount
would be taxable to taxpayer at the time of trading the security (Mangioni, V., 2015).
In the given case, taxpayer has gained $2.5 by retaining the shares due to change in the
market condition. This gain would be included in the capital gain at the time of calculating tax
from the trading of security.
7

QUESTION 5
Nisu case study
Income tax in Australia is being imposed by the federal government on the taxable income of
individual and corporations. Income tax is levied on progressive rates and the tax is not levy on
income of partnership and trust but it taxed on its distribution to the partners or beneficiaries.
Income tax is the most important source of the revenue for the government within the Australian
Taxation System. Income tax calculated in two statutes they are Income Tax Assessment Act
1936 and Income Tax Assessment 1997 (Berns, 2018). Taxable income is basically the
difference between the assessable income and allowable deductions. Three main type of
assessable income for individual taxpayers are personal earnings, business income and capital
gains. As like many other countries income tax is charged on the wages and salaries given in the
Australia often results in refund payables to taxpayers. An employee also must quote to the
employers for their tax file numbers so the employer can withhold the tax from the pay of the
employer. While this is not covered in offence to fail to provide an employer, a bank or financial
institution with a TFN that is tax file number and in the absence of this number, payers are
required to withhold tax at the rate of 47% stating as first dollar. Similarly, banks are also hold
the highest marginal rate of income tax. Income tax is imposed by the federal government on the
taxable income of the individual and corporation. The Low Income Tax Offset (LITO) is a tax
rebate for Australian-resident individuals on lower incomes. For 2015-16, in addition to the tax-
free threshold of $18,200, the LITO is $445 until the individual's taxable income reaches
$37,000. The LITO is then reduced by 1.5c for every dollar of taxable income above $37,000,
and cuts out when taxable income reaches $66,667.
Case study
The present case study of the report is based on a Nepali student who prefer to study in Australia.
The student is also doing job over there (Graetz and Warren, 2016). Nisu arrives in Australia on
30th December 2018 from Nepal for the enrolment in the Masters of Accounting program at
CQU Sydney campus. He comes Australia with the intention of studying for three years in
Australia. He also gets the part-time job in the bookshop with one of his roommates. He lives in
rental house with the sharing of four students and it not far from the university and he also makes
lots of his friends, joins local soccer team and is well in studies and job. However, on 30th of
8

June 2019 he has to return to Nepal due to the family commitment and unfortunately withdraw
from the university with no prospect of returning.
Taxation of income is based on the principle of residence. Australia has some specific
rules for determining the tax for residence as well as for the source of income usually for the
place of business or either employment. Non-residents have to pay taxes only for the income
earned in the Australia. Foreigners arriving in Australia and work over there are qualified as
temporary resident in order to get tax reductions. Four test to determine whether an individual is
resident for the income tax purposes are
• If they are making contribution to a commonwealth superannuation fund,
• In Australia for more than half of the year.
• They have domiciled or permanent place of abode in Australia.
• If they dwell permanently or for a considerable time in Australia.
As Nisu resides in Australia only for the six months so he is not being considered as the resident
of Australia. If Nisu resides in Australia for more than 6 months than only he will be considered
as resident of Australia for the income tax purposes for the year 2018-19.
As Nisu is non-resident he only needs to lodge a tax return if he has the income which is taxable
in Australia. From 1st January 2017, person who is not staying in Australia are working in the
country for the short time period are not considered as resident and they are subject to a special
tax regime and they need to file the income tax return as they earn the income from an Australian
source.
Australian financial year runs from 1st July to 30th June and for to determine whether he is
considered as an Australian resident or non-resident is little complicated in the case of Nisu and
is depend on the situation. Yet if he lived in Australia for more than 183 days for the given year
than only he will be considered as a resident of Australia but he only lives for 183 days so he is
considered as non-resident of Australia.
9

REFERENCES
Books and Journals
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Berns, S., 2018. Women Going Backwards: Law and change in a family unfriendly society.
Routledge.
Clibborn, S., 2018. Multiple frames of reference: Why international student workers in Australia
tolerate underpayment. Economic and Industrial Democracy. pp.0143831X18765247.
Graetz, M. J. and Warren, A. C., 2016. Integration of corporate and shareholder taxes. National
Tax Journal, Forthcoming. pp.16-36.
Mangioni, V., 2015. Land Tax in Australia: Fiscal reform of sub-national government.
Routledge.
O’Connell, B. and et.al., 2016. Does calibration reduce variability in the assessment of
accounting learning outcomes?. Assessment & Evaluation in Higher Education. 41(3).
pp.331-349.
Online
CGT assets and exemptions. 2019. [Online]. Available through
<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/
#Exemptions1>
FC of T v DAY, High Court of Australia, 12 November 2008. 2019. [Online]. Available through
< https://iknow.cch.com.au/document/atagUio1433811sl200851327/fc-of-t-v-day>
Individual income tax rates. 2019. [Online]. Available through
<https://www.ato.gov.au/Rates/Individual-income-tax-rates/>
Election expenses. 2019. [Online]. Available through:
<https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-
claim/Other-deductions/Election-expenses/>.
Claiming mobile phone, internet and home phone expenses. 2019. [Online]. Available through:
<https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-
claim/Other-deductions/Claiming-mobile-phone,-internet-and-home-phone-expenses/>.
Can You Write Off Babysitting Expenses?. 2019 [Online]. Available through:
<https://kidsit.com/babysitting-expenses-parent-tax-guide>.
10

INCOME TAX ASSESSMENT ACT 1997 - SECT 25.45. 2019. [Online]. Available through:
<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s25.45.html>.
Deductions. 2019. [Online]. Available through: <https://www.ato.gov.au/Business/Income-and-
deductions-for-business/Deductions/>.
Capital gains tax on property leases. 2019. [Online]. Available through: <
https://www.accaglobal.com/in/en/technical-activities/technical-resources-search/2013/
october/cgt-property-leases.html>.
11