Taxation Law

Desklib provides comprehensive study material on Taxation Law, including solved assignments, essays, and dissertations. Explore various topics such as methods for determining effective asset life, tax offsets, top tax rates, exemptions for capital gains, and more. Course code: N/A, Course name: N/A, College/University: N/A

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW
Table of Contents
Answer to Question 1................................................................................................................3
Requirement A...........................................................................................................................3
Requirement B.......................................................................................................................3
Requirement C.......................................................................................................................3
Requirement D.......................................................................................................................3
Requirement E.......................................................................................................................4
Requirement F.......................................................................................................................4
Requirement G.......................................................................................................................4
Requirement H.......................................................................................................................5
Requirement I........................................................................................................................5
Answer to question 2.................................................................................................................5
Requirement A.......................................................................................................................5
Requirement B.......................................................................................................................6
Requirement C.......................................................................................................................6
Requirement D.......................................................................................................................7
Requirement E.......................................................................................................................7
Answer to Question 3................................................................................................................8
Requirement A.......................................................................................................................8
Requirement B.......................................................................................................................8

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Requirement C.......................................................................................................................8
Requirement D.......................................................................................................................9
Answer to question 4:..............................................................................................................10
Answer A:............................................................................................................................10
Answer B:............................................................................................................................10
Answer C:............................................................................................................................11
Answer to D:........................................................................................................................11
Answer to E:........................................................................................................................12
Answer to question 5:..............................................................................................................12
Issues:..................................................................................................................................12
Laws:...................................................................................................................................12
Application:.........................................................................................................................13
Conclusion:..........................................................................................................................14
Reference.................................................................................................................................15

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Answer to Question 1
Requirement A
The provisions of taxation rulings of TR 2018/4 deals with the methods which can be
applied by the commissioner of taxation for the purpose of determining effective asset life for the
purpose of charging depreciation within the provisions of “section 40-100 of the ITAA 1997”.
Requirement B
The provisions of “Division 13 of the ITAA 1997” shows disclosures regarding the tax
offsets which is applicable on taxable income of the individual.
Requirement C
As per the taxation rulings applicable in Australia, the top tax rate which is charged on a
resident of Australia is listed below in details1.
Income Tax Bracket Tax Charged (AUD$)
AUD $180,001 & over $54,097 plus 45c for each $1 over $180,000
Requirement D
In case of Capital gains or losses which is reduced or deferred or disregarded, taxpayer
are eligible for exemptions. The provisions which are stated under “section 118-10(1) of the
ITAA 1997” reflect that assets such as collectibles which are purchased for an amount lower
than $ 500 or equal to the same would be exempted from the purview of CGT2.
1 "Individual Income Tax Rates." Ato.gov.au. N. p., 2019. Web. 9 May 2019.
2 Mangioni, Vince. Land Tax in Australia: Fiscal reform of sub-national government. Routledge, 2015.

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Requirement E
“CGT event B1 section 104-15 of the ITAA 1997” is related to the application of an
asset in terms of use and enjoyment before the title passes to another entity. In other words, CGT
event B1 occur when an individual enters into an agreement with another party for the capital
asset where the right to use and enjoy the asset passes to the other entity3. It is to be noted that
the title may pass to another entity at conclusion or prior to conclusion of the contract.
Requirement F
The formula which is stated under section 4-10(3) of the ITAA 1997 is portrayed below
in equation format:
Income Tax= ( Taxable Income∗Rate of Tax ) −Tax Offsets
Requirement G
As per the verdict of the court in the case of “Day 2008 ATC 20-064 v FC of T” legal
outgoings which was incurred by the taxable was for generation assessable revenues and the
same met the condition given under “paragraph 8-1(1)(a) of the ITAA 1997”. The case holds
significance relating to tax deductions of legal outgoings of a public servant that was mainly
related to the activities which was of regular nature. The legal expenses which is incurred would
be allowable for deduction under the provisions of “section 8-1, ITAA 1997”. The expenses was
incurred by the public servant in the year 2002 for defending the disciplinary actions which was
imposed on the taxpayer by the employer.
3 Tran, Alfred. "Can taxable income be estimated from financial reports of listed companies in Australia." Austl. Tax
F. 30 (2015): 569.

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Requirement H
The average rate of taxes is obtained by dividing the total amount of taxes chargeable
with the total income which is generated by the taxpayer. On the other hand, marginal tax rate is
determined by applying tax rate on the incremental income which is generated by the taxpayer.
The average rate of taxes assesses the burden of taxes while marginal rate of taxes assesses the
effect of tax of incentives to save, invest or spend.
Requirement I
Consumption tax may be regarded as the tax which is incurred on consumption of goods
and services. It is the system of taxation where people are levied taxes according to how much
they consume instead the contribution they make to the economy.
Answer to question 2
Requirement A
As per the explanation provided by Australian Taxation Office, a taxpayer would be
eligible for deductions in the form of interest expenses incurred for loans while generating the
assessable income for the business or individual. The provisions of “section 8-1, ITAA 1997”
makes it clear that interest on loan that is incurred for the business purposes would be considered
as deductions which is allowed.
As per the case interest on loan which is incurred by Brent for paying wages of
employees would be considered as allowable deductions within the meaning of positive limbs of
“section 8-1, ITAA 1997”. The case laws of “Amalgamated Zinc Ltd v FC of T (1935)” makes
it clear that Brent had incurred the interest on loan amount for generating taxable income in the
business.

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Requirement B
The losses or outgoings which is incurred in regards to business can be apportioned or the
same can be partially deductible. In the case of “Ronpibon Tin NL v FC of T (1949)” the court
required the commissioner to identify the portion of expenses which are work related and which
are private. In case a expenses which includes both private and work related expenses than
deduction would be allowed only on work related expenses of the business.
Julie incurred mobile expenses of $ 500 which included both work related and private use
and the ratio for the same was 60% to 40%. Referring the case of “Ronpibon Tin NL v FC of T
(1949)” Julie would be allowed deduction for the 60% part of the phone expenses and the 40%
would not be allowed as deduction as per the negative limbs of “section 8-1(2)”4.
Requirement C
As per the provisions of “section 8-1, ITAA 1997” child care expenses are considered to
be no-allowable expenses for tax purposes. As per the verdict given in the case of “Lodge v FC
of T (1972)” the taxpayer was not allowed to claim deduction for childcare expenses which was
incurred during the work but the same are not incidental to work.
As per the case which is shown in the assessment, Sally organised a baby-sitting service
while she attended work for her child. These expenses would not be allowable for deduction as
the nature of the expenses is domestic or private. The expenses neither meets the positive or
negative limb as per the criteria of “section 8-1 (2)(b) of the ITAA 1997”.
4 Devos, Ken, and Marcus Zackrisson. "Tax compliance and the public disclosure of tax information: An
Australia/Norway comparison." eJTR 13 (2015): 108.

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Requirement D
The provisions of “Section 8-1, ITAA 1997” is applicable for outgoings and losses which
is incurred by taxpayers. The court in the case of “Charles Moore & Co (WA) Pty Ltd v FC of T
(1956)” allowed taxpayer deductions for the losses which is incurred from theft when the
taxpayer was going to bank.
As per the positive limb of “section 8-1, ITAA 1997” Jerry would be eligible for
claiming deduction for goods which was stolen and thereby he incurred a loss for the same5. The
loss was incurred while carrying on operations of the business for the purpose of generating
taxable revenues.
Requirement E
Ongoing or legal expenses of the that are incurred at the initial stages of revenue
generation would not be treated as expenses which occurred during the course of business
operations and the same are not treated as deductions under “section 8-1, ITAA 1997”6. As per
the case laws of “Maddalena v FCT (1971)” outgoings incurred for the purpose of getting the
new job were not incurred during the course of business operations and therefore the same would
not be held taxable “section 8-1”
The outgoings incurred in contesting the local government election were preliminary for
the beginning of the revenue producing acts and it is during the course of producing assessable
5 Smith, Marcus, and Russell G. Smith. "Procedural impediments to effective unexplained wealth legislation in
Australia." Trends and Issues in Crime and Criminal Justice523 (2016): 1.
6Ato.gov.au. Legal Database. [online] (2019). Available at: https://www.ato.gov.au/law/view/document?
Docid=TXR/TR977/NAT/ATO/00001 [Accessed 9 May 2019].

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income and therefore the same would not be considered as non-deductible under legislative
provision of “section 8-1, ITAA 1997”7.
Answer to Question 3
Requirement A
A “CGT event F2” is eligible when the taxpayer renews extends or grants the long-term leases.
It is generally applied on a taxpayer who is the owner of the underlying asset or the taxpayer is
granted sublease. As per the case of Andy who is a the owner of land, grants a lease of five years
to Brain at a premium of $ 5,000. This led to applicability of “CGT event F2”. This is the main
reason that Andy would not be getting 50% of CGT discount as the same is not applicable in
CGT event F2.
Requirement B
As per the provisions which are stated in ATO a “CGT event B1” takes place when the
use of land is mainly acquired by a new owner. The use of land takes place when the land is
actually acquired by the taxpayer and he is permitted to enjoy the profits or rents pertaining to
the same. In the case, a farm land of $ 40,000 was given a option of purchasing the 100 acres
farm for a sum of $ 800,000. In this case a CGT event B1 takes place and a 50% CGT discount
would be applicable to the transaction.
Requirement C
As per the explanation provide by ATO, if a taxpayer abode is not permanent residence
for the period of ownership and for generating income then in such a situation a partial main
7 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view." Procedia-Social and
Behavioral Sciences 109 (2014): 1069-1075.

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residence exemption is allowed to the taxpayer. As per the case, the property which is being
considered was let out for generating income and was also used as main residence till the same
was sold out in 2018. A partial main residence exemption would be provided to Jamie and Olivia
when the property was sold off. Therefore a 50% discount on CGT method can be used by Jamie
and Olivia for determining the capital gains taxes.
Requirement D
Particulars Amount (AUD$) Amount (AUD$)
Proceeds from the sale of BHP Shares (CGT Event A1 (section 104-10(1)) 18720
Element 1: Cost of Acquisition (section 110-25(1)) 5400
Taxable Capital gains 13320
Proceeds from the sale of Wesfarmers Shares (CGT Event A1 (section 104-
10(1)) 10500
Element 1: Cost of Acquisition (section 110-25(1)) 26000
Loss on Sale -15500
Net capital loss -2180
Calculation of Capital Gains Tax
In the Books of Chris
For the year ended 2019
The sale of shares of BHP resulted in capital gains which amounted to $ 6,660 while sale of
Wesfarmers shares led to losses of $ 15,500. A capital loss is not allowed as deduction but as
offset against the capital gains during the period or the same can also be carried forward to next
year as well8. Chris has the option of offsetting the capital gains from BHP shares with
Wesfarmers shares and can still carry forward an amount of $ 8,840 for future period.
8 Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia. Centre for Policy
Studies, Victoria University, 2016.

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Answer to question 4:
Answer A:
Prizes and chance winnings are considered non-taxable if the windfall gain is earned by
way of luck. On the other hand, prizes are considered ordinary income if it is earned by using
extent of personal skill which evidently overshadows luck. In “Kelly v FCT (1985)” winnings by
the professional sports people was considered as taxable income because the earnings were
derived by using personal skills9.
Receiving prize of $2000 for best TV advertisement is an ordinary income under
“section 6-5, ITAA 1997”. Citing “Kelly v FCT (1985)” the amount is assumed to have been
received by use of taxpayer’s income earning activity by way of personal service10.
Answer B:
According to the “section 6-1 of the ITAA 1936” income earned from the personal
efforts includes the allowances, salaries, wages or gratuities etc. that is received by an employee
is regarded as an income11. Reimbursement of expenses incurred by the employee from the
employer is not an income. The employee here receives a sum of $500 as the reimbursement of
travel expenses for work purpose. The employee however bought the return flight ticket on sale
for less cost of $120. Therefore, the remaining amount of $380 constitute real gain for the
employee and has the characteristics of income. The amount will be taxable as ordinary income
under “section 6-5, ITAA 1997”.
9 Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law & Policy 29.1 (2017): 3-10.
10 Kelly V FCT (1985) 80 FLR 155.
11 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).

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Answer C:
Gifts that is received for rendering personal services are not treated as income in
accordance with ordinary income under “section 6-5, ITAA 1997”. As held in “Scott v FCT
(1966)” gifts received by taxpayer from the client out of personal relationships among the parties
was not held as income12.
The taxpayer reporting the receipt of iphone as the gift from the client that has the value
of $1,000. Mentioning the decision in “Scott v FCT (1966)” the receipt of iphone as the gift is
not an income under ordinary concepts of “section 6-5, ITAA 1997” because it is received as the
personal relationship among the parties.
Answer to D:
Denoting the explanation that is made in the “paragraph 118-37 (1) (b) of the ITAA
1997” taxpayers are advised to ignore the capital gains that is made from the compensation or
damages relating to personal injury or wrong13. Compensation amount received by the taxpayer
for personal injury are usually exempted from tax.
As evident, a compensation amount of $10,000 has been received by the taxpayer for
sustaining injuries from car accident. The compensation amount that is received is owing to
personal injury. Hence, it is not an income and no tax is payable on those amount.
Answer to E:
Where the taxpayers anticipates a certain amount of money in future in the form of being
entitled to income in the future year cannot be considered as income because it is very much
12 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
13 Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19 (2017): 21.

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remote to set up any link with the present year income14. Similarly, the taxpayer purchased the
shares at $5. After a while the shares that were purchased for $5 was trending at $7.50.
Therefore, the increase in the value of shares does not amounts to income until the shares are
sold. It can be stated that it is occurred at a point too soon to be regarded as income in
accordance with the ordinary concept of “section 6-5, ITAA 1997”.
Answer to question 5:
Issues:
The issue will take into the account the residential status of Nisu who is an academic
migratory came to Australia take up accounting course in CQU.
Laws:
The definition of resident under “section 6 (1), ITAA 1936” explains that a person is an
Australian resident if they are residing in Australia continuously or intermittently and the
commissioner is contented the taxpayer has no other fixed place of abode in overseas country15.
A taxpayer is only needed to satisfy one of the four test to be held as Australian resident for tax
purpose. The first test is resides test which implies to live here permanently or for the substantial
time. Factors such as physical amount of time and frequency of visit is important consideration.
The Domicile Test states that a person is treated as Australian dweller if they are having a
home in Australia, unless the commissioner understands that a person has the permanent home
out of Australia. As held in “FCT v Applegate (1979)” the high court held permanent does not
signifies forever and it is assessed every year objectively. Factors such as permanency with
14 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
15 Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.

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Australian association and the intended length of stay in Australia are helpful in determining
residency status16.
The 183-Day Test is another important test where a person is regarded as resident of
Australia for tax purpose when he or she is physically present in Australia at least for six months
in a income year.
Application:
Nisu is an academic migrant who arrived in Australia with the intention of residing here
on a permanent basis from the arrival. With regard to reside test Nisu cannot be considered as
Australian resident because she was not present in Australia for considerable time period. On
applying the Domicile Test it can be stated that has bought a residential home on rent for
dwelling purpose and she also took up part-time employment in Australia. Furthermore, she
joined the local soccer team as well. Her behaviour while present in Australia is consistent with
the residing here which describes Nisu’s social and living arrangement are relevant with residing
in Australia. Citing “Applegate v FCT (1979)” Nisu has met the criteria of Domicile Test17.
Under the 183-day test it is noticed ever since Nisu arrived, she has been present in
Australia for a minimum of six months or 183 days. Therefore, she will be considered as
Australian resident under “section 6 (1), ITAA 1936”.
16 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian taxation law 2018.
Oxford University Press, 2018.
17 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J. Australasian Tax
Tchrs. Ass'n 13 (2018): 307.

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Conclusion:
Nisu has satisfied the criteria of Domicile Test and 183-Day Test. Therefore, she is an
Australian resident under “section 6 (1), ITAA 1936”.
Reference
Ato.gov.au. Legal Database. [online] (2019). Available at:
https://www.ato.gov.au/law/view/document?Docid=TXR/TR977/NAT/ATO/00001 [Accessed 9
May 2019].
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law & Policy 29.1
(2017): 3-10.

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Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
Devos, Ken, and Marcus Zackrisson. "Tax compliance and the public disclosure of tax
information: An Australia/Norway comparison." eJTR 13 (2015): 108.
Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia.
Centre for Policy Studies, Victoria University, 2016.
Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19 (2017):
21.
Individual Income Tax Rates. Ato.gov.au. N. p., 2019. Web. 9 May 2019.
Kelly V FCT (1985) 80 FLR 155.
Mangioni, Vince. Land Tax in Australia: Fiscal reform of sub-national government. Routledge,
2015.
Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view." Procedia-
Social and Behavioral Sciences 109 (2014): 1069-1075.
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Smith, Marcus, and Russell G. Smith. "Procedural impediments to effective unexplained wealth
legislation in Australia." Trends and Issues in Crime and Criminal Justice523 (2016): 1.

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Tran, Alfred. "Can taxable income be estimated from financial reports of listed companies in
Australia." Austl. Tax F. 30 (2015): 569.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).