Taxation Law

This document provides answers to two questions related to Taxation Law. The first question deals with the capital gains tax liability of a taxpayer resulting from the sale of CGT asset under “section 104-10(1), ITAA 1997”. The second question deals with the tax liability of an employee for receipts received as income in accordance with the ordinary conceptions of “section 6-5, ITAA 1997” and the liability of the employer for the value of fringe benefit provided under the “FBTAA 1986”.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
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Table of Contents
Answer to question 1..................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................4
Answer to question 2:.................................................................................................................4
Issues:.....................................................................................................................................4
Rule:.......................................................................................................................................4
Application:............................................................................................................................6
Conclusion:............................................................................................................................7
References:.................................................................................................................................8

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Answer to question 1
Issues:
Is the taxpayer liable for the capital gains tax resulting from making the sale of CGT
asset under “section 104-10(1), ITAA 1997”?
Rule:
As per the “section 108-5(1), ITAA 1997 CGT” assets include the any type of
possessions or lawful or equitable rights which is not in the form of property. The examples
includes the land and buildings, business goodwill, contractual rights etc. As defined under
“section 104-25(1) a CGT event C2” take place when the proprietorship of the intangible
assets of a taxpayers comes to an end through cancellation or expiration (Barkoczy, 2014). It
also includes the time when the taxpayers enters into the contract of ending the asset.
According to ATO a CGT event C2 happens when there is permanent cessation of business.
The decision of court in “Muller & Co Margarine Ltd v IRC (1901)” stated that goodwill is
reliant on the trade nature. Any capital gains derived upon the sale of business goodwill must
be incorporated in the taxable earnings.
Payments received for surrendering or limiting the rights is not an earnings. This
includes the compensation obtained for agreeing not to do something. As held in “FCT v
Dickenson (1958)” payment received by taxpayer to sell only products of shell for a period of
next ten years and for next five years to sell the shell products inside the radius of 5 miles
was not held as income (Grange et al., 2014). However, under “section 104-35(1) a CGT
event D1” occurs when a taxpayer enters into the contractual rights in another entity. For
instances, contractual right of restraints of trade is entered into by the taxpayer to agree not to
operate a similar business inside the particular radius or agrees to enter into an exclusive
trading agreements.

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When the taxpayers enters into the restricting contracts following the disposal of
business, such restricting agreements are held as CGT assets which is formed and conferred
in the own rights of the buyer (Jover-Ledesma, 2014). With respect to “section 104-35 (1)”
the amount received from restricting agreements are held as “CGT event D1”.
In order to claim a main residence exemption the dwelling of the taxpayer should be
qualified as the main residence. According to “Section 118-110 (1) of the ITAA 1997” main
residence exemption is permitted to taxpayers from capital gains or losses when the CGT
assets is either the dwelling or qualifies as the main residence of the taxpayer throughout the
period of ownership (Kenny, 2014).. A partial main residence can be obtained by the
taxpayers where the main residence only formed the part all through the ownership period.
Application:
Instances from the case study suggest that Amber owned a chocolate shop which was
sold by her after giving birth to her first child. The disposal of shop yielded a sum of
$440,000 while $280,000 included for goodwill. Citing the “section 104-25 (1) of the ITAA
1997” the sale of business by Amber resulted in CGT event C2 since the ownership of the
business goodwill for the taxpayer here has comes to an end. The closure of business by
Amber was the result of intended act. Referring to the decision made in “IRC v Muller & Co
Margarine Ltd (1901)” the net capital gains from the sale of business and its goodwill will
held for taxation purpose and Amber should declare the amount of capital gains in her taxable
earnings (Sadiq et al., 2014).
Later she also entered into an agreement which required to her to enter into an
agreement for not operating the same business insider the range of 20 kilometre for a period
of five years. The agreement fetch Amber $50,000. Citing the case of “FC of T v Dickenson
(1958)” the payment of $50,000 constitutes creation of restrictive rights for not operating a

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similar business within the 20km radius (Krever, 2015). The sum of $50,000 will be treated
as capital gains originating from “CGT event D1 under section 104-35 (1)”. In the case of
Amber such restrictive covenants are held as CGT assets which is formed and conferred in
the own rights of the buyer.
Later Amber sold the apartment which she inherited from her Uncle. With reference
to “section 118-110 (1)” main residence exemption can be claimed by Amber since there was
a physical dwelling on the residence by Amber all through the period of ownership (Morgan
et al., 2016). Therefore, under “section 118-110 (1), ITAA 1997” a partial main residence
exemption can be claimed from the capital gains tax because the dwelling formed the main
dwelling for the taxpayer all over the ownership period.
Conclusion:
Amber will be held taxable for the capital gains made upon the sale of business under
“section 104-10 (1)”. She will also be held taxable under “section 104-35 (1)” for the
receipts made from entering into the contractual rights as it constitutes capital gains. While
the sale of main residence will be partially exempted from CGT under “section 118-110 (1)
of the ITAA 1997” because the dwelling formed the main residence for Amber all through her
ownership period.
Answer to question 2:
Issues:
Is the employee held liable for taxation relating to receipts received as income in
accordance with the ordinary conceptions of “section 6-5, ITAA 1997”? Will the employer be
held liable for the value of fringe benefit provided under the “FBTAA 1986”?

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Rule:
As per “section 6(1), ITAA 1936” a receipt from employment will attract tax
liabilities for the employees. According to “section 6-5, ITAA 1997” a large part of the
receipts that are earned by the taxpayer are held as ordinary income (Woellner et al., 2015).
The court in “Scott v CT (1935)” held that income should not be seen as expression of art
rather it necessitates the application of necessary principles to treat the receipts in accordance
with the ordinary concepts.
As per the FBT Act 1986 fringe benefit is regarded as benefit that is different type of
wages and salaries. According to “section 7, FBTAA 1986” a car fringe benefit most often
originates when the employer makes the car available for the employees private use
(Blakelock & King 2017). The taxable value of the car fringe benefit can be computed under
“section 9, FBTAA 1986” based on the base value of the car.
Under “section 136 (1), FBTAA 1986” the salary package fringe benefit refers to the
salary packaging arrangement provided to the employee as the part of remuneration package
(Braverman et al., 2015). The employers are held liable for taxation under “section 49,
FBTAA 1986” for the in house period of residual fringe benefit provided to the employees
under the arrangement of salary packaging.
Under “section 20, FBTAA 1986”, an expense payment fringe benefit arises when the
employer repays the expenses for the employee or pay the amount to the third party that is
occurred by the employee (Tang & Wan, 2015). The employers are held taxable under
“section 23, FBTAA 1986” for the value of benefit that is reimbursed or paid by them.
As per “section 25 (1)” gratuitous benefits of kind which cannot be converted to cash
is not treated as income under ordinary meaning. In “FCT v Cooke and Sherden (1980)”

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benefit of free holidays was not treated as earnings for the reason that it was non-convertible
to money.
A loan fringe benefit under “section 16 (1), FBTAA 1986” happens when the
employer provides loan to employee during the FBT year and charges lower rate of interest
(Shields & North-Samardzic, 2015). Under “section 18, FBTAA 1986” the employers are
held liable for taxation for the value of loan fringe benefits based on the interest which might
have accumulated all the way through the FBT year provided the statutory rate of interest is
implemented to the outstanding balances.
Application:
Jamie working as the real estate agent for Houses R Us received salary of $50,000.
Under “section 6(1), ITAA 1936” the salary for Jamie is receipt from employment for
providing personal services. Citing “Scott v CT (1935)” the salary is subjected to income tax
as ordinary income under “sec 6-5, ITAA 1997”. While Houses R Us provided Jamie with the
car for private use. Under “section 7, FBTAA 1986” this constitutes car fringe benefit for
Houses R Us and the employer will be liable for FBT under “section 9, FBTAA 1986” based
on the base value of the car.
Houses R Us provided Jamie with laptop and mobile phone which constitutes residual
fringe benefit under “section 136 (1), FBTAA 1986”. Houses R Us will be liable for FBT
under “section 49, FBTAA 1986” for the in house period of residual fringe benefit provided
to Jamie under the salary package arrangements (Tang & Wan, 2015). The reimbursement of
professional subscription and entertainment allowance by Houses R Us gives to expense
payment fringe benefit under section 20. Therefore, Houses R Us will be liable for FBT
under “section 23, FBTAA 1986” for the reimbursement and payment of allowances to Jamie

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during the FBT year. While for Jamie the allowances received is an ordinary income which is
taxable as ordinary income under “section 6-5”.
With reference to “section 25 (1)”, the reward of high tech home entertainment
cannot be held as income as per ordinary concepts. Referring to “FCT v Cooke and Sherden
(1980)” the home entertainment system is a non-cash benefits and does not qualifies as
ordinary income under “section 6-5”.
Houses R Us also provides its employer with loan to purchase house. If Jamie takes
up the offer then a loan fringe benefit under “section 16 (1), FBTAA 1986” would arise for
Houses R Us. Under “section 18, FBTAA 1986” Houses R Us will be held liable for FBT
relating to the value of loan fringe benefits based on the statutory rate of interest.
Conclusion:
The salary income received from employment will be taxable under “section 6-5 of
the ITAA 1997”. Houses R Us will be liable for FBT for the car fringe benefit, expense
payment fringe benefit, salary packaging arrangement and loan fringe benefit under the
legislation of FBTAA 1986.

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References:
Barkoczy, S. (2014). Foundations of taxation law.
Blakelock, S., & King, P. (2017). Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), 18.
Braverman, D., Marsden, S., & Sadiq, K. (2015). Assessing Taxpayer Response to
Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl.
Tax'n, 17, 1.
Grange, J., Jover-Ledesma, G., & Maydew, G. (2014). Principles of business taxation.
Jover-Ledesma, G. (2014). Principles of business taxation. Cch Incorporated.
Kenny, P. (2014). Australian tax.
Krever, R. (2015). Australian taxation law cases.
Morgan, A., Mortimer, C., & Pinto, D. (2016). A practical introduction to Australian taxation
law.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Ting, A. (2014).
Principles of taxation law.
Shields, J., & North-Samardzic, A. (2015). 10 Employee benefits. Managing Employee
Performance and Reward: Concepts, Practices, Strategies, 218.
Tang, R., & Wan, J. (2015). Fringe benefits tax and fly-in fly-out arrangements: John Holland
Group Pty Ltd v Commissioner of Taxation. Australian Resources and Energy Law
Journal, 34(1), 17.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2015). Australian taxation
law.

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