Taxation Law Study Material

TAXATION LAW
STUDENT ID:
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Question 1
a) The effective life in regards to depreciating assets in the context of income tax has been
highlighted in TR2018/41.
b) Available tax offsets have been detailed under Division 17.
c) The highest bracket of marginal tax is 45% in the context of personal income tax.
d) One of the key assets that is exempted from CGT purview is cars which is outlined in s.
118-5 ITAA 19972.
e) The concerned event i.e. CGT event B! concerns itself with asset enjoyment without
holding the title.
f) The formula stated is taken into use for income tax liability computation. For the
computation of income tax liability, product of tax rate (applicable) and taxable income is
obtained. In order to obtain the net tax liability, available tax offsets would be deducted.
g) In the outlined case, the key legal issue was whether expenses on legal services used by a
customer officer to safeguard his position would be deductible or not. It was outlined by
the Tax Commissioner that the expenses were non-deductible as per s. 8-1 ITAA 19973.
The High Court did not concur with the stance taken by the Tax Commissioner and
instead held the expenses as deductible. One of the reasons cited by the High Court for
the verdict was that the expenses were directly related to assessable income generation as
the charges were in regards to his professional conduct and could potentially have
impacted his position which resulted in assessable income. As a result, the nature of
expenses is not private.
h) The marginal and average tax rate tend to significantly differ. The marginal tax rate is the
tax rate that additional dollar of the income would attract. In contract, the average tax
value is the average value of tax that is applicable to each dollar belonging to the taxable
income assuming a uniform value. In order to illustrate the difference between the two, an
example can be taken where the taxable income in 2018/2019 is $ 91,000. This income
tends to lie in the 37% tax rate bracket owing to which every additional dollar income
would attract a tax of 37%. The average tax rate computation is shown below.
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
3Barkoczy Stephen, Core Tax Legislation and Study Guide 2017 (Oxford University Press Australia, 2017)
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Income tax payable = 20797 + 0.37*(91,000-90,000) = $21,167
Average tax rate = ($21,167/ $91,000)*100 = 23.26%
i) Consumption tax may be defined as a tax which the government levies on
particular items consumption which is related to discouraging the use of
items having implications related to public welfare particularly public wealth.
One of the examples in this regards is sugar tax which is levied on products
containing high sugar context such as juices, soft drinks and related products.
The objective is to raise prices so that their consumption of these products
would be adversely impacted. Another example is fat tax which has been put
into place so as to reduce the incidence of obesity by reducing the sale of
products containing high amount of facts. The government may use the
proceeds of consumption tax to subsidise the sale of desirable goods such as
fruits and vegetables.
Question 2
(a) Expenses incurred for the generation of assessable income would be available for
deduction under s. 8-1 ITAA 1997. Whereas, when the outgoings are of capital nature or
private expenses or has not been used for the generation of assessable income then no
deduction would be available for the expenses under ss. 8-1(2) ITAA 19974. In present
scenario, Brett has an interest expenses which has been used to pay the wages of the
employees which implies that the outgoing has been used for assessable income
production and thus, the deduction would be available on the interest expenses under s. 8-
1 ITAA 1997.
(b) The expenses of the Australian tax resident which are of private nature would not be
deductible under ss. 8-1(2) ITAA 19975. The deduction for tax purposes would only be
available in this scenario when the expenses are directly related to the generation of
assessable income. Here, Julie has an expense of $500 on mobile phone which is
normally a private expense of her. However, it is given that she used 60% of the expenses
for work related calls which means only 60% of the total expenses would be available for
deduction i.e. 60%*50 = $300
4Reuters, Thomson,
Australian Tax Legislation (THOMSON REUTERS, 2017)
5Ibid, 3.
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