Taxation Law

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 A:................................................................................................................2
Answer to question B:................................................................................................................5
Answer to question C:................................................................................................................7
References:...............................................................................................................................10

2TAXATION LAW
Answer to question A:
The case study highlights that during 2016 the taxpayer Carter bought three adjacent
block of land for development purpose and building a high rise development. Accordingly,
the three properties were developed by Carter and was eventually sold for a sum of $ 1
million for each property.
According to the “Tax Determination ruling of TD 97/3” lay down the guidance in
ascertaining whether the profits that are made from the isolated transactions are treated as
income and therefore, considered taxable under the “subsection 25 (1) of the ITAA 1936”.
The term isolated transactions refers to the transactions that are out of the ordinary business
course of the taxpayer and the transactions that are entered by the non-business taxpayers1. A
capital gains or the capital loss is only obtained if the CGT event takes place to the CGT
asset. According to the “section 108-5(1) of the ITAA 1997” CGT asset usually refers to the
any type of legal or equitable right which does not amounts to property.
Land is viewed as the CGT asset and its sale would result in the CGT event A1. With
respect to the “section 104-10 of the ITAA 1997” a CGT event A1 happens when a taxpayer
disposes the CGT asset2. As the general principle if the disposal of land gives rise to business
then the sales revenue that is earned will be considered taxable as the ordinary income under
the “section 6-5, ITAA 1997”. Similarly, if the land amounts to the simple realisation of the
capital asset then the proceeds would be treated as capital amount.
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

3TAXATION LAW
Accordingly, gains which originates from the business activities are treated as
ordinary income under “section 6-5, ITAA 1997”. Characterising receipts in the form of
ordinary income from the business involves two steps3. Namely, whether the taxpayer is
performing the business and whether the receipts that is derived by the taxpayer constitutes
the normal proceeds of the business activity. The positive indicators of business generally
include whether the profit making intention is present in the transactions undertaken. It also
amounts to whether the taxpayer has undertaken any commercial approach. Similarly, in the
case of “FCT v Whitfords Beach Pty Ltd (1982)” the high court held that the commissioner
assessed the taxpayer on the profits that were made from the disposal of numerous lots.
The federal court in its opinion held that the profits that were made from the disposal
of numerous lots was taxable either under the “section 25 (1), ITAA 1936” as the income
obtained from conducting the business of land development or under the “section 26 (e)” as
the profit that has originated from conducting or executing the profit deriving undertaking or
scheme4. The court of law held the taxpayer liable for tax under the “section 25 (1), ITAA
1936” because the taxpayer has gone further than the ordinary realisation of the capital asset
and his activities should be noted as carrying the business of land development.
Similarly, a transaction can be considered as the extraordinary transactions where the
receipts originates out of the normal business proceeds or isolated transactions where the
receipts constitutes the one-off in nature and does not amounts to current business functions5.
In the meantime, the extraordinary and isolated transactions might appear to form a capital
3 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
4 Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19
(2017): 21.
5 Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. 2018.