Taxation Law

This document provides answers to various questions related to Taxation Law. It covers topics such as TR 2019/1, claiming deduction for gifts, tax rates, CGT assets, and more.

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 A:..............................................................................................................................2
Answer B:...............................................................................................................................2
Answer C:...............................................................................................................................2
Answer D:..............................................................................................................................2
Answer E:...............................................................................................................................2
Answer F:...............................................................................................................................3
Answer G:..............................................................................................................................3
Answer H:..............................................................................................................................3
Answer I:................................................................................................................................4
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................6
Answer to question 4:...............................................................................................................10
Answer to A:........................................................................................................................10
Answer to B:........................................................................................................................10
Answer to C:........................................................................................................................11
Answer to D:........................................................................................................................12
Answer to question 5:...............................................................................................................12
Answer A:............................................................................................................................12
Answer B:.............................................................................................................................13

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Answer C:.............................................................................................................................14
Answer to D:........................................................................................................................14
Answer to E:.........................................................................................................................14
References:...............................................................................................................................16

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Answer to question 1:
Answer A:
The topic that is covered under the “Taxation Ruling of TR 2019/1” is the view of
commissioner when the company conducts its business within the definition of small business
entity give in s-23, ITRA 1986 as pertinent for 2015-16 and 2016-17 income years. It also
includes the views of commissioner under s-328-110, ITAA 19971.
Answer B:
The legislature that relates to claiming deduction for gifts and contribution is given in
Div-30, ITAA 19972.
Answer C:
For a tax payer who is treated as the resident in the present income year, a top
marginal tax rate of 45 per cent will be applicable.
Answer D:
The motor cycle or car is watched as personal use asset under “s-108-20, ITA Act
1997”. Hence, any capital gains made thereon from its disposal is not exempted from CGT3.
Answer E:
1 Taxation Ruling of TR 2019/1
2 Division 30, Income Tax Assessment Act 1997 (Cth).
3 Sec-104-20, Income Tax Assessment Act 1997 (Cth).

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Loss or the destruction of a CGT asset is covered under the CGT event C1 Sec-104-
20 of the ITAA 19974. This event happens based on the condition when the CGT asset owned
is lost or demolished. The interval under this CGT event is when the taxpayer originally
recompensed for destruction or loss or if they receive no amount as compensation upon
making the discovery of loss or obliteration.
Answer F:
A person who is regarded as the Australian inhabitant for the taxation purpose then
the first $18,200 of their yearly taxable income does not attract tax liability. In other words,
this is known as the present tax-free threshold limit.
Answer G:
The case of “Hayes v FCT (1956)” is considered important because a receipt is never
considered ordinary earnings if the same cannot be regarded as the creation of occupation or
payment for services. The court of law in “Hayes v FCT (1956)” explained that the gift that
is given to taxpayer for their private qualities is not treated as the ordinary earnings and non-
assessable to receiver5. The case is significant because whether there was any individual
association among the presenter and the receiver. The presence of the pre-existing individual
association will be making the intentional payment less probable to be as the ordinary
earnings.
Answer H:
4 Sec-104-20, Income Tax Assessment Act 1997 (Cth).
5 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47

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The ordinary income is regarded as the income in agreement with the ordinary
meaning. Usually the ordinary income represents the amount which is held by everyone.
While, the statutory income is regarded as the earnings which is not the ordinary proceeds
and that is contained within into the calculable earnings of the taxpayer due to the particular
rules in the taxation law. The examples of the ordinary income include the salaries, wages,
business receipts, rent etc, while the examples of statutory income includes the net capital
gains.
Answer I:
The Medicare Levy is viewed as one of the basic manner through which majority of
the Australian that are working are required to make the contributions towards the cost of
Medicare. The Medicare Levy is paid by those that has taxable income of more than $27,069
in the most recent tax year. The taxpayers will be obligatory to pay the Medicare Levy at the
rate of 2% of their assessable earnings. While, the Medicare Levy Surcharge is generally
levied on the Australian taxpayers that does not has the adequate level of hospital cover and
earn beyond a specified income. The MLS rate is 1%, 1.25% or 1.5% that is charged on their
taxable earnings.
Answer to question 2:
In order to ascertain a personage’s home with the objective of defining occupant
under “subsection 6 (1)” it becomes necessary to determine the purpose of the individual in
which country they want to make their home indefinite purpose. As per the “IT 2650”
“permanent place of abode” signifies that a person has established their domicile in Australia
and the tax officer is very much satisfied that an individual has no “permanent place of
abode” in foreign or out of Australia6. While “usual place of abode” signifies a person’s
6 Taxation Ruling IT 2650

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dwelling where one resides with their family. The court in “Levene v IRC (1928)” held that a
person’s “usual place of abode” is that where the person’s is abode is located.
The “permanent place of abode” represents the taxpayer’s fixed dwelling. It is
regarded as the home of the taxpayer but not treated as the perpetual home. It denotes a more
lasting connection with a specific place of residence that those that are treated as the ordinary
resident or those that has their “usual place of abode”7. Factual aspects for considerations
would be the permanency or else the presence of taxpayer, the total duration of their presence
along with the durability of their relationship with the specific place.
Referring to the case of “FCT v Jenkins (1982)” which involved the bank employee
who was transported to the New Hebrides for three years8. The taxpayer though returned
Australia owing to ill well-being. The Queensland Supreme Court held that the taxpayer had
the “permanent place of abode” out of Australia all through his stay in overseas
notwithstanding of the point that the taxpayer did not formed any kind of material intention
of remaining for indefinite time period.
On the contrary if a person with the “usual place of abode” in Australia do not have
any fixed or “permanent place of abode” in foreign but travels from nation to one or more
nation with any relation to actual place of abode would completely be treated as transitory
and he or she would not be viewed as taken a substitute house of choice or the “permanent
place of abode” in foreign. Correspondingly, the case of “Harding v FC of T (2019)” is
considered as important for tax residence decision for the Australian expats who work
7 Woellner, Robin H., et al. Australian taxation law. CCH Australia, 2016.
8 Federal Commissioner of Taxation v Jenkins (1982) 82 ATC 4098

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overseas but maintains family or financial ties in Australia9. The decision stated that the
expression “permanent place of abode” under “section 6 (1), ITAA 1997” invites the
consideration of town or city where a person lives physically for permanent basis. The above
stated case legislation explains that an individual must not be content given their “usual
place of abode” is out of Australia. In the meantime, the primary test must be satisfied for the
individuals if their “permanent place of abode” is in foreign.
Answer to question 3:
HECS-HELP: $850:
No deduction is allowed for claim contributions under “sec26-20, ITAA 1997” that
they made under the HECS-HELP or repayments a taxpayer makes under the Higher
Education Loan Program. The current case involves the trainee accountant that has
undertaken the self-education and incurs expenses amounting to $850 for HECS-HELP. In
this case no deduction can be permitted to the trainee accountant for the contributions made
to the HECS-HELP.
Travel – work to university $110:
In order to obtain the income tax deduction for the self-education outgoings, the
taxpayers needs to meet one of the below stated conditions;
a. The course is undertaken to improve the skills or knowledge needed for the present
work
b. Showing that the course undertaken would result in growth in earnings from the
present work activities
9 Harding v Federal Commissioner of Taxation (2019) FCAFC 29

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On satisfying the above given conditions and incurring expenses for travel in either of the
direction amid the home and the place of education along with the workplace and place of
education a deduction is allowed in this case.
The trainee here occurred expenses amounting to $110 for travel between his works to the
university. Assumingly the trainee accountant has undertaken the self-education to improve
the skills and future increase in earnings from the present employment activities. The travel
expenses will be allowed as deduction under “s8-1, ITAA 1997”10.
Books $200:
Self-education outgoings are permitted for general deductions where the outgoings
have incurred for keeping or enhancing the skills of the taxpayer in its profession in which
the taxpayer is present employed. Particularly where the expenses increases income
producing prospects of the taxpayer such as promotion or greater income. The “taxation
ruling of TR 98/9” provides the examples of the self-education costs such as the course fees,
registration fees or the cost study materials such as textbooks. The judgement made in “FCT
v Highfield (1982)” held that the dentist was allowed income tax deduction for the expenses
occurred in course fees, travel and accommodation since it was undertaken for self-education
purpose which would improve his skills and earning capacity11.
The trainee accountant similarly incurred expenses amounting to $200 for books.
Denoting the judgement made in “FCT v Highfield (1982)” the trainee here can obtain
10 Section 8-1, Income Tax Assessment Act 1997 (Cth).
11 Federal Commissioner of Taxation v Highfield (1982) ATC 4463

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deduction for the cost of books since the expenses were incurred in improving his skills and
earning capacity.
Child care during evening classes $80:
The negative limbs of “s8-1(2)(b)” does not permits allowable deduction for
outgoings or loss that are private in type. Because these outlays do not meet positive limbs
criteria. In “Lodge v FCT (1972)” no deductions was allowed to law clerk for childcare
expenditure for having minded because this would enable her to work12. The court ruled the
expenses were not relevant in derivation of taxable earnings.
The trainee accountant here incurred expenses for her child care as this would enable
her to attend the evening classes. The sum of $80 under the negative limbs of s8-1(2)(b) is
not permitted for deduction because the expenses do not meet positive limbs criteria.
Referring to “Lodge v FCT (1972)” no deductions is permitted and the expenses are not
relevant in derivation of taxable earnings13.
Repairs to Fridge at home $250:
Noting the explanation given in “s25-10 ITAA 1997” a taxpayer is allowable to get
deduction for outlays incurred in carrying out repairs to an asset that is held solely for
generating taxable earnings. No deduction for private expenses is allowed under this section.
The trainee accountant here occurred expenses for repairing fridge at home. Under the
explanation given in “s25-10 ITAA 1997” no deduction for the sum of $250 can be claimed
12 Lodge v Federal Commissioner of Taxation (1972) HCA 49
13 Coleman, Geoffrey Lehmann Cynthia. "Taxation law in Australia." (2015).

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here for conducting repairs to home fridge because the expenses are private in nature and the
asset is not used for generating taxable income.
Black trousers and shirt required to be worn at office $145:
Cost that are incurred by the taxpayer in the ordinary clothing items such as suits for
office wear is not generally treated as permissible income tax deduction under “s8-1, ITAA
1997”. The law court in “Mansfield v FCT (1996)” disallowed general deductions for the
outgoings occurred on the common articles of apparel, regardless that the expenses were
incurred maintaining an appearance for a particular work or occupation14.
The trainee accountant has reported the expenses of $145 for black trousers and shirt needed
to be work at the office premises. Denoting the judgement of law court in “Mansfield v FCT
(1996)” deductions will be disallowed under “s8-1, ITAA 1997” for $145 because the
expenses constitute an ordinary clothing items.
Legal expenses for writing up a new employment with a new employer $300:
“S8-1, ITAA 1997” does not allow deduction for expenses or loss that are incurred at
pre-commencement stage of income generating activities. This is because these expenses are
not occurred in producing earnings. In “Maddalena v FCT (1971)” outgoings occurred to get
the new employment was held by the court as not in the way of creating chargeable earnings.
The trainee here incurred legal expenses of $300 to write a letter of employment to
new employer. Denoting the judgement of taxation commissioner in “Maddalena v FCT
(1971)” the legal expenses of $300 is a pre-commencement to the earnings creating doings
14 Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law &
Policy 29.1 (2017): 3-10.

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and incurred in the way of creating chargeable earnings. Therefore, it is not acceptable as
deduction under “s8-1, ITAA 1997”15.
Answer to question 4:
Answer to A:
There are numerous capital gains events that are applicable to the lease of land. CGT
event F1 takes place when one grants the lease to a person, or provided that they extend or
renew a least which the taxpayer held it previously. It must be noted by the taxpayer that
CGT discount does not applies to the CGT event F1.
The current case facts obtained explains that John owned the land and granted the
lease of some land to David for a time period of seven years based on the premium of $7,000.
The granting of lease to David by John is noted as CGT event F1. However, John should note
that CGT discount does not applies to the CGT event F1 when any capital proceeds would be
derived from the sale.
Answer to B:
The issue in the questions relates to capital gains tax consequences. As understood,
deepak purchased shares on 1st sep 2018 in IOOF. He later in 2019 March sold it for 67 cents
each shares. The sale yeilded Deepak gains. While he also purchased shares in Greencross for
1.67 per cents and sold it for 1.18 cents. As a result a capital loss is suffered in this case.
Additionally, the shares bought in IOOF were not held for more than 12 months. Hence, no
CGT discount is allowed while the capital loss can be carried forward by Deepak to next
income year or can be offset against capital gains from shares.
15 Kewley, Gretchen M. Australian Taxation: principles and practice. Longman Professional,
2017.

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Answer to C:
Issues:
The issue surrounds regarding the CGT outcome of selling the main residence.
Rule:
The main house of the taxpayer is generally tax exempted from capital gains tax.
Nevertheless, a person does not gets the full main residence exemption if they use any portion
of the house for business purpose or for producing income such as renting out and running a
business16. This commonly takes into account the total proportion of floor in the house which
is used for business purpose.
Application:
16 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.

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The case facts of Li suggest that she used a portion of her house for running a
physiotherapy business. The total floor area for business purpose amounted 20% of the entire
house. To determine the chargeable part of capital gains tax the calculations are done below;
Capital gain x Percentage of floor area = Assessable portion
= $700,000 – $400,000
= $300,000 (net capital gain)
= 300,000 x 20%
= $60,000 (Taxable portion)
Conclusion:
In addition to this, the house has been owned by Li for more than 12 months, as a
result she can avail the CGT discount for computing her capital gains.
Answer to D:
When there is an occurrence of CGT event to the CGT asset and the taxpayer has not
made any kind of capital gain thereon, then in such a situation the reduced cost base of the
asset is taken into account for computing whether the taxpayer has derived any capital loss or
not. The taxpayer is required to bear in mind that they can use the capital loss only reduce the
capital gain and the capital loss is not allowed for reducing other income17. The cost of the
capital gains tax asset comprises of five elements namely the purchase price, incidental cost,
ownership cost, capital cost and cost for defending the assets title or rights.
17 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).

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The cost base represents the cost of the asset against which any kind of proceeds such
as the purchase price upon which the sale of assets are compared to ascertain whether any
capital gain or loss has been made.
Answer to question 5:
Answer A:
As explained in the “s6-5, ITAA 1997” an item taking the appeal of earnings is
obtained when it “come-home” to the taxpayer. The court of law in “Lindsay v IRC (1993)”
held that illegality or immorality is irrelevant in treating income as taxable. Any existence of
illegality or any such immorality does not prevents the derivation of the income.
Correspondingly, income that is earned by an individual irrespective of whether it is from
illegal means such as drug-dealing or theft will be considered taxable as ordinary income18.
Answer B:
Periodic receipts and annuities such as bank interest are viewed as assessable earnings
under the ordinary meaning of “s6-5, ITAA 1997”. The bank interest of $500 constitute a
periodic receipts in the savings account and it is assessable earnings under the ordinary
meaning of “s6-5, ITAA 1997”. While a gain which is windfall gains not an income. In
“Moore v Griffiths (1972)” simple windfall gains do not have income character19. The
winnings of $10,000 from casino is not a taxable income since it is a windfall gain. The
18 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
19 Section 6-5, Income Tax Assessment Act 1997 (Cth).

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receipt of rent amount to $2,000 is periodic receipt from the regular income flow concept and
hence it is assessable as ordinary proceeds under “s6-5, ITAA 1997”.
Answer C:
Income that are made from the own effort includes remunerations, pays, perquisites,
pensions etc that are main earned by the taxpayer during the course of employment. These
receipts are treated as taxable ordinary income under “section 6-5, ITAA 1997”. The amount
of $500 received by the employee here is an individual effort income and assessable as
ordinary earnings under “section 6-5, ITAA 1997”.
Answer to D:

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Answer to E:

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References:
Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law & Policy 29.1
(2017): 3-10.
Coleman, Geoffrey Lehmann Cynthia. "Taxation law in Australia." (2015).
Division 30, Income Tax Assessment Act 1997 (Cth).
Federal Commissioner of Taxation v Highfield (1982) ATC 4463
Federal Commissioner of Taxation v Jenkins (1982) 82 ATC 4098
Harding v Federal Commissioner of Taxation (2019) FCAFC 29
Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47
Kewley, Gretchen M. Australian Taxation: principles and practice. Longman Professional,
2017.
Lodge v Federal Commissioner of Taxation (1972) HCA 49
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Sec-104-20, Income Tax Assessment Act 1997 (Cth).
Sec-108-20, Income Tax Assessment Act 1997 (Cth).
Section 6-5, Income Tax Assessment Act 1997 (Cth).
Section 8-1, Income Tax Assessment Act 1997 (Cth).

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Taxation Ruling IT 2650
Taxation Ruling of TR 2019/1
Woellner, Robin H., et al. Australian taxation law. CCH Australia, 2016.