Taxation Law

This document provides answers to various questions related to Taxation Law. It covers topics such as tax offsets, highest tax rate for Australian residents, collectibles and capital gains tax, income tax computation, deductibility of legal expenses, marginal tax vs average tax, consumption tax, deductions for business expenses, deductibility of private expenses, deduction for stolen goods, and more.

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:.................................................................................................................3
Answer A:..............................................................................................................................3
Answer B:...............................................................................................................................3
Answer C:...............................................................................................................................3
Answer D:..............................................................................................................................3
Answer E:...............................................................................................................................3
Answer F:...............................................................................................................................4
Answer G:..............................................................................................................................4
Answer H:..............................................................................................................................4
Answer I:................................................................................................................................5
Answer to question 2:.................................................................................................................5
Answer to A:..........................................................................................................................5
Answer to B:..........................................................................................................................5
Answer to C:..........................................................................................................................6
Answer to D:..........................................................................................................................7
Answer E:...............................................................................................................................7
Answer to question 3:.................................................................................................................8
Answer A:..............................................................................................................................8
Answer B:...............................................................................................................................8
Answer C:...............................................................................................................................9

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

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Answer to question 1:
Answer A:
The “Taxation Ruling of TR 2018/1” is the public ruling where the opinions
regarding the determination of effective life of asset that are depreciating in nature are
explained in “section 40-100, ITAA 1997”1.
Answer B:
As it has been defined under the “Division 13, ITAA 1997” an individual taxpayer is
allowed claim tax offsets under this division.
Answer C:
On the Australian resident the highest tax rate that is applied is 54,097 + 45c for each
$1 above 180,000.
Answer D:
As defined under the “Section 108-10 (2)” collectibles as something that is kept for
personal use and enjoyment. Under first element of “section 118-10 (1), ITAA 1997”
collectibles must be disregarded from capital gains tax where the cost is less than $500.
Answer E:
As it has been elucidated in “section 104-15” it mainly involves the use of title before
it is passed to others. When a person forms an agreement with alternative person where the
right of use of CGT asset title is passed to alternative entity then a CGT event B1 happens.
1 "Legal Database", Ato.Gov.Au (Webpage, 2019)
<https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT%2FATO
%2F00001>

4TAXATION LAW
Where the title of asset is passed to additional entity before the end of agreement then a CGT
event B1 happens.
Answer F:
The legislative provision of “section 4-10 of the ITAA 1997” explains that the
taxpayers must pay the tax every year. As explained in “section 4-10 (3), ITAA 1997” to
compute the income tax for financial year the formula is given below;
Income tax = [Taxable Income x Rate] – Tax Offsets
Answer G:
As defined in “FC of T v Day 2008 ATC 20-064” the legal outgoings which took
place by taxpayer was incurred for generating assessable income that resulted in satisfying
the criteria of “paragraph 8-1 (1) (a), ITAA 1997”. The decision of the court explained that
the expenses were not incurred by taxpayer for personal purposes and it took place in relation
to taxpayer position as public servant which was never unrelated to taxpayer’s services. The
judgement held that legal expense was in relation to generating income and is allowed for
deduction under “section 8-1, ITAA 1997”.
Answer H:
The differences between marginal tax and average tax is explained below;
a. The marginal tax provides measures regarding the tax effect on earnings, expenses
and investment. The average tax explains the measurement relating to tax weight.
b. The average tax is used to measure burden of household such as the manner in which
tax effects the ability of households to consume currently and in future2. The marginal
2 Mertens, Karel, and José Luis Montiel Olea. "Marginal tax rates and income: New time
series evidence." The Quarterly Journal of Economics 133.4 (2018): 1803-1884.

5TAXATION LAW
tax assesses the extent to which taxes may affect the economic incentives of
household especially for greater savings and high risk investment portfolio.
c. Marginal tax is regarded as the incremental tax that is paid upon the rise in the income
of the taxpayers. The higher is the marginal amount tax the lower is the incentive to
indulge in the specific activities of work and consume a particular item. The average
tax on the other hand represents the share of income that one pays in the form of
taxes. The average tax is generally much lower than the marginal taxes.
Answer I:
Tax that is imposed on spending of goods and services is known as consumption tax.
The tax base involves the amount of money that is spend on consumption. The consumption
tax is generally indirect namely the sales and value added tax. The tax base of such kind of
tax generally comprises of the amount of money that is spend on the consumption. The
consumption taxes are usually paid on the indirect taxes and it can structured in the manner of
personal taxes as well. Consumption taxes can be also referred to the system of taxation
where people are tax on the basis of the how much they consume instead of the amount they
add to the economy.
Answer to question 2:
Answer to A:
As explained in “section 8-1, ITAA 1997” deductions from the assessable income is
allowed to an individual where the expenses incurred is for deriving the taxable earnings.
Expenses incurred in carrying on the business is allowed for deduction3.
3 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation

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Loan was taken by Brett for paying the salary of employee. The interest on loan that
is occurred by Brett is for the purpose of obtaining taxable income and in the course of
business. Referring to “section 8-1, ITAA 1997” an income tax deduction is permitted to
Brett for the amount of loan that was taken to pay the employee wages.
Answer to B:
According to the Australian taxation office, when completing the tax returns an
individual is allowed to claim deduction for some of the expenditure that are mainly related
to earning taxable income. There are some situations where the loss or expenses must be
apportioned4. A taxpayer is only permitted partial deduction or up to the extent the expenses
are incurred for business purpose and should exclude those expenses that are occurred for
private purpose.
A mobile phone bill of $500 is incurred by Julie. The expenses account 60% for
business purpose and 40% for private purpose. As a result, under “section 8-1, ITAA 1997”
Julie is only allowed to claim deduction for 60% of mobile phone bill because it is associated
to producing taxable income and 40% of private expenses should be ignored5.
Answer to C:
Losses or outgoings that has the character of private or domestic nature is non-
deductible as it does not satisfy the criteria of positive limbs. These expenses are non-
allowable deductions under second negative limb of “section 8-1 (2)(b), ITAA 1997”. In
“Lodge v FCT (1972)” no deductions were allowed to law clerk for outgoings on childcare in
order to have her child minded while she can attend her work. The federal court held that the
4 Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
5 Blackstone, William and Edward Christian, Commentaries On The Laws Of Australia (Forgotten Books, 2015)

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expenditure were neither considered incidental nor it was not relevant in producing taxable
income6.
An expense of $1,200 was occurred by Sally for babysitting purpose by Sally so that
she can mind her child while attending office. Denoting the judgement in “Lodge v FCT
(1972)” Sally cannot claim deduction under “section 8-1 (2)(b), ITAA 1997” for childcare
expenses since it is not related to earning taxable income.
Answer to D:
The taxpayers are permitted deduction under positive limbs of “section 8-1, ITAA
1997” for the losses or outgoings where the financial resources of the taxpayer are
diminished. The judgement given in “Charles Moore & Co (WA) Pty Ltd v FCT (1956)”
stated that the taxpayer is permitted to deduction for the money that was stolen7.
A loss of $20,000 was reported by Jerry where his old employee stole goods from
business. Referring to above decision in “Charles Moore & Co (WA) Pty Ltd v FCT (1956)”
a deduction for the stolen goods of worth $20,000 can be claimed as tax deduction by Jerry
under “section 8-1, ITAA 1997” for the reason that it is a loss of financial resources.
Answer E:
Under “section 8-1, ITAA 1997” no deduction is allowed to taxpayer for outgoings
that are preliminary in generating income or business activity because they are not in the
course of earning income8. The court in “FCT v Madellena (1971)” explained that outgoings
6 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
7 Krever, Richard E, Australian Taxation Law Cases 2015
8 Mertens, Karel, and José Luis Montiel Olea. "Marginal tax rates and income: New time
series evidence." The Quarterly Journal of Economics 133.4 (2018): 1803-1884.

8TAXATION LAW
that is occurred while obtaining new job is non-deductible because it they are not in the
course of earning income.
Expenses of $5000 for contesting local government election is non-allowable
deduction under “section 8-1, ITAA 1997”. The expenses were not occurred in producing
assessable they incurred at a point very soon.
Answer to question 3:
Answer A:
As defined by the ATO taxpayers can implement CGT event F2 when any long term
lease is granted, leased or renewed by the taxpayer9. It is applied when the taxpayer being the
owner of land and grants the sub-lease of land. Nevertheless, the taxpayers must note that
CGT discount is not applied when the CGT event F2 takes place.
The case facts of Andy explain that being the owner of land he grants a five-year lease
of land to Brian at a premium of $5,000. The lease granted by Andy for a five-year term leads
to CGT event F2. Conversely, no CGT discount will be applied in case of Andy.
Answer B:
A CGT event B1 takes place when the enjoyment of the title is passed to another
person. On making any kind of use of CGT asset whose title is passed the capital gains
following the subtraction of costs of acquisition leads to CGT event B110. The use and
enjoyment of asset from practical viewpoint happens when the asset ownership is passed to
9 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
10 Sadiq, Kerrie, Principles Of Taxation Law 2014

9TAXATION LAW
the new owner where he is permitted to rent and share the profits. Farm Ltd was granted the
option of buying the farm for $800,000. Granting the option of purchasing the land is
regarded as CGT event B1. Consequently, John would be permitted to implement 50% CGT
discount prior to passing the land title.
Answer C:
The main residence of a person is not liable for capital gains tax. To get the full main
residence exemption, there must be dwelling on the property. No exemption is provided to
the taxpayer for the vacant block of land11. To be eligible for full main residence exemption
the taxpayer should not use the dwelling for producing income or for running any business
such as renting it out or flipping it.
The case study of Jamie and Olivia suggest that they purchased the property and
rented the same for two years. Later, they made the property as their residence during 2008
but in 2018 the property was sold. The taxpayer here Jamie and Olivia is allowed to only
claim a partial main residence exemption. But it must be noted a 50% CGT discount can be
claimed by Jamie and Olivia from the sale of property.
Answer to D:
A taxpayer is permitted to make use of discount method to calculate the net capital
gains on most of the assets that are owned by taxpayer for a minimum of 12 months or more.
11 Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook
Co./Thomson Reuters, 2013)

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Particulars Amount (AUD$) Amount (AUD$)
Proceeds from the sale of BHP Shares (CGT Event A1 (section 104-10(1)) 18,720.00$
Element 1: Cost of Acquisition (section 110-25(1)) 5,400.00$
Taxable Capital gains 13,320.00$
Proceeds from the sale of Wesfarmers Shares (CGT Event A1 (section 104-
10(1)) 10,500.00$
Element 1: Cost of Acquisition (section 110-25(1)) 26,000.00$
Loss on Sale -15,500.00$
Net capital loss -2,180.00$
Calculation of Capital Gains Tax
In the Books of Chris
For the year ended 2019
Evidently, Chris made capital gains of $13,320 from the disposal of BHP shares
whereas the selling of shares in Wesfarmers yielded a capital loss of $15,500. No CGT
discount can be claimed by Chris for capital gains made from sale of BHP shares. Chris for
the year 2018-19 can include the sum of $13,320 as capital gains into the taxable income but
the capital loss can be carried forward by Chris to the following income year.
Answer to question 4:
Answer A:
Any simple amount that is earned by as a simple prize winnings is not held as income.
However, it is noteworthy to denote that if there are sufficient connection with income
generating activities then it is held as income. As held in “Kelly v FCT (1985)” receipt of
income as the award for the best player was treated as income because it holds nexus with
earning activities12.
Receiving the prize of $2,000 as the best TV advertisement of the year should be
regarded as income for the taxpayer since it is associated to income generating activities of
taxpayer. The award of $2,000 is an ordinary income which is taxable under “section 6-5,
ITAA 1997”.
12 Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)

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Answer B:
An important explanation made in “section 6, ITAA 1997” where the taxpayer reports
the income derived from the salaries, wages, gratuities, allowances etc. that is earned by
working in capacity of employee for the services that are rendered13. As it has been noticed
that an amount of $500 that is received by the employee as travelling costs from Sydney to
workplace constitute reimbursement rather than income. The sum of $500 amounts to
reimbursement of expenditure for the employee and hence it should not be included for
assessment purpose.
Answer C:
Gain that merely has the nature of simple gift cannot be viewed as income. The court
of law in the case of “Scott v FCT (1966)” held that the gift that amounts to $10,000 received
from the wife of long standing client was non-assessable income because it lacked the income
character.
The taxpayer received a gift in the form of iphone that amounted to $1,000. Mentioning the
case of “Scott v FCT (1966)” the gift of $1,000 is not an income within the ordinary meaning
of section 6-5, ITAA 1997 because it is a simple gift.
Answer D:
Receipts that is earned by an individual in the form of lump sum might give rise to
capital gains tax. However, according to the explanation made in “paragraph 118-37 (1) (b),
13 Edgar, Tim, Martha O'Brien, and Arthur J. Cockfield. Materials on Australian Income Tax.
Carswell, 2015.

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ITAA 1997” it explains that money that are received by the taxpayer as the compensation
damage for personal wrong doings or injury should be ignored14.
The compensation received of $10,000 by the taxpayer for personal injury should not
be viewed as income under the ordinary concepts. These payments should be regarded as the
tax exempted payments.
Answer E:
Where an income is estimated by the taxpayer in the future year as currently being
entitled to income for future year then such kind of income is considered too remote to have
any kind of relation with the present income year15. The shares that was bought by the
taxpayer 30th June for $5 but it is currently trending for $7.50. The shares held by the
taxpayer is yet to be sold and the income is expected to be earned in future year. As a result,
it is not an income since the anticipated income is considered too remote to have any relation
in the present income year.
Answer to question 5:
Issues:
Is an individual under the legislative meaning of “section 6 (1), ITAA 1997” will be
considered as Australian resident that arrived in Australian for academic purpose?
14 Pogge, Thomas, and Krishen Mehta, eds. Global tax fairness. Oxford University Press,
2016.
15 Rosenzweig, Adam. "What Is Tax Scholarship, and Who Decides." Jotwell: J. Things We
Like (2016): 93.

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Laws:
As it has been described in “section 6 (1), ITAA 1997” a person apart from the
company are viewed as Australian dweller when the person is living in Australia16. An
exception to this definition is that a person may not be held as Australian resident when the
tax authorities are very much satisfied that a person is having the fixed abode in overseas
country. To be the resident only one test must be met by the taxpayer.
The resides test is regarded as the first test of determining the residency test. Under
this test a person is regarded as Australian resident if a person is dwelling permanently or for
considerable time period17. Primarily, it involves intention of coming to Australia. The
domicile Test explains that a person is held to be the Australian if the person is having the
permanent abode in Australia except when the tax authorities are content that person is
having the permanent place of dwelling out of Australia in foreign country. The
commissioner in “Applegate v FCT (1979)” explained that permanent do not implies
perpetual and the objectivity is evaluated every year18.
The 183-day test is another test where a person is regarded as resident of Australia
when the person spends six months or 183 days in Australia either in a continuous manner or
in intermittently.
16 Kirchler, Erich, Barbara Hartl, and Katharina Gangl. "Income tax compliance." Handbook
of Behavioural Economics and Smart Decision-Making. Edward Elgar Publishing, 2017.
17 Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
18 Belitski, Maksim, Farzana Chowdhury, and Sameeksha Desai. "Taxes, corruption, and
entry." Small Business Economics47.1 (2016): 201-216.

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Application:
On 30th December 2018Nisu arrived here in Australia to take up the academic studies.
Upon coming to Australia she had the purpose of living in Australia for three years. Under
the ordinary concept test Nisu is not regarded as the Australian occupant because she was not
dwelling in Australia from a very long time. Under the Domicile Test Nisu is not the resident
of Australia. This is because she does not have the permanent place of dwelling in Australia
and has her permanent place of residence in Nepal.
Nisu, in respect of 183-day test should be viewed as Australian resident because she
arrived in Australia on 30th December 2018 and resided in Australia continuously for six
months till 30th June 201919. The period of six months is regarded as considerable period of
time which reflects the behaviour of continuity from the time when she came to Australia. As
a result, Nisu has met the 183-day test and she is an Australian resident under the provision of
“section 6 (1), ITAA 1997”,
Conclusion:
Nisu satisfied the criteria for 183-day test because prior to leaving for her home in
Nepal she lived in Australia for six months continuously and she is an Australian resident
under “section 6 (1), ITAA 1997”.
19 Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.

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References:
"Legal Database", Ato.Gov.Au (Webpage, 2019)
<https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20184%2FNAT%2FATO
%2F00001>
Abrams, Howard E., and Don Leatherman. Federal income taxation of corporations and
partnerships. Wolters Kluwer Law & Business, 2019.
Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.
Belitski, Maksim, Farzana Chowdhury, and Sameeksha Desai. "Taxes, corruption, and
entry." Small Business Economics47.1 (2016): 201-216.
Blackstone, William and Edward Christian, Commentaries On The Laws Of Australia
(Forgotten Books, 2015)
Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
Edgar, Tim, Martha O'Brien, and Arthur J. Cockfield. Materials on Australian Income Tax.
Carswell, 2015.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Kirchler, Erich, Barbara Hartl, and Katharina Gangl. "Income tax compliance." Handbook of
Behavioural Economics and Smart Decision-Making. Edward Elgar Publishing, 2017.
Krever, Richard E, Australian Taxation Law Cases 2015

16TAXATION LAW
Mertens, Karel, and José Luis Montiel Olea. "Marginal tax rates and income: New time series
evidence." The Quarterly Journal of Economics 133.4 (2018): 1803-1884.
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Pogge, Thomas, and Krishen Mehta, eds. Global tax fairness. Oxford University Press, 2016.
Rosenzweig, Adam. "What Is Tax Scholarship, and Who Decides." Jotwell: J. Things We
Like (2016): 93.
Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook
Co./Thomson Reuters, 2013)
Sadiq, Kerrie, Principles Of Taxation Law 2014
Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)