TAXATION LAW Assignment: Income, Retirement, and Taxation in Australia

This document presents a detailed solution to a taxation law assignment. The assignment addresses the concept of assessable income, differentiating between ordinary and statutory income, and explaining exempted and non-assessable non-exempt income. It also examines the Australian retirement income system, including its three pillars (age pension, superannuation guarantee, and voluntary savings), and compares it with the UK's system. The solution discusses the tax treatment of superannuation contributions and earnings, highlighting the benefits of tax concessions for higher-income earners. It further touches upon the need for simplifying the interaction of retirees with the tax transfer system and the importance of financial literacy. The document provides a comprehensive overview of key taxation principles and their application within the Australian context.

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

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
Answer to question 3:.................................................................................................................9
Answer to question 4:...............................................................................................................12
References:...............................................................................................................................17

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Answer to question 1:
There are large amounts that is received by an organization would be considered as
the assessable income. Assessable income represents any sum which is received would be
treated as ordinary income given the income is earned from providing personal services,
income from the property and earnings from carrying on of the trading activities1. The
assessable income includes the amount that is specified under the income tax law as the
income. However, the assessable income does not include the amount that is stated in the
income tax law as the exempted income or the non-assessable, non-exempt income.
Assessable income comprises of receipts from the trading with the non-members and income
from the sources comprises of sources that are outside the organization.
The assessable income comprises of the ordinary income and statutory income. The
term ordinary income does not have any definition under the tax Acts. The meaning of this
concept is obtained from the case law and it is based on the principles that emerges from the
decisions2. The role of tax legislation is to take into the account the sum of ordinary income
as the taxable given the sum satisfies the criteria that is determined by the application of case
law principles. The sum would be considered in the ordinary income under the “section 6-5
of the ITAA”.
Ordinary income has been explained under “section 6-5 of the ITAA 1997”. As per
the “section 6-5”, usually most of the earnings that is earned by the taxpayer is held as
ordinary income3. The judicial concept of income as per the ordinary concepts is explained
1 Fleurbaey, Marc, and François Maniquet. Optimal taxation theory and principles of fairness. No.
2015005. Université catholique de Louvain, Center for Operations Research and Econometrics
(CORE), 2015.
2 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing,
2016.
3 Christie, Michael. "Principles of Taxation Law 2015." (2015): 814-816.

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through a case law approach. In “Scott v CT (1935)” the court held that earnings should not
be observed as the word of art and necessitates implementation of the required principles to
determine the treatment of receipts as income with respect to the ordinary concepts.
The ordinary income is included into the taxpayer’s taxable income under “section 6-
5 of the ITAA 1997”. The statutory income comprises of the assessable income because of
the actions of specific legislation that are contained in the acts. It becomes obligatory for the
“Federal Commissioner of Taxation” to represent how the legislation is applied to classify
the amount as the statutory income4. Frequently, the amount of statutory income fails to meet
the concept of ordinary income and hence it would not be treated for taxation purpose
without any particular legislation. Once the legislation has been implemented and ascertained
the sum to include into the statutory income, the sum calculated under the legislation is
included in the assessable income under the “section 6-10”.
Statutory income is income stated as the assessable income under the numerous
provisions stated in the tax assessment acts. Statutory income is taken into account before the
implementation of ordinary income as the amount that must be assessed under the specific
provision of “section 6-25 (2)”. The items of statutory income consist of income as per the
ordinary concepts that is referred as ordinary income5. As the term ordinary income is
particularly not defined by the legislation in the Act, taxpayers usually remains dependent on
the court and case law approach to explain its meaning.
4 Kiprotich, B. A. "Principles of Taxation." governance (2016).
5 Burton, Mark. "A Review of Judicial References to the Dictum of Jordan CJ, Expressed in Scott v.
Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes of the Australian
Income Tax." J. Austl. Tax'n 19 (2017): 50.

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The reconciliation rule defined under “section 6-25 (2)” explains that provided the
sum is both the ordinary and statutory income, the statutory rules of income succeeds except
there is any opposing intention prevails6. In spite of the broad intention stated under “section
15-2” there has been only a restricted role since it is applicable to a sum that are ordinary
income or the fringe benefit. Similarly, the employee share benefits is not held for taxation as
the ordinary income instead a separate statutory regime is available. On the other hand, the
numerous lump sum payments which is received by the employee for the termination of
employment particularly the redundancy payment are not treated as statutory income.
There are two situations when income is exempted from the tax assessment. First, this
includes the situation when the sum of statutory or ordinary income is obtained by the entity
that are exempted under “section 11-5 of the ITAA 1997”7. Secondly, the sum of listed
exempted income that is received by the entity is taxed under “section 11-15 of the ITAA
1997”. The concept of exempted income is defined under the “section 6-20 of the ITAA
1997”. The division 11, consists of “subsection 11-1A -11-15” comprises of lists of
exempted income that is received by the entity is assessed for taxation purpose under
“section 11-15 of the ITAA 1997”8.
As per the “section 11-15” it lists down the forms of income that are exempted from
taxation. Under “subparagraph of 23(g)(v)” of the “Tax Determination 93/190” explains
that income by society or any association that is created for community services purpose
6 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
7 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
8 Belloc, Hilaire, On (Nabu Press, 2010)

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which is not carried on for purpose of profit or gains the individual members would be
exempted from taxation9.
As evident under “section 6-23” recognizes the fourth basic income category is the
non-assessable non-exempt income, which is neither held for assessment nor it is exempted10.
This represents the class of income that is not held for assessment but is not considered as
exempted income under circumstances where the exempted income is taken into the
considerations for particular purpose namely in computing and deducting the tax losses under
the “Division 36”11. The non-assessable non-exempted income is held as untaxed income and
it is considered as if not an income. The classification of NANE was introduced during the
year 2003 to avoid any overlap between the taxable and the exempted earnings. An element
of income is only considered taxable, exempt or non-assessable non-exempt income and
hence cannot fall in greater than one category.
On noticing that the sum is not the ordinary income it is not assessed for taxation
purpose since it does not meet the conception of stated under the Australian jurisdiction12.
This is because it is not the type of income that is captured by the taxation law which is not to
assessment under “section 6-15(1)”. The income might not be particularly treated as
exempted or NANE income since it fails to satisfy the criteria of section 6-5 and section 6-10
which is not taxable.
9 Barkoczy, Stephen, Foundations Of Taxation Law 2014
10 James, Simon, The Economics Of Taxation 2014.
11 Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
12 Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)

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Answer to question 2:
The reformation procedure in Australia has contributed towards the significant
flexibility of the Australian economy that has experienced continuous progress following the
Asian financial crisis in 1997-9813. The treasurer of Australia asked the review panel to take
into the account the retirement income system. The review panel highlighted the issues that it
considers to be vital in designing the retirement income system since it is related to the issue
of designs of retirement income system based on the request of the Treasurer’s letter. Later
the retirement income system was changed substantially to meet the socioeconomic
challenges because of the ageing population of Australia.
The review panel in its consultation paper have set out the challenges and
opportunities which would figure the future tax system of Australia. This includes the rise in
globalization and the evolving pattern of global economic activity14. It also includes the
changes in the patter of workforce participants and improving the procedure of policy
creation and its management. While there are challenges in opportunities that is associated to
the entire system of tax transfer, there are many that are relevant to the future income and
retirement system of Australia. Australia has supported the standards of living for the retired
particularly those that save for their retirement15. The system of retirement income has robust
association with the demographic changes. It creates an impact on the sustainability system of
retirement income and reflects the need for making sure that it attains a reasonable living
standard for the increasing amount of persons that are not anymore working.
13 Sharp, Rhonda. "Are we there yet?: The evolution of superannuation policy in
Australia." Australian Options 84 (2016): 10.
14 Chardon, Toni, Mark Brimble, and Brett Freudenberg. "Tax and superannuation literacy: Australian
and New Zealand perspectives." (2016).
15 Kingston, Geoffrey, and Susan Thorp. "Superannuation in Australia: A Survey of the
Literature." Economic Record(2018).

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The retirement income system of Australia is surrounded by three pillars with
government funded age pension is backed by superannuation guarantee and voluntary saving.
This system makes sure that the support is provided to those that are not anymore working.
The voluntary savings pillar allows the person to choose the amount they can save and
vehicle of investment in which they would save, to attain higher retirement income16. The
compulsory and voluntary pillar of savings enables individuals to self-fund the higher
retirement expenses than that is provided by the Age Pension. Under the Australian system
the age pension offers guarantee income whereas the income produced from the second and
third pillars is dependent on the sum invested and the returns yielded from such investments.
Majority of the submissions have endorsed the three pillars but several have proposed
changes namely increasing the extent of obligatory savings and changing the way the pillars
are unified. The recent change in the SG to 9 per cent signifies that the SG would impact
those that are retired17. For instance, living standard of those that are retired would improve
considerably from the transition to matured SG system after 35 years of work. On the other
hand, the average replacement rate in UK is presently 84 for those that is 20 years old making
the regular wage and retiring on attaining the suitability age of pension.
The transition to matured SG system would change the system from one where the
superannuation complements the pension age to the one that supplements the superannuation
age of pension18. Identical to the Australian pension, UK provides the taxpayer with the
16 Whiteford, Peter, and Alexandra Heron. "Australia: Providing social protection to non-standard
workers with tax financing." (2018): 43-73.
17 Australia's Future Tax System - Papers (2018) Taxreview.treasury.gov.au
<http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm>
18 Fettes, William, and Daniel Butler. "Superanuation: Lump sum payment arising from a partial
commutation." Taxation in Australia 51.10 (2017): 562.

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funded minimum superannuation income that are characteristically uttered as the proportion
of average wages. Unlike Australia, UK has national social insurance system that provide
guaranteed retirement income and can be funded by the individual contributions and tax on
wages19. The guaranteed retirement earnings are usually an after-tax replacement of a people
prior to retirement income, depending upon the eligibility criteria namely the time in their
labor force and period of contributions. UK finance this element with the help of obligatory
defined contributions arrangements while in Australia this is done with the help of
Superannuation Guarantee.
Considering the equity of the assessment provisions in Australia the savings that are
invested in the superannuation is usually not levied at the separate depositor’s personal tax
rate. As an alternative superannuation contributions and pays is levied at the flat ratio of 15%
inside the fund20. The structure of taxation implies that the superannuation concession is
higher for the individuals on the higher personal tax rate whereas for individuals on the lower
personal tax rate that receives less allowance on their contributions.
Individuals that earn higher income is most likely to gain advantage to a large degree
from the tax exception derived from the assets that supports the superannuation earnings
streams21. As they have greater assets, they are more probable to live long on the regular basis
19 Australia's Future Tax System - Retirement Income Consultation Paper - Section 3: An Acceptable
Retirement Income System (2018) Taxreview.treasury.gov.au
<http://taxreview.treasury.gov.au/content/ConsultationPaper.aspx?doc=html/publications/Papers/
Retirement_Income_Consultation_Paper/Chapter_3.htm>
20 Australia's Future Tax System - Retirement Income Consultation Paper - Section 1: The Retirement
Income System (2018) Taxreview.treasury.gov.au
<http://taxreview.treasury.gov.au/content/ConsultationPaper.aspx?doc=html/publications/Papers/
Retirement_Income_Consultation_Paper/Chapter_1.htm>
21 Part 1: Overview - Chapter 1: The Need For Reform - Australia's Future Tax System: Final
Report (2018) Taxreview.treasury.gov.au <http://taxreview.treasury.gov.au/content/FinalReport.aspx?
doc=html/publications/papers/Final_Report_Part_1/chapter_1.htm>

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than the persons belonging from the lower earnings group. The tax concession provides
benefit to those that earn higher income and this can be lowered up to the extent of higher
income groups. The tax concession provides benefits to those that earn higher income but it is
reduced to a degree by the supplementary constituents of superannuation revenue system.
Conclusively, there are certain submissions that discusses the need of simplifying the
manner in which retirees interact with the system of tax transfer22. There ae some suggestions
that claim that enhancing the economic literateness of the household is vital especially in the
administration of the retirement income. The elimination of tax on the superannuation
welfares has helped in simplifying the benefits related to taxation. Additionally, taxpayers
can make both before and after tax superannuation contributions. The before tax
contributions are considered as deductible whereas the after tax contributions are not
subjected to deduction but might be considered appropriate for the government retirement
contributions.
Answer to question 3:
As stated under “section 6 of the ITAA 1936” income obtained from the individual
exertion or earnings from the private exertion denotes the income that comprises of the
earnings, salaries, wages, commissions, payments, gratuities that is received in capacity of
the employee in respect of the amenities provided or proceeds from the business23. An item of
income nature under “section 6-5 of the ITAA 1997” is obtained when it comes home to the
taxpayer.
22 Hellwig, Timothy, and Ian McAllister. "The impact of economic assets on party choice in
Australia." Journal of Elections, Public Opinion and Parties 28.4 (2018): 516-534.
23 Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)

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In the current case it is understood that Abby is employed at a store that sells running
shoes. Abby was also paid salary during the year 2016/17 that amounted to $50,000. As held
in “Dean v FCT” the taxation commissioner held that the retention payments that was made
to the employee for being employed for a period of 12 months after the takeover was
considered as taxable income24. The sum of salary that is paid to Abby would be treated
assessable as ordinary income under the ordinary concept of “section 6-5, ITAA 1997”. The
amount was obtained from the personal effort and hence it constituted an income from the
personal exertion that attracts tax liability.
As per the ATO there are certain specific payments, grants or subsidies that an
individual receives from government would be taken into the consideration as the taxable
income. These includes the grants that is received by an individual under the apprenticeship
incentives program or the subsidies received for running the business25. As evident in the
current situation, Abby travels for the running competition and received a government grant
that amounted to $8000 for training support and covering the cost of local travel. The sum of
$8,000 that is received by the government constitute government grant and these amount
would be included for the assessment purpose.
In the later instances it is noticed that Abby reported eight receipts in the form of prize
from race across different parts of world during the income year of 2016/17. The court of law
“Moore v Griffiths (1972)” held that mere prize is not treated as earnings though it might be
treated as income given that there is a sufficient relation with the revenue producing activities
24 Sadiq, Kerrie, Principles Of Taxation Law 2014
25 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)

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of the taxpayer26. If a receipt is capable of being represented as the product of revenue
generating activities that might be considered as determinative of income character.
Evidently the court in “Kelly v FCT” found that the professional footballer received
award from the Channel 7 for being the fairest and the best player27. The taxation
commissioner held the amount received by the taxpayer was having the nature of income
which was related to his work and service by the club and was also associated to the
application of his skill. In another example of “FCT v Stone” the taxpayer was the
policewomen and javelin thrower that made approximately $39,000 in the form of salary with
greater than $180,000 in the form of endorsements28. The sum of prize money was assessable
because the taxpayer was found to be carrying on the business as the professional athlete and
the money was considered as income.
Similarly, in the case of Abby, it can be stated that she was carrying on the business
of professional athlete since the receipt can be represented as product of income generating
activities which should be considered as the determinative of income character. Citing the
case of “FCT v Stone” it can be stated that the Abby beside the employment, was also
carrying on the business of professional athlete and the sum will be considered as assessable
income under the ordinary concepts of “section 6-5 of the ITAA 1997”29.
As per the “taxation ruling of TR 1999/17” payments received by a person in relation
of or in association with the employment would be treated as assessable income. The
26 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
27 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
28 Pinto, Dale. "State taxes." Australian Taxation Law. CCH Australia Limited, 2013. 1763-1762.
29 Robin, H. Australian taxation law 2017. Oxford University Press, 2017.