Taxation Law

Running head: TAXATION LAW
Taxation Law
Name of the Student
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................7
Answer to question 2:.................................................................................................................7
Issues:.....................................................................................................................................7
Rule:.......................................................................................................................................7
Applications:..........................................................................................................................8
Conclusion:............................................................................................................................9
References:...............................................................................................................................10

2TAXATION LAW
Answer to question 1:
Issues:
The current issue is based on ascertaining the net income obtained from the
partnership during the relevant income year.
Rule:
As per “division 5 of the ITAA 1936” partnership is not treated as the separate legal
unit based on the general law and they are not required to pay taxes. “Section 91 of the ITAA
1997” requires the taxpayers to file return so that they can reveal the allocation of profit
among the stakeholders1. As defined in “sec 92, ITA Act 1997” income or loss is allocated
among the partners which attracts tax liabilities. Citing “section 995-1(1)” partnership refers
to carrying of business to earn profit. Income obtained from partnership is either treated as
statutory and ordinary income.
As per “section 6-5(4)” and “section 6-10 (3), ITAA 1997” a taxpayer is believed to
have obtained the income as and when directed by the taxpayer. Referring to “sec 6-5, ITA
Act 1997” large part of the taxpayer’s income is classified as ordinary income. The
commissioner in “Scott v CT (1935)” stated that necessary principles must be applied to
determine the receipts as the ordinary income2. Similarly, under “section 6-5, ITA Act 1997”
business receipts are treated as income according to ordinary concepts.
1 Burton, Mark. "Interpreting the Australian Income Tax Definition of Ordinary Income:
Ritual Incantation Or Analysis, When Examined through the Lens of Early Twentieth
Century Linguistic Philosophy." eJTR 16 (2018): 2.
2 Gideon, Michael. "Do individuals perceive income tax rates correctly?." Public Finance
Review 45.1 (2017): 97-117.

3TAXATION LAW
“Section 8-1 of ITA Act 1997” permits the taxpayer from obtaining permissible
deduction relating to outgoings or expenses sustained while generating assessable income or
sustained during the process of generating assessable profits3. While the negative limbs of
“sec 8-1 (2), ITA Act 1997” prohibits a person from obtaining permissible deduction relating
to outgoings that carry the nature of private, domestic or capital type.
The ATO states that the taxpayers are permitted to instantly write-off for assets that
costs below 20,000. On the other hand, allows the taxpayers to obtain permissible deduction
for repairs. “Subsection 25-10 (1), ITA Act 1997” permits the taxpayer from obtaining
deduction for repairs that requires remedying the deterioration, defects or damage on the
property4. However, the taxpayers are denied deduction for repairs that are extensive or
capital in nature. Similarly, in “FC of T v Western Suburbs Cinemas (1952)” the taxpayer
was denied deduction for initial repairs because it amounted to capital in nature.
Application:
Denial and Olivia are carrying on the partnership business and reported certain
receipts as well as outgoings. The partnership derived receipts through sales and debtor’s
receipts. Referring to “section 6-5, ITA Act 1997” the sales receipts and payments from
debtors should be classified as income based on ordinary concepts which is included for
assessment of partnership income.
The partners reported drawings from the partnership that amounted to $5600, $6000.
They further reported the drawings of $3,200 that was related to private purpose of the
partners. Referring to “section 8-1 (2), ITA Act 1997”, drawings made by the partners does
3 Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
4 Black, Duncan. The incidence of income taxes. Routledge, 2018.