Taxation Law of Australia

TAXATION LAW OF AUSTRALIA
STUDENT ID:
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Question 1
(a) Tax Ruling (TR 2018/4) covers the various aspects regarding the effective life of assets which
are depreciating over a period in relation to the income tax liabilities1.
(b) The relevant factors regarding tax offsets present in division 17, ITAA 1997.
(c) The maximum marginal tax rate applied for personal income tax is 45%.
(d) CGT implications would not be applied on vehicles in Australia under s. 118-5 ITAA 19972.
(e) The CGT event of category B1 covers the utilization and enjoyment of numerous assets which
do not have any defined title.
(f) The respective formula contains the various steps that would be taken into consideration for
determining the tax payable on behalf of the taxpayer. The main steps involve the computation of
taxable income which is then multiplied with the applicable tax rate for the given income year.
Further, the net tax payable would be computed after subtracting the current tax offsets of the
taxpayer.
(g) The plaintiff was a custom officer who had to pay various legal expenses while endorsing his
position against the claim of the employer for certain events. The Tax Commissioner had
declared that the incurred legal expenses would not be considered for deduction as per the
highlights of s. 8-1, ITAA 1997. The court announced the verdict that the expenses had been
incurred in order to save his employment which means the expenses are made so as to produce
the assessable income. Also, the expenses were not personal nature and therefore, the legal
expenses would be considered for deduction under s. 8-1, ITAA 19973.
(h) Average and marginal tax rates are entirely two different tax rates in Australia. Average tax rate
is ratio of total amount of tax by total income. Let a taxpayer has total income of $100,000 and
he pays $15,000 then the average tax rate would be 15%. While, marginal tax rate is the
additional tax amount paid on the additional income of taxpayer. Let the taxpayer has earned an
extra income of $10,000 on which he paid $130 of the payroll tax and the $1500 of the income
tax then the total marginal tax rate of the taxpayer would be 30.30%.
(i) Consumption tax represents the taxation that is imposed by government on consumption of some
defined items or services. One of the examples of consumption tax is fat tax that mainly deals
1 ATO, Taxable Ruling TR 2018/4, https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT%2FATO
%2F00001
2 ATO, Income Tax Assessment Act 1997 – SECT 118.5, http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s118.5.html
3 Woellner, Robin, Australian Taxation Law (CCH Australia, 2014)

with the problem of obesity. The main objective of applying such tax is to ensure that the
individuals would prefer healthier foods over unhealthy food stuff considering the low-price
ranges4.
Question 2
a) General business expenses are deductible as per s. 8-1 as the key condition is that outgoings
should be related to assessable income production5. There are additional requirements about
the expenditure not being private, capital or for non-assessable income generation. The
interest paid on the borrowing is for business purpose since the principal amount has been
used to pay wages for employees. Thus, interest is pivotal to assessable income generation
and thereby deductible for taxpayer.
b) General deductions are available for business expense and not for private expenditure since
the latter does not produce any income6. The expense related to mobile which Julie has
incurred has two components namely private and business. The business portion of the $ 500
mobile expense is 60% of $ 300 and thereby deduction under s. 8-1 may be claimed by Julie
for this amount
c) The key issue is whether babysitting expenses would be private or business expenses
considering that these expenses are necessary for the taxpayer to do his/her job which
produces assessable income. Tax ruling TR95/9 and also verdict of Lodge v. FC of T7 case
both indicate that child care expenses are private expenses and no deduction may be availed
4 Coleman, Chris, Australian Tax Analysis (Thomson Reuters, 2016)
5 Austlii, Income Tax Assessment Act 1997 – Section 8-1 < http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s8.1.html>
6 Subsection 8-1(2) ITAA 1997
7Lodge v. FC of T (1972) 128 CLR 171