Taxation Law

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Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................4
Part 1:.....................................................................................................................................4
Answer to A:..........................................................................................................................4
Answer to B:..........................................................................................................................5
Answer to part 2:........................................................................................................................5
Answer to question 4:.................................................................................................................6
Answer to question 5:.................................................................................................................7
Answer to question 6:.................................................................................................................8
Article 1: ATO measures of removing “inequitable” inquiry:...................................................8
Article 2: ATO considers measures for closing gap on multinational Tax Avoidance:........9
Answer to question 7:.................................................................................................................9
References:...............................................................................................................................11

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Answer to question 1:
Answer to A:
According to the “Section 51 (ii)” the commonwealth has the exclusive power of
making laws in Australia. With regard to the “Section 51 (ii)” the commonwealth has the
authority of making laws that is associated to tax but it involves no kind of discrimination
among the state or any part of the country (Loveland, 2018). As per the “Section 51 (ii)” the
commonwealth has the legislative power of applying tax that remain entrusted with this
legislative provision and possess the authority of making constitutional laws.
Answer to B:
The Australian government is accountable for creating an overall improvement in the
tax policy and the treasury minister is accountable for applying the laws. The ATO is
accountable for framing tax policies and judicial process that demonstrates the relation
between the laws and administrative characteristics of the tax system (Dyzenhaus &
Thorburn, 2016). The management of laws relating to the tax and superannuation is
administered by ATO that are passed by parliament. To apply the laws, the government
imposes the tax which is formed by the ATO including the valuable advice to the taxpayers
regarding their obligations and duties.
An important role relating to the application and interpretation of the tax is played by
the ATO in Australia for the legislative cases that has definite civic importance. It also
includes the challenges that relates to validity of constitution and hearing appeals bought by
territory, state and federal courts. The structure of parliament includes the upper and lower
houses and the bills must be passed from the parliament. The lower house introduces the bills
of taxation and the bills are sent to upper house for final approval.

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Answer to question 2:
Subject to the provision of paragraph (3), where the company of the contracting
country conducts business in the other contracting nation with the help of permanent
establishment that is located therein, then in each of the contracting country the business
profits will be attributable that might be anticipated to make if it was separate and
independent company indulged in the identical activities under the identical conditions for the
business that has the permanent establishment in that nation.
An enterprise is treated as the Australian occupant company provided that the
business’s central administration and control is in Australia (Dumiter & Jimon, 2016).
Therefore, the US and Australia DTA agreement explains that the business profits made in
one country state will be held taxable in that nation where its business operations are
performed. The court in “C of T (NSW) v Hillsdon Watts Ltd (1937)” explained that income
from business originates where the transaction occurs (McClure et al., 2017). With respect to
DTA the business income obtained by the US manufacturing company in Australia will be
taxable since the profits were sourced in Australia.
Answer to question 3:
Part 1:
Answer to A:
“Section 102-5, ITAA 1997” includes the net amount of capital gains for the income
year in their taxable income. The capital losses must be quarantined and can only be allowed
to offset against the capital gains that are not deductible while the net losses can be carried
forward (Jones, 2018). The capital gains is only allowed on the assets which is purchased
after 20 September 1985. Indiana on subdividing the land and disposing off for making
profits, any capital gains that are derived is included for assessment purpose. Nevertheless,

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when the property is bought before the introduction of CGT tax system and capital gains
made thereon is considered tax exempted because the asset constitutes pre-CGT.
Answer to B:
In the first option, if Indiana purchases the land in 1986 and sells it to property
developer by subdividing into 80 blocks, then the provision should be applied. It is presumed
that the land does not constitute a trading stock and the gains that is made from disposal of
land by Indiana is treated assessable as ordinary earnings under “section 6-5, ITAA 1997”.
In the second option, Indiana upon selling the land in auction to the highest bidder
then the subdivided lot of land will be taken into account as trading stock. Nevertheless,
capital gains derived from selling the 80 block of land is considered taxable as ordinary
income under “section 6-5, ITAA 1997” (Richardson, 2015).
In the third option, if Indiana considers the decision of not subdividing the land and
selling it completely to the property developer then the gains which is earned upon the
disposal of land is considered as chargeable capital gains. The gains is taxable within the
meaning of ordinary concepts and GST will be imposed on the gains derived.
Answer to part 2:
Option A:
If the subdivision of land results in mere realisation of the capital asset by Indiana, the
any part of the profits that are derived by her will be considered as profit from the land
development business. Sale of subdivided land may contribute in treating the land as revenue
asset and the capital gains will be treated as taxable under “section 6-5, ITAA 1997”
(Bankman et al., 2018).
Option B:

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If Indiana decides to undertake the identical activities of conducting the auction on 80
subdivided land then those 80 subdivided blocks will be held as trading stock starting from
the time when the subdivision began. It is anticipated that the subdivision of 80 lots is sold at
the market value. Then Indiana will be considered taxable for adopting the commercial
method of selling the land to derive profit. Hence, the capital gains made thereof constitute an
ordinary income under the legislation of “section 6-5, ITAA 1997” (Steyn et al., 2018).
Option C:
Indiana in the third option decides to simply divide the land into numerous lots and
ultimately making the disposal of land to the property developer then the gains that are made
is considered taxable under the legislation of “section 25 (1), ITAA 1936” as the profits
obtained from revenue producing scheme (Burkhauser et al., 2018).
Answer to question 4:
Where a business incurs the post-cessation expenditure than it will be considered as
tax deduction expenditure provided that the event of loss or outgoings is noticed in the
functions of business that was previously performed by the taxpayer with the objective of
deriving the taxable income. The court of law in the case of “AGC (Advances) Ltd v FCT
(1975)” allowed the taxpayer with the deduction for the losses that was occurred in respect of
the bad debts that arises from the earlier business activities (Evans et al., 2015).
Evident in the case of Amity it is noticed that an interest on loan was incurred by the
taxpayer particularly for the business which is sold by her. Citing the case of “AGC
(Advances) Ltd v FCT (1975)” Amity will be permitted to obtain the deduction for the
interest on loan within the legislative “section 8-1, ITAA 1997” since the outlays occurred
were related to the derivation of assessable income (Grudnoff, 2015).

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Answer to question 5:
According to the CGT regime asset only qualifies for the capital gains tax when it is
purchased after 20th September 1985. The ATO explains that for the application of exemption
on the dwelling it should qualify as the main residence of the taxpayer (Feld et al., 2016).
Whether the dwelling is regarded as the main residence the taxpayer will be the subject of
question of fact. Maurice purchased a home which she entirely used it for main residence
purpose. The property was later sold for $325,000. The capital gains that is made from the
sale of home is exempted from CGT because the house was the main residence for taxpayer
during the time of ownership.
Maurice purchased shares on 1984 for $15,000 and sold for $19,000 on 15th March. It
can be stated that the capital gains which she has made from the shares will be exempted
because it is pre-CGT asset. Importantly under “section 108-20 (2), ITAA 1997” personal
use asset means those asset which is used by taxpayer for their own enjoyment purpose
(Chardon et al., 2016). Considerably, under “section 118-10 (3), ITAA 1997” gains or loss
from personal use asset costing below $10,000 is disregarded. So furniture which was sold by
Maurice for $5,000 in May 2018 was originally purchased for $9,500. Therefore, the cost
base is less than $10,000 and the capital loss made by Maurice is disregarded.
A taxpayer when acquires the vacant land to use for their personal or investment
purpose then the land is considered as the capital asset. Selling the vacant block of land will
give rise in capital gains tax consequences. Maurice acquired the vacant land on 20th June
1997 and sold the same on 15th May for $465,000. Sale of land led to in CGT event A1 under
“section 104-10(1)), ITAA 1997” (Buenker, 2018). Expenditure such as interest is included
under the third element of cost base to calculate the net capital gains made thereon. Below is
the net amount of capital gains for Maurice;

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Particulars Amount ($) Amount ($)
Sales proceeds (S-104-10(1)) 465000
Cost Base Item (S-110-25(1))
Element 1 - Cost of Acqusition 100000
Element 3- Non-Capital Costs
Interest Expenses 110000
Total Cost Base 210000
Capital Gain 255000
50% CGT Discount 127500
Net Taxable Capital Gains 127500
Computation of Capital Gains Tax
Answer to question 6:
Article 1: ATO measures of removing “inequitable” inquiry:
Facts:
The proposal stated by the labor party includes the abolition of refundable franking
credit for the SMSF funds and individuals. The current policy is considered to be unbalanced
and contains faults. The committee has considered the proposal of abolishing refundable
franking credit for both the SMSF and individuals (Afr.com, 2019). The committee has
however stated that policy is highly favoured towards higher income group.
Concise explanation of taxation concepts:
The committee has however stated that removing the refundable franking credit
would contribute unfairly towards moderate income earners and those that are presently
retired and may not come back to labour force for covering up the lost incomes.
Explanation of connection between concepts and indicators of good tax policy:
The article states that this kind of policy reformation may be regarded as the element
equal package for complete tax information (Afr.com, 2019). The article provides an
explanation that policy has been unfair towards the middle income group people.

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Article 2: ATO considers measures for closing gap on multinational Tax Avoidance:
Facts:
The ATO has launched the special multinational tax avoidance programme and has
been successful in collecting more than $8 billion of tax revenues from the multinational
companies that have overseas ownership (Afr.com, 2019). It is estimated that around 95% of
the big companies are satisfying their full liabilities in Australia. As per the article, around
29% of all the companies have paid their taxes while 42% tax is paid by top 100 businesses.
Concise explanation of taxation concepts:
According to the article, the gap in tax which was noticed in the previous year
showcase a trend of reducing gap. Following the introduction of program there has been a
significant improvement in tax gap with more than 1500 big multinational companies have
paid around $44 billion as tax in Australia every year.
Explanation of connection between concepts and indicators of good tax policy:
According to the article the current tax compliance is higher among the Australian
companies which also includes the laws relating to multinational tax avoidance, state by state
reporting and anti-hybrid laws with updated guidelines for transfer pricing.
Answer to question 7:
The role of tax advisors is given below;
a. The tax advisers are accountable for assisting their clients in complying with the
obligations under the tax laws and to enable the clients in making the complete use of
their rights relating to taxation matters.

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b. The tax advisers are required to completely enable their clients to respect the law.
Where the letter contained in law is not clear then the tax advisors are required to use
the meaning of law for better interpretations.
c. The tax advisors are required to make the clients aware regarding the real opportunity
available to reduce the burden of tax. This includes that engaging the client in
arrangement that are legal and not liable for recourse or sanctions.

10TAXATION LAW
References:
ATO closing the gap on multinational tax avoidance. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/ato-closing-the-gap-on-multinational-tax-
avoidance-20190318-p51577
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Publishers.
Buenker, J. D. (2018). The Income Tax and the Progressive Era. Routledge.
Burkhauser, R. V., Hahn, M. H., & Wilkins, R. (2015). Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic
Inequality, 13(2), 181-205.
Chardon, T., Freudenberg, B., & Brimble, M. (2016). Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, 321.
Dumiter, F., & Jimon, Ș. (2016). Double Taxation Conventions in Central and Eastern
European Countries. Journal of legal studies, 18(32), 1-12.
Dyzenhaus, D., & Thorburn, M. (Eds.). (2016). Philosophical Foundations of Constitutional
Law. Oxford University Press.
Evans, C., Minas, J., & Lim, Y. (2015). Taxing personal capital gains in Australia: an
alternative way forward. Austl. Tax F., 30, 735.
Feld, L. P., Ruf, M., Schreiber, U., Todtenhaupt, M., & Voget, J. (2016). Taxing away M&A:
The effect of corporate capital gains taxes on acquisition activity.

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Franking credit removal 'inequitable': inquiry. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/franking-credit-removal-inequitable-and-
deeply-flawed-inquiry-20190404-p51az9
Grudnoff, M. (2015). Top gears: how negative gearing and the capital gains tax discount
benefit the top 10 per cent and drive up house prices.
Jones, D. (2018). Complexity of tax residency attracts review. Taxation in Australia, 53(6),
296.
Loveland, I. D. (2018). Constitutional law. Routledge.
McClure, R., Lanis, R., & Govendir, B. (2017). Analysis of tax avoidance strategies of top
foreign multinationals operating in Australia: An expose.
Richardson, D. (2015). Corporate tax avoidance. The Australia Institute, 1-16.
Steyn, T., Smulders, S., Stark, K., & Penning, I. (2018). Capital gains tax research: an initial
synthesis of the literature. eJTR, 16, 278.