1TAXATION LAW Table of Contents Answer to question 1:.................................................................................................................2 Answer to A:..........................................................................................................................2 Answer to B:..........................................................................................................................2 Answer to question 2:.................................................................................................................2 Answer to question 3:.................................................................................................................3 Part 1:.....................................................................................................................................3 Answer to A:..........................................................................................................................3 Answer to B:..........................................................................................................................3 Answer to part 2:........................................................................................................................4 Answer to question 4:.................................................................................................................5 Answer to question 5:.................................................................................................................6 Answer to question 6:.................................................................................................................7 Article 1: ATO measures on crackdown on home office expenses claims:...............................7 Article 2: ATO measures of removing “inequitable” inquiry:...................................................8 Answer to question 7:.................................................................................................................8 References:...............................................................................................................................10
2TAXATION LAW Answer to question 1: Answer to A: Denoting the explanation that is given under the“Section 51 (ii)”the constitution possess the power to make laws in Australia. Referring to the“Section 51 (ii)”the powers of the commonwealth include the making of laws related to the tax but does not accounts making any kind of discrimination between the state as well as country (Bankman et al., 2018). Furthermore, the commonwealth with respect to the“Section 51 (ii)”has the authority of imposing tax that is conferred under this legislation and has the power of framing constitutional laws. Answer to B: The government of Australia is responsible for delivering an overall improvement in the taxation policy and minister of treasury is responsible for practically implementing the laws. The responsibility of the ATO remains in creation of tax policies and judicial procedure which explains that the relation between the laws and administrative aspects of taxation system (Schmalbeck et al., 2015). The ATO is responsible for managing the laws that relates to the superannuation and tax which the parliament passes. In order to implement the laws, the government levies taxes that are created by ATO and also includes the valued advice to taxpayers relating to the duties and accountabilities. Answer to question 2: The business profits of the enterprise relating to the contracting country will only be liable for taxation in that country except when the company is performing the business in the another contracting country with the help of permanent establishment located therein. If the company is carrying on the business as mentioned above, then the profits of the company may be considered taxable in the other country but only to the extent that majority of the
3TAXATION LAW profits is attributable to that permanent establishment (Brownlee, 2016). A company is only considered as the Australian resident company if the company is incorporated in Australia, irrespective of whether the company performs the business in overseas, administered in overseas or a control is imposed by the foreign shareholders. The decision handed by the court in“Malayan Shipping Company Ltd v FCT (1946)”held that the company is performing the business in Australia because the central management and control was in Australia. In light of the above stated decision it can be stated that the profits derived by the US based manufacturing company from the sales made to the Australian customers will be held taxable in Australia. This is because the business profits are generated here in Australia since the transaction has the source in Australia. Answer to question 3: Part 1: Answer to A: As defined in“Section 102-5, ITAA 1997”the taxpayers are required to include in their taxable income the net value of capital gains made (Schenk, 2017). Taxpayers should disregard the capital loss and they are only permitted to claim offset against the capital gains which is not allowed for deduction and the net loss should be carried to subsequent years. If Indiana subdivides the land and sells the same then the profits that is made from the sale will be included for taxable purpose. Nevertheless, if the property is purchased by Indiana earlier to the introduction of CGT regime than the capital gains from sale is exempted from tax because it amounts to pre-CGT.
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4TAXATION LAW Answer to B: First Option: If Indiana buys the property in 1986 and then sells the land to developer of property, the revenue provision must be considered in this option. The land will not be treated as trading stock and any gains made will be attract tax liability under the ordinary concept of“section 6-5, ITAA 1997”. Second Option: If she decides to sell the land to the highest bidder then the subdivided 80 blocks of land will be treated as trading stock. Under the“section 6-5, ITAA 1997”the capital gains will be taxable as ordinary income from profit making scheme (Liu & Williams, 2019). Third Option: Under the third option, if Indiana decides against the subdivision of land and selling to the real estate developer then any amount of capital gains which will be earned following the sale of land will be regarded as the taxable capital gains. The gains are taxable under the ordinary sense of income and the profits obtained will also be subjected to GST. Answer to part 2: Option A: Where the subdivision of land gives rise to simple realisation of the capital asset by Indiana then the capital gains which is made by Indiana would amount to gain beneficially obtained from the land development. The sale of subdivided land will be considered as revenue asset and under the“section 6-5, ITAA 1997”the capital gains will be taxable as ordinary income (Kaeding, 2016). Option B:
5TAXATION LAW If Indiana decides to conduct auction on 80 block of subdivided land and those blocks of land will be counted as trading stock beginning from when the process of subdivision commenced. It is presumed that the land that is subdivided by Indiana is sold at the current market value. Indiana in such situation will be treated for assessment purpose because she undertook the commercial method of disposing the land for obtaining the profit. Therefore, the capital gains which is made upon the sale of land is an income in accordance with the ordinary meaning of“section 6-5, ITAA 1997”. Option C: Indiana in the final option simply takes the decision of dividing the land and selling the several plots of land to the real estate property development then the capital gains would represent that Indiana is carrying the business of land development and the profits will be considered for tax purpose under“section 25 (1), ITAA 1936”. Answer to question 4: Post-cessation expenditure is permitted as allowable deduction provided that the event of loss or the outgoing is recognized in the operation of business which the taxpayers have previously carried on with the ultimate objective of deriving taxable income (Maley & Maley, 2018). Post-cessation expenditure are permitted for deduction given the event of business function is found to be directed towards gaining or producing the assessable income. The court of law in“Placer Pacific Management Pty Ltd v FCT (1995)”found that the event of expenditure was in the business operation which was in the direction of producing assessable income and does not matter the outgoing was a year later when the business was ceased (Burman et al., 2016). The taxation commissioner permitted the taxpayer with deduction for outgoings for the business arrangement that was entered among the customer and taxpayer for the supply of conveyor belt.
6TAXATION LAW InthecurrentcaseAmityhereincurredinterestonloanfordevelopingthe accommodation business over the three year period. Citing the case of“Placer Pacific Management Pty Ltd v FCT (1995)”the expenses can be found to have occurred during the business operation that was directed towards the derivation of income (Wanless, 2018). As a result, Amity can claim the deduction for the interest on loan since the occasion of outgoing was for the business arrangement that was entered between Amity and her partner Archie. Answer to question 5: Capital gains tax is only applied on the assets that are purchased after 20thSeptember 1985. While the capital loss can only be offset against the capital gains or can be deducted or carry forward to subsequent years (Liesegang & Runkel, 2018). The ATO states that the taxpayers are usually not required to pay the CGT for their main residence that used for dwelling purpose. However, the taxpayers are not permitted full exemption when the house was used for producing income. Maurice bought the house on 20thFebruary 1989 for $140,000 and was solely used for dwelling purpose. The capital gains made by Maurice from the sale of home is exempted from CGT because the home was never used for running business or producing income (Mitu & Stanciu, 2018). Maurice sold the FUL shares on 15th March 2018 for $19,000. The shares were initially bought on 10thApril 1984. As the shares were purchased before the introduction of CGT regime, the capital gains made thereof is disregarded in case of Maurice. Rendering to“section 108-20 (2), ITAA 1997”personal use assets means those assets that are bought by taxpayer for their personal use and enjoyment (Feher & Jousten, 2018). Under section 118-10 (3), ITAA 1997 the taxpayers should disregard the capital gains where the asset cost is less than $10,000. The furniture that was bought by Maurice is below the prescribed cost limit of $10,000. The capital losses derived from the sale is disregarded under the section 108-20 (1), ITAA 1997.
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7TAXATION LAW Maurice also purchased the vacant block of land for $100,000 which was finally sold for $465,000 in May 2018. Under“section 104-10(1)), ITAA 1997”selling the vacant block of land triggered CGT event A1 (Sadiq, 2019). While the non-capital cost of ownership such as interest is included under the third element of the cost base to ultimately determine the total cost related with CGT asset. Answer to question 6: Article 1: ATO measures on crackdown on home office expenses claims: Facts: The home office expenses will be the main target for the ATO in the current year among the fears of taxpayers that are overhyping the expenditure and underreporting their incomes. The tax officials would keep a close eye on the tax agents so that they can investigate the concerns that the taxpayers are shopping the amenable for claiming more deduction and wider claims (Afr.com, 2019). Concise explanation of taxation concepts:
8TAXATION LAW If a taxpayer home forms the place of business and they have set up the area that are exclusively directed towards work activities, then they will be allowed to obtain deduction for both the running and occupancy expenditure (Afr.com, 2019). The taxpayers are required to keep the record in a timely manner regarding their home office spending. Explanation of connection between concepts and indicators of good tax policy: In a bid to attain good tax policy, the ATO would continue its focus on the incorrect claims of deductions along with the understating of income. The ATO states that around $8 billion has been claimed as home office deduction by around 6.7 million by the taxpayer in their 2016-17 returns. Article 2: ATO measures of removing “inequitable” inquiry: Facts: According tothe parliamentaryinquiry thepolicyof labour for removingthe refundable franking credit for both the individual taxpayers and SMSF is considered as highly faulty (Afr.com, 2019). The committee following the consideration of the case regarding the removal of franking credits for individuals and SMSF is considered as totally inequitable and deeply flawed policy. Concise explanation of taxation concepts: In the enquiry that was set up by the Coalition government has submitted its reports that has recommended against the removal of the refundable franking credits. Description of link between concepts and indicators of good tax policy: Abolishing the refundable franking credits would create an unfair situation which will hit the middle income group people that have long retired and are not in the position of coming back to work for the purpose of getting back the income which they will lose
9TAXATION LAW (Afr.com, 2019). The report has however recommended that such kind of policy can be considered as the portion of equal package for the complete tax reformation. Answer to question 7: The roles of the tax agent advisors is explained below; a.The tax agent are accountable for making sure the clients take the informed decision and asks the advisors to engage in the tax arrangement that does not impacts the reputational damage. b.The tax advisors are accountable for assisting the clients so that they can comply with the obligations under the taxation laws and enable them to make a complete use of the rights relating to taxation matters (Igt.gov.au, 2019). c.The taxpayers play the vital role in enabling the client to completely respect the law. This involves the case law, and unwritten law that recognizes the legal principles.
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10TAXATION LAW References: Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018).Federal Income Taxation. Aspen Publishers. BewaretheATO'scrackdownonhomeofficeclaims.(2019).Retrievedfrom https://www.afr.com/personal-finance/tax/beware-the-ato-s-crackdown-on-home- office-claims-20190325-p517g7 Brownlee, W. E. (2016).Federal Taxation in America. Cambridge University Press. Burman, L. E., Gale, W. G., Gault, S., Kim, B., Nunns, J., & Rosenthal, S. (2016). Financial transaction taxes in theory and practice.National Tax Journal,69(1), 171. Chapter 7: Tax practitioners and advisors | Inspector-General of Taxation. (2019). Retrieved fromhttp://igt.gov.au/publications/reports-of-reviews/use-of-compliance-risk- assessment-tools/chapter-7-tax-practitioners-and-advisors/ Feher, C., & Jousten, A. (2018). Taxation and pensions: An overview of interplay. Frankingcreditremoval'inequitable':inquiry.(2019).Retrievedfrom https://www.afr.com/personal-finance/tax/franking-credit-removal-inequitable-and- deeply-flawed-inquiry-20190404-p51az9 Kaeding, N. (2016). State individual income tax rates and brackets for 2016.The Tax Foundation. Liesegang, C., & Runkel, M. (2018). Tax competition and fiscal equalization under corporate income taxation.International Tax and Public Finance,25(2), 311-324. Liu, C., & Williams, N. (2019). State-Level Implications of Federal Tax Policies.Journal of Monetary Economics.
11TAXATION LAW Maley, M. N., & Maley, D. M. (2018). Australian Taxation Office Guidance on the Diverted Profits Tax. Mitu, N. E., & Stanciu, C. (2018). Tax Principles between Theory, Practice and Social Responsibility. InCurrent Issues in Corporate Social Responsibility(pp. 11-24). Springer, Cham. Sadiq, K. (2019).Australian Taxation Law Cases 2019. Thomson Reuters. Schenk, D. H. (2017).Federal Taxation of S Corporations. Law Journal Press. Schmalbeck, R., Zelenak, L., & Lawsky, S. B. (2015).Federal Income Taxation. Wolters Kluwer Law & Business. Wanless, P. T. (2018).Taxation in centrally planned economies. Routledge.