Taxation Law of Australia - Desklib

TAXATION LAW OF AUSTRALIA
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Question 1
(a) Tax Ruling TR 2018/4 covers the topic related to the effective life of various depreciating
assets with respect to the income tax consequences1.
(b) Available tax offsets have been discussed in the division 17 of Income Tax Assessment Act
1997.
(c) The highest tax rate applied on a tax resident in the 2018/19 tax year is 45%.
(d) Vehicles like cars are one of the assets which are exempted in the applicability of Capital
Gains Tax in Australia as highlighted in s. 118-5, ITAA 1997.
(e) CGT event B1 s104-15 tax highlights various aspect in relation to use and enjoyment of the
various assets which do not have any title.
(f) The formula contained in s4-10(3) ITAA 1997 describes the procedure to determine the
income tax payable of the taxpayer. The taxable income would be computed based on the
given information which then is multiplied with the applicable tax rate. Further, the net tax
payable would be determined after eliminating the present tax offsets from the income tax
liability.
(g) According to the case facts of FC of T v Day 2008 ATC 20-064 case, the employer claimed
certain charges on his employee who was a customs officer and had used legal services
against the charges in order to defend himself. However, the tax commissioner had
disallowed the respective legal expenses as non-deductible under the highlights of s. 8-1,
ITAA 1997. However, the decision of the tax commissioner had been overruled by the High
Court and it decided that the various legal expensesof the custom officer would be considered
as tax deductible under s.8-1, ITAA 1997. The court had considered two main aspect while
reaching the judgement.
 The legal expenses of the custom officer had direct relation with the generation of the
assessable income because he paid various legal expenses so as to defend himself against
the various formal charges of the employer.
 The legal expenses of the custom officer were not of private nature and hence, the
expenses would be considered as tax deductible under s.8-1, ITAA 1997.
1ATO, Taxable Ruling TR 2018/4, https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT%2FATO
%2F00001

(h) Marginal rate of tax and average rate of tax are significantly different from each other. The
Marginal tax rate is the one which is imposed on the extra taxable income of the taxpayer
whereas average rate results an average tax that would be valid on to the total income of the
taxpayer. This understanding can be represented through a numerical example as shown
below.
Let the yearly taxable income of a taxpayer is $100,000. The applicable marginal tax rate for the
tax year 2018/19 is 37%. The extra income of the taxable would be taxed as per the given
marginal tax rate.
(i) Consumption tax implies a tax that is imposed by the government on the taxpayer on
consumption of some special items. One of the examples is sugar tax which is imposed on
various products that contains significant amount of sugar such as beverages, sweeteners, soft
drinks, bakery productions and so forth. The aim to reduce the consumption of goods that
have significant negative externalities associated with themselves.
Question 2
a) Section 8-1 ITAA 1997 tend to deal with general deductions which are permitted for any loss
or outgoing provided the same is incurred with regards to assessable income generation.
There are few negative limbs (ss. 8-1(2) ITAA 1997) highlighted in this section as per which
deduction is not available for capital expenses, domestic or private expenses and expenses
related to non-assessable income production2. As per the given scenario, the interest that is
paid is related to business related borrowing since it was incurred for payment of wages. As a
result, deduction is permissible for the taxpayer in accordance with s. 8-1 ITAA 1997.
2 Austlii, Income Tax Assessment Act 1997 – Section 8-1 < http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s8.1.html>

b) A key negative limb identified in context of general deduction (ss. 8-1) is that no deduction
can be availed for private expenditure. Also, it is imperative that the expenses should be
related to assessable income generation3. The given scenario highlights that $ 500 worth
mobile expenses have been incurred by Julie but 40% of this expenditure is private. This
amount would not be deductible while the expenditure related to assessable income
production i.e.500*(60/100) = $ 300 can be deductible.
c) The matter of child care being deductible or not has been dealt in Lodge v. FC of T4 case. The
honorable court indicated that the these expenses were not related to assessable income
generation but are private expenses. A similar stance has been endorsed in the tax ruling TR
95/9 where it is clearly specified that any expenditure related to childcare would be held as
private expenditure even though the same may be necessary for the employee to attend
office5. Therefore, no deduction would be available for Sally in relation to $ 1,200 which is
paid to the babysitter.
.
d) The given issue of whether theft is a business expenditure or not has been dealt with in
Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation6 case. It has been
ascertained in this particular case that theft related losses are common in most businesses and
hence would be business related losses. As per the scenario presented, goods stealing has
caused losses to the business which are incurred in the quest to produce assessable income.
As a result, general deduction under s. 8-1 ITAA 1997 would be available in this case7.
e) In relation to deduction of expenses, one of the key negative limbs8 is that the expense should
have a revenue nature. Also, the expense must be incurred with regards to assessable income
production. In the given case, running for elected representative would lead to creation of
assessable income in the form of salary derived. However, the nature of the campaign
3 Ibid. 2
4Lodge v. FC of T (1972) 128 CLR 171
5 ATO, Taxation Ruling TR 95/9, < https://www.ato.gov.au/law/view/document?DocID=TXR/TR959/NAT/ATO/00001>
6Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344
7Barkoczy Stephen, Core Tax Legislation and Study Guide 2017 (Oxford University Press Australia, 2017)
8 Subsection 8-1(2)ITAA 1997