TAXATION LAW STUDENT ID: [Pick the date].

TAXATION LAW
STUDENT ID:
[Pick the date]

Question 1
(a) TR 2018/4 covers topic related to depreciating assets and their effective life for taxation1.
(b) The tax offsets have discussed in division 17, ITAA 1997.
(c) Maximum marginal taxation rate for personal income tax purpose is 45%.
(d) CGT implications cannot be applied on cars under s. 118-5 ITAA 19972.
(e) Usage and enjoyment of CGT asset without any title is dealt with CGT event of B1 type
and will be taxed under s104-15, ITAA 1997.
(f) Income tax liability will be computed by using the formula stated in s4-10(3) ITAA 1997.
It indicates that tax liability will be calculated by multiplying the applicable tax rate with
the taxable income of the taxpayer. Further, it is noteworthy that the existing tax offsets
must be removed from the computed tax liability so as to find the net tax payable.
(g) The FC of T v Day 2008 ATC 20-064 case is one of the famous cases in terms of
deduction of the expenses which have been incurred in the legal formalities against the
charges made by the employer on his employee who was a custom officer. The Tax
Commissioner decided the verdict that these legal expenses will not be deducted under s.
8-1, ITAA 1997. Whereas, the case landed to High Court where the honourable court
announced the judgement that the officer has paid the legal fees only for defending
himself which meant to protect his position that has direct connection with the assessable
income generation. Also, the legal expenses are not private expense of officer. Thereby,
the expenses were held to be deductible under 8-1, ITAA 1997. This principle is used as a
benchmark for several cases dealing in deductions3.
(h) Marginal tax would indicate the tax rate which the last dollar of the taxpayer’s income
was subject to. Typically in a progressive tax system, there are defined tax slabs and the
rate of tax tends to vary with the general trend being that rate would be higher for higher
taxable income. In this context, the marginal rate is the income tax rate levied on the last
dollar of the taxable income. Average tax rate on the other hand indicates uniform tax rate
which can be applied to each dollar in the taxable income. For better clarity, it makes
sense to illustrate both concepts using numerical example.
Consider that there is a resident taxpayer with taxable income for 2018-2019 tax year as $
97,000. The income above $ 90,000 till $ 180,000 is levied a tax rate of 37% which is the
1ATO, Taxable Ruling TR 2018/4, https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT
%2FATO%2F00001
2ATO, Income Tax Assessment Act 1997 – SECT 118.5, http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s118.5.html
3 Reuters, Thomson, Australian Tax Legislation (THOMSON REUTERS, 2017)
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marginal rate for the taxpayer. In order to compute the average tax rate, the overall tax
liability needs to be found as shown below.
Amount of tax to be paid on the above taxable income = 20797 + 0.37*(95,000-90,000) =
$22,647
Average tax rate = ($22,647/ $95,000)*100 = 23.84%
(i) A tax which the government levies on the consumption of specific products is known as
consumption tax. The key objective of applying these taxes is to alter the consumer
choices in a particular direction. Typically, these are levied on unhealthy food items so as
to make these expensive and thereby steer the consumers towards healthier choices which
would be relatively cheaper. A type of consumption tax is fat tax which is levied on
products containing high fats. This is a measure taken by the government to fight the
increasing prevalence of obesity4. Another example in this regard is sugar tax which is
intended to drive people away from products that contain high sugar content. The tax
revenues raised by the government in certain cases may be used to provide subsidy to
healthy food options so as to achieve the end objective. However, there is immense
debate about the utility of these taxes and the issue of consumer independence.
Question 2
(a) Brett’s expenses: In the form of loan interest
Under s. 8(1) ITAA 1997, the expenses of taxpayer which are realised so as to produce
assessable income will be tax deductible for the same tax year. Further, any expenses which
is capital in nature or has been utilized for non-assessable income production or is private
will not be tax deductible under ss. 8-1(2) ITAA 1997. Brett has taken loan so that he can
transfer the wages to their employees which indicates that the loan amount has been used for
running the business which is source of assessable income production. Thus, under s. 8=1
ITAA 1997 the interest paid on loan is deductible5.
(b) Julie’s expense: Mobile phone charge $500
4 Ibid, 3. 236.
5 Austlii, Income Tax Assessment Act 1997- SECT 8.1, http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s8.1.html
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