Taxation law of Australia Question 2022

Taxation law of Australia

Table of Contents
Question 1........................................................................................................................................3
a)..................................................................................................................................................3
b)..................................................................................................................................................3
c)..................................................................................................................................................3
d)..................................................................................................................................................3
e)..................................................................................................................................................4
f)...................................................................................................................................................4
g)..................................................................................................................................................4
h)..................................................................................................................................................5
i)...................................................................................................................................................6
Question 2........................................................................................................................................7
Question 3........................................................................................................................................9
Question 4......................................................................................................................................14
a)................................................................................................................................................14
b)................................................................................................................................................15
c)................................................................................................................................................16
d)................................................................................................................................................17
Question 5......................................................................................................................................19
a)................................................................................................................................................19
b)................................................................................................................................................20
c)................................................................................................................................................20
d.................................................................................................................................................21
e)................................................................................................................................................22
Bibliography..................................................................................................................................24

QUESTION 1
a)
The Taxation Ruling 2019/1 covers the Small Business Entity as per the meaning defined in
Section 23 of the Income Tax Rates Act 1986 as relevant to the financial year 2015-16 and 2016-
17. Further, it also covers the company defined under Section 328-110 of the ITAA (Income Tax
Assessment Act) 19971.
b)
Subdivision 30-A of Division 30 of the Income Tax Assessment Act 1997 outlines the legislation
regarding the deductibility of gifts or contribution2.
c)
The top tax rate applicable to a resident taxpayer of Australian in the 2019-20 is 45%.
d)
Yes, Car or motorcycles are exempt from the capital gain tax as per the ITAA 1997. Here, car or
motorcycle means a vehicle designed to transfer weight not more than one ton and less than nine
persons3.
e)
Capital Gain Tax event C1 s 104-20 occurs at the time of loss or destruction of the capital gain
tax assets4.
1 ‘Taxation Ruling’ (Online, 7 August
2019)<https://www.ato.gov.au/law/view/document?DocID=TXR/TR20191/NAT/ATO/00001>
2 ‘Income Tax Assessment Act 1997’ (Online, 7 August
2019)<https://www.legislation.gov.au/Details/C2017C00336>
3 ‘CGT assets and exemptions’(Online, 7 August 2019)< https://www.ato.gov.au/general/capital-gains-tax/cgt-
assets-and-exemptions/#Exemptions1>
4 ‘Commonwealth Consolidated Acts’(Online, 7 August
2019)<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s104.20.html>

f)
Current Tax-free threshold for the resident individual of Australia is $18200.
g)
In the case of Hayes v FCT (1956) 96 CLR 47, the issue is related with the ordinary income of
the person and whether the gift of shares by the owner of the company to the worker is
considered as ordinary income due to the personal services by the accountants to the company
and owner. In such a case, commissioner contended that the receipt is considered as income
within the general concept of income or according to section 22(e) of the Income Tax Act.
However, In this case, the court held that in the assessable income of the applicant the amount
which represents the value of shares should not be included as it does not satisfy the meaning of
the assessable income5. There is no connection between the gift of shares by the company and
the employment of the applicant; thus, it is not included in the assessable income.
h)
Income Tax is a levy on the Taxable Income of the assessee. The Taxable Income of the person
is derived from the assessable income after claiming some deduction prescribed under the
Income Tax Act6. The Assessable Income is comprised of the ordinary income and statutory
income of the person. Ordinary income means the income generated by the person during the
financial year directly or indirectly, within or outside of Australia from all sources7. On the other
hand, statutory income means the income which is not considered as ordinary income, however
because of the specific ruling given under the Income Tax, it is considered as a part of the
5 ‘1953 Australian Tax Decisions’(Online, 7 August
2019)<https://iknow.cch.com.au/document/atagUio2675124sl703670841/hayes-v-federal-commissioner-of-
taxation-high-court-of-australia-23-may-1956>
6 Mark B., "Interpreting the Australian Income Tax Definition of Ordinary Income: Ritual Incantation Or Analysis,
When Examined through the Lens of Early Twentieth Century Linguistic Philosophy." eJTR 16 (2018): 2.
7 Katerina P., and Smyth C., "Successful succession: Tax treatment of executor's commission." Taxation in
Australia 51.7 (2017): 394.

assessable income of the assessee8. For instance, salary is considered as ordinary income and
capital gain is considered as statutory income. If any income can be classified as ordinary income
as well as statutory income, then the statutory ruling will overcome9.
i)
Difference between Medicare Levy and Medicare Levy Surcharge
Table 1 Difference between Medicare Levy and Medicare Levy Surcharge
Basis Medicare Levy Medicare Levy Surcharge
Rate Generally, along with the
Income Tax, Medicare Levy
is imposed at 2% on the
taxable income of the
assessee.
The rate of Medicare Levy
Surcharge is 1%, 1.25% or
1.5% on the taxable income
of the assessee.
Objective It assists in sustaining the
public health care system.
The objective of Medicare
Levy is the participation by
the people for the cost of
Medicare.
The main objective behind
the levy of Medicare
surcharge is to motivate the
people to take out private
health insurance. By this way,
the private health insurer has
to pay the cost of medical at
the time of requirement.
Liability Medicare Levy only if the
income of the person exceeds
$ 22398 for the year 2018-
1910.
The person is liable for the
Medicare Levy Surcharge if
he/she derived income more
than $ 90000 as an individual
or more than $ 180000 as a
8 Alexander K., "Mid market focus: The new attribution tax regime for MITs: Part 2." Taxation in Australia 51.1
(2016): 12.
9 Steve F., and Dibden A., "Gifted assets, valuation and ordinary income." Taxation in Australia 53.10 (2019): 560.