(PDF) Tax System Change and the Impact of Tax Research

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to A:..............................................................................................................................2
Answer to B:..............................................................................................................................3
Answer to C:..............................................................................................................................4
Answer to D:..............................................................................................................................4
Answer to E:...............................................................................................................................5
Answer to question 2:.................................................................................................................6
Answer to Question 3:................................................................................................................7
Answer to question 4:...............................................................................................................10
Reference List:.........................................................................................................................13

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Answer to question 1:
Answer to A:
An individual is considered for taxation purpose based on the income that is generated
from all the sources directly or indirectly during the year of income. As explained under
“taxation ruling of TR 2002/14” the receipt of lump sum as the prepaid rent is considered for
taxation purpose1. Referring to “Section 6-5 and 6-10 (3) of the ITAA 1997” an individual is
assumed to have received the income when the same is either distributed based on their
behalf in accordance with their direction.
The existing question is concerned with the taxpayer that held the flat and leases the
same to the new tenant. The taxpayer received a prepaid lease agreement for a sum of
$15,000. An explanation is provided under the “taxation ruling of TR 2002/14” where a
taxpayer getting the large amount in consideration of the lump sum prepaid agreement in
advance is held liable for taxation purpose2. The judgement made in “Frezier v
Commissioner of Stamp Duties (NSW)” the commissioner of taxation stated its by
judgement by stating that prepaid rent received in the form of lump sum is held for
assessment purpose. The commissioner explained that prepaid lump sum is considered as the
nature of home coming for the person receiving such amount. Therefore, the taxpayer in such
situation is held liable for assessment. In accordance with the “section 6-5 of the ITAA
1997” the prepaid rent in the form of lump sum for lease agreement will be included for
assessment as income in respect of ordinary concept3.
1 Bankman, Joseph, et al. Federal Income Taxation. Wolters Kluwer Law & Business, 2017.
2 McDaniel, Paul. Federal Income Taxation. Foundation Press, 2017.
3 Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)

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Answer to B:
The Australian Taxation Office provides that an individual receiving insurance
payment will account as the personal item and the same does forms the part of tax return. An
exception to this rule is that in an individual receiving insurance pay for the purpose of
deriving taxable income then such payment is held for assessment4. Alternatively, on noticing
that a person receives an insurance payment in the form of lump sum for covering the assets
then such amount should be assigned to the assets for taxable purpose. The current situation
of Cheryl explains that warehouse of the taxpayer was destroyed by fire and as a consequence
received an insurance pay of $500,000 as the compensatory loss.
The judgement made in “Allied Mills Industries Pty Ltd v FCT (1989)” explained
that the taxation commissioner held the compensation receipt as based on the nature of the
amount5. The federal court states that compensation payment is viewed as capital element
only in circumstances where the substitution principle is implemented for a lost item.
Alternatively, receiving a compensation payment for the loss of service is accounted as
income because it constitutes a substitute of the lost element. Consequently, in the situation
of Cheryl, receiving a compensation payment relating to insurance is considered as capital
receipt because the lost warehouse is the capital item. Considering the verdict of federal
court, Cheryl on receiving the compensation payment from insurance pay-out constitutes a
capital receipt and excluded from the taxable income.
4 Murphy, Kevin E., and Mark Higgins. Concepts in Federal Taxation 2017. Cengage
Learning, 2016.
5 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.

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Answer to C:
A claim for allowable deduction can be bought forward by the taxpayer for expenses
that are incurred in managing their tax matters. The Australian Taxation Office explains that
an individual is allowed to claim deductions for the cost that are incurred in preparing and
lodging the tax return6. The question introduces that Boris has occurred expenses of $500 on
lodging a tax return. Referring to section 8-1 of the ITAA 1997 a person is allowed to claim
specific allowable deduction for expenses occurred in generating assessable proceeds.
Adhering with the rules of Australian Taxation Office Boris can bring the claim of
permissible deductions relating to expenses incurred in lodging tax return.
The Australian Taxation Office provides that a person can object to the ATO decision.
An individual taxpayer can disagree with the manner based on which the ATO interprets the
law. As evident Boris disagreed with the amended assessment7. Furthermore, Boris incurs
cost on raising those objections. Therefore, with reference to section 8-5 of the ITAA 1997
Boris can claim the deductions for those expenses as specific deductions.
Answer to D:
There are two positive limbs of section 8-1 of the ITAA 1997. A person is allowed to
claim deductions for general deduction under section 8-1 from their taxable income for any
form of outgoing or the extent that it is occurred in generating taxable income8. The
6 Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.
7 Burke, Karen. Federal income taxation of partners and partnerships in a nutshell. West
Academic, 2016.
8 Woellner, R. H et al, Australian Taxation Law 2014

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expenditure under general deduction is required to meet the test of eligibility under the
positive limbs. However, where an expenses or losses under this section is to the extent of
private or capital in nature then deduction is not allowed9. The federal commissioner referred
to “Lunney v Federal Commissioner of Taxation” considered that it is vital to consider the
required characteristics of the loss or outgoing that is necessary prerequisite in the derivation
of taxable income. The expenditure incurred by James for having meal at hospital café is held
as private expenses. With the respect to the decision of court James will not be allowed to
claim deduction for meal expenses as this expenses do not meet the eligibility test of positive
limbs.
Answer to E:
To ascertain whether the food or drink provided an individual is required to look into
the factors such as whether the food or drink forms the part of refreshment for employee to
complete the day’s work which is generally not an entertainment. Another factor includes
whether the food or drink provided in the social situation for business purpose. As evident in
the current situation of Frances, he incurred an expenses of $5000 for food and drink on guest
that he has invited as the mark of commencement of new business10. With reference to
“paragraph 32-10 (1) of the ITAA 1997” the expenses incurred by James on food and drink
is a business entertainment expense and the same will be allowed as allowable deduction for
James.
9 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
10 Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.

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Answer to question 2:
The question introduces the issue whether Usman for the assessment year of 2016-17
will be considered as the Australian resident for taxation purpose. The “taxation ruling of
98/17” is associated to the understanding of the ordinary concept of the term “Resident”11.
The taxation ruling of “taxation ruling of 98/17” is generally made applicable on individuals
that comes to Australia in the form of migrants. This includes students for study purpose,
visitors on holiday and workers under overseas work contracts. The judgement made in
“Miller v Federal Commissioner of Taxation (1946)” where a person is residential matter is
based on the question of fact for the taxation purpose. The judgement made by the court in
the above stated case is based on assessing the reason for a person stay in Australia.
Referring to the case of Usman he holds a French passport during his stay from the
period of 2012-2016. The passport allowed Usman to stay and work in Australia. According
to the “taxation ruling of 98/17” the period of physically being in Australia helps in
explaining the behaviour relating to endurance or a matter of habit12. The federal
commissioner elaborated his view in “Joachim v FCT (2002)” where a duration of six
months is viewed as a matter of significant time while concluding the that the behaviour
presented a span of continuity stay in Australia.
The viewpoint of the commissioner states that the period of physical existence
accompanied by the intention of staying in Australia coincide on several occasion. Once it is
understood that the person has established a residence even though willingly this would be
11 Hayward, Richard, ed. Valuation: principles into practice. Taylor & Francis, 2014.
12 Cao, Robin, Larelle June Chapple, and Kerrie Sadiq. "Taxation determinations as de facto
regulation: private equity exits in Australia." Australian Tax Review 43.2 (2014): 118-141.

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mean that an individual would cease to be an Australian resident simply for the reason that
the person was non-existent in Australia13. As per the “taxation ruling of 98/17” whether the
person has preserved the continuity with the place where he or she resides with the purpose of
returning and the expression that place of residence continuously his or her home. Evidently,
in the Situation of Usman a period of continuousness was noticed which demonstrates that
significant amount of time has elapsed here in Australia.
Evidently an individual visit to Australia accompanied with the object of living in
Australia for the period of six months and then extending the stay to greater than six months
then the person would be held as the Australian resident from the time they come to
Australia. consequently, denoting the circumstances of Usman provides that his stay in
Australia reflected the period of continuity until the year 2016-1714. Therefore, Usman is
considered as the Australian resident under “subsection 6 (1) of the ITAA 1936” and is held
as liable for taxation.
Answer to Question 3:
Adhering with the “Section 118-192 of the ITAA 1997” there are certain special rules
that are helpful in determining the consequences of capital gains and loss associated to the
main residence employed to generate taxable income15. Furthermore, the “Subdivision 118
B” enables a person to claim a partial exemption for the dwelling where a portion of that
13 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
14 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
15 Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.

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main residence is employed in producing income. Denoting the circumstances of Norman, he
is surrounded with the consequences of capital gains tax for his main residence and also
based on ascertaining whether Norman would be able to claim partial or complete main
residence exemption.
A person is permitted to claim the partial main residence exemption for the reason
that it helps reducing the burden of capital gains tax or loss. Usually, a pre-CGT asset
obtained prior to 20th September is held for main residential exemption from the capital gains
tax. Nevertheless, there are some of the capital gains tax that are not regarded for capital
gains tax is stated below;
a. Dwelling used as Main residence
b. Motor Vehicle
c. Collectibles bought for $500 or more than $500.
d. A CGT asset that is bought entirely to generate the exempted income or the non-
taxable income or non-exempted income.
e. A person that receives valour awards.
For a taxpayer to be considered as eligible for exemption of main residence it is
necessary to possess a dwelling as main residence. Nevertheless, on perceiving that a person
has two residences simultaneously it vital to ascertain whether the main residence is
employed for residence purpose or for gaining producing taxable income16. To be considered
for main residence exemption it is necessary for the taxpayer to determine whether there is a
subject of fact and question. As evident in the current situation of Norman by profession who
16 Davis, Angela K., et al. "Do socially responsible firms pay more taxes?." The accounting
review 91.1 (2015): 47-68.

9TAXATION LAW
is a hair dresser has bought the main residence at a cost of $700,000. The main residence
incurred the expenses on stamp for a cost of $70,000. An additional improvement that was
made by the taxpayer to the residence was $100,000 so that the property is held suitable for
the business of hairdressing.
As understood from the question an important element is to establish as to what extent
the residence question for the main residence exemption with reduced instances of capital
gains tax. The taxation commissioner in its judgement held that no form of direct course in
determining whether the residence qualifies for the main residence. According to the
“section 118-150” a dwelling is considered eligible for main residence exemption provided
that the residence purchases and later the residence is renovated before acquiring the property
provides some indication.
Taking into the account the situation of Norman an expense of $100,000 was reported
before making the property suitable for hair dressing business. considering the declaration of
the Australian Taxation Office a taxpayer would be able to gain main residence exemption
from their capital gains tax17. Alternatively, a person is allowed to claim partial main
residence exemption if any part of the dwelling or main residence is employed for generating
taxable income. Referring to the situation of Norman he has six rooms at his main residence
and used two of the rooms for the business purpose18. Adhering to “Subdivision 118 B”
Norman will be able to allowed for partial main residence from the capital gains for the
reason that a part of his residence was used for business purpose to produce income.
17 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
18 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013

10TAXATION LAW
Answer to question 4:
As defined under the “taxation ruling of 92/2” expenses that are occurred in the
process of research and development for the scientific purpose19. The taxation ruling of TR
92/2 provides that expenses on scientific research are allowed for deductions under section
73A (1) if the expenses is not considered allowable under any other section. The current
situation of Avon provides that the expenses that are incurred in the course of scientific
research and development is considered for allowable deductions20. Evidences obtained from
the case study suggest that the taxpayer occurred expenditure relating to the research and
development stood $500,000. However, the expenditure that was occurred was in the course
of business enhancement and was from the approved research and development institutes.
With reference to section 73 A of the ITAA 1936 an organization is eligible for
claiming permissible deductions for the expenditure that is occurred for undertaking the
scientific research and development21. An important consideration for the section 73 A of the
ITAA 1936 is to qualify for the allowable deductions the expenses that are occurred is for the
cause of assessable income.
As an alternative if an organization occurs an expenses on research and development
for gaining or producing the taxable income then in such situation the expenses is not allowed
for allowable deductions. Furthermore, subsection 1 of the section 73A of the ITAA 1936
19 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of
Business Taxation
20 James, Malcolm, Taxation Of Small Businesses 2014/15
21 Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)

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provides an explanation that the eligibility criteria for getting the allowable deductions is to
occur expenses from the scientifically approved research institute22. As held in the situation
of the Avon Pty Ltd, the company occurred a research and development expenditure as the
payment to Queensland University which is scientifically approved research institute with the
business improvement activities. Therefore, Avon in this situation would be eligible for
claiming allowable deductions based on the research and development activities.
An important consideration of the “section 73A of ITAA, 1936” and “taxation ruling
of TR 92/2” provides that a business would be able to gain income tax incentive on the
circumstanecs when the expenses occurred is with authorized research centre23. However,
section 73A of ITAA, 1936 of the “taxation ruling of TR 92/2” explains that to claim a tax
incentive the business should satisfy the deduction criteria. Evident in the circumstances of
Avon Pty the expenditure on the research and development is from the scientifically
approved institute which meets the eligibility norms of section 73A of ITAA, 193624. In
addition to this, the company would be able to gain the advantage of income tax incentive
from the taxable earnings for the expenses on scientific research and development.
22 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
23 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
24 Sadiq, Kerrie et al, Principles Of Taxation Law 2014

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Reference List:
Bankman, Joseph, et al. Federal Income Taxation. Wolters Kluwer Law & Business, 2017.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
Burke, Karen. Federal income taxation of partners and partnerships in a nutshell. West
Academic, 2016.
Cao, Robin, Larelle June Chapple, and Kerrie Sadiq. "Taxation determinations as de facto
regulation: private equity exits in Australia." Australian Tax Review 43.2 (2014): 118-141.
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Davis, Angela K., et al. "Do socially responsible firms pay more taxes?." The accounting
review 91.1 (2015): 47-68.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
Hayward, Richard, ed. Valuation: principles into practice. Taylor & Francis, 2014.
James, Malcolm, Taxation Of Small Businesses 2014/15
Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
McDaniel, Paul. Federal Income Taxation. Foundation Press, 2017.

13TAXATION LAW
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
Murphy, Kevin E., and Mark Higgins. Concepts in Federal Taxation 2017. Cengage
Learning, 2016.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
Sadiq, Kerrie et al, Principles Of Taxation Law 2014
Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.
Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
Woellner, R. H et al, Australian Taxation Law 2014
Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).