Taxation Law

This document provides answers to various questions related to taxation law, including topics such as effective life of depreciating assets, tax offsets, top tax rates, exemptions for capital gains, CGT events, deductions for interest expenditure, deduction for work-related expenses, 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:...............................................................................................................................3
Answer F:...............................................................................................................................3
Answer G:..............................................................................................................................3
Answer H:..............................................................................................................................4
Answer to I:............................................................................................................................4
Answer to question 2:.................................................................................................................4
Answer to A:..........................................................................................................................4
Answer to B:..........................................................................................................................5
Answer to C:..........................................................................................................................6
Answer to D:..........................................................................................................................6
Answer to E:...........................................................................................................................7
Answer to question 3:.................................................................................................................7
Answer to A:..........................................................................................................................7
Answer to B:..........................................................................................................................8
Answer to C:..........................................................................................................................8

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Answer to D:..........................................................................................................................9
Answer to question 4:.................................................................................................................9
Answer to A:..........................................................................................................................9
Answer to B:........................................................................................................................10
Answer to C:........................................................................................................................10
Answer to D:........................................................................................................................10
Answer to E:.........................................................................................................................11
Answer to question 5:...............................................................................................................11
Issues:...................................................................................................................................11
Laws:....................................................................................................................................12
Applications:........................................................................................................................13
Conclusion............................................................................................................................13
References:...............................................................................................................................14

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Answer to question 1:
Answer A:
The taxation ruling of TR 2018/4 provides an explanation to the methodology that is
used by the Commissioner of Taxation to ascertain the effective life of the depreciating assets
under the “section 40-100 of the ITAA 1997”1.
Answer B:
Division 13 of the ITAA 1997 provides the details about the tax offsets.
Answer C:
The top rate of tax that are applicable to the individual taxpayer who is the resident of
Australian is given below
Taxable Income Bracket Tax ($)
180,001 & over 54,097 plus 45c for each $1 over 180,000
Answer D:
There are exemptions which allows the capital gains or loss to be lowered, deferred or
disregarded. The assets include collectables that are purchased or acquired for less than $500
will be considered for exemption purpose from the provision of CGT under the legislative
provision of “section 118-10(1) of the ITAA 1997”2.
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

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Answer E:
Under “section 104-15 the CGT event B1” it deals with the use and enjoyment before
the title is passed. A CGT event B1 takes place when a person enters into the contract with
the another entity that provides the right to use and enjoy CGT asset owned by a person is
passed to alternative entity3. A CGT event B1 happens if a person enters into the contract
with another entity that grants title in the assets or may pass to another entity at or prior to the
end of the contract.
Answer F:
The formula given under section 4-10(3) of the ITAA 1997 is given below
Income tax = (Taxable Income x Rate) – Tax offsets
Answer G:
A majority of the high court in its decision held that the legal outlay that was occurred
by the taxpayer was in the due course of producing or earning the taxable income and hence
the criteria of “paragraph 8-1(1)(a) of the ITAA 1997” was met4. The significance of this
case is that is concerned with the deductibility of the legal expenditure by the public servant
for defending the charges in relation to the conduct that has happened out of the normal day
to day activities5. The taxpayer was provided deduction under the “section 8-1, ITAA 1997”
3 Woellner, Robin H., et al. Australian Taxation Law Select: Legislation and Commentary
2016. Oxford University Press, 2016.
4 Eliot, George, Mill on the floss (Macmillan Collector's Lib, 2019)
5 McGregor-Lowndes, Myles. "Lawyers, reform and regulation in the Australian third
sector." Third Sector Review 22.2 (2016): 33.

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for the legal expenditure that was occurred by him during the income year of 2002 for
defending the disciplinary actions that was bought against him by the employer.
Answer H:
The average tax rate is regarded as the entire sum of tax that is divided by the total
earnings. The marginal tax rate on the other hand is regarded as the incremental tax that is
paid on the incremental income6. The average tax rate measures the household burden of tax
such as how the taxes would create an impact on the ability of the household to consume
today or in future. The marginal rate assesses the extent up to which the taxes create an
impact on the household economic incentives.
Answer to I:
A consumption tax is referred as the tax that is imposed on the consumption
expenditure or outlay on goods and services. The tax base of the consumption tax represents
the money that is spend on the consumption. The consumption taxes are treated as the
indirect tax particularly the sales or value added tax.
Answer to question 2:
Answer to A:
According to the Australian taxation office an individual is entitled to deduction for
the interest expenditure that is incurred for the income generating purpose. Interest on loan
occurred for business purposes are allowed for deductions. As per the “section 8-1, ITAA
1997” a taxpayer is allowed to claim deduction for the expenditure that is occurred in the
ordinary business course.
6 De Silva, A., et al. "Current issues with trusts and the tax system." (2018).

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As evident Brett occurred interest on loan that was taken to pay out the employee
wages. The interest on loan occurred by Brett was for gaining or producing the taxable
income. In other words, it was necessarily occurred with the objective of gaining or deriving
the taxable income. therefore, under “section 8-1, ITAA 1997” Brett will be allowable to
claim an allowable general deduction for the interest on loan7.
Answer to B:
As per the Australian taxation office, an individual taxpayer while completing their
tax return, they are allowed to claim an allowable deduction for some of the outgoings that
are directly associated to producing assessable income. If the portion of expenditure was for
both the work and private purpose, then a taxpayer is permitted to claim deduction for the
portion that is related to work purpose.
As evident Julie occurred a mobile phone charges that costed $500 out of which 60%
of the calls were made for the work related purpose. Julie will be allowed to claim only 60%
of the total mobile phone bill expenses as it is associated to work purpose under the positive
limbs of “section 8-1, ITAA 1997”8. While the remaining 40% is a private expenses and
hence non-deductible under the negative limbs of “section 8-1(2)” since it is a private
expense.
7 Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law.
Cambridge University Press, 2015.
8 Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and
practice. Routledge, 2016.

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Answer to C:
According to the “section 8-1 (2)” a loss or expenses that are of private or domestic in
nature would not be permitted for claiming deduction. This is because those expenses do not
meet the requirement of positive limbs or hence it is not allowed for deduction under the
negative limbs. As held “Lodge v FC of T (1972)” the court of law denied the deduction to
the law clerk for the childcare expenditure for having the taxpayer’s child minded so that she
can attend her work9. The court held that the child care expenses were neither relevant nor
incidental to the income producing activities.
Similarly, in case of Sally, the sum of $1,200 occurred for babysitter to look after her
children will not be allowed for deduction because the child care expenses of Sally were
neither relevant nor incidental to her income producing activities.
Answer to D:
Under the positive limbs of “section 8-1” nexus is established amid the involuntary
losses where it originates out of the income producing activities of the taxpayer. As held in
the “Charles Moore & Co (WA) Pty Ltd v FC of T (1956)” the court allowed the taxpayer a
deduction for losses that relates to the day’s earnings stolen while going to the bank10.
Similarly, Jerry would be allowed deduction under the positive limbs of “section 8-1,
ITAA 1997” for the goods that were stolen by the long term employees because the losses is
connected and occurred in the due course of the business activities for gaining and producing
the taxable income.
9 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
10 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.

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Answer to E:
Losses or expenditure that are preliminary to the beginning of the revenue generating
activities are not treated as the occurred in the course of such activity and hence not allowed
for general deduction under “section 8-1, ITAA 1997”. As held in “FC of T v Madallena
(1971)” expenses occurred to obtaining a new employment are not held as in the course of
producing taxable earnings11. The commissioner of taxation held that the expenses were
incurred at point too soon.
Similarly, expenses occurred in contesting a local government election and spending
on party election are preliminary to the beginning of the revenue generating activities and are
not treated as the occurred in the course of such activity and hence not permitted for general
deduction under “section 8-1, ITAA 1997”12.
Answer to question 3:
Answer to A:
According to the “CGT event F2” when the taxpayer grants, renew or extend the long
term lease. It can be applicable to the owner of the underlying land or if the taxpayer grants
the sub-lease. In the current situation Andy grants the lease to Brain for a five-year period at
the premium of $5,000. This give rise to the CGT event F2 however Andy would not be
allowed to obtain a 50% CGT discount as it does not apply to the CGT event F2.
11 Morse, Susan C., and Robert Deutsch. "Tax Anti-Avoidance Law in Australia and the
United States." The International Lawyer 49.2 (2015): 111-148.
12 Santhanam, R. "51_Salaries and Income-Tax." (2016).

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Answer to B:
The CGT event B1 takes place when the use and enjoyment of land is primarily
obtained by the new owner. The use and enjoyment of the land from the practical view point
happens when the new owner obtains the ownership of the land or the date when the new
owner is allowed to the rents and profits13. As evident in the current situation when the sum
of $40,000 is granted to the Farm Ltd with the option of purchasing the 100-acre farm outside
the Adelaide for the sum of $800,000. Therefore, in this situation a 50% CGT discount would
be applied to John for his 100-acre farm.
Answer to C:
According to the Australian Taxation Office if a dwelling is not the main residence of
the taxpayer for the entire period of time and used it for producing income then a taxpayer is
entitled to partial main residence exemption14. Jamie and Olivia bought the property and
immediately rented it out for a period of two years. following the occupancy, the property
was used for producing income and main residence until it was sold finally in 2018. Both
Jamie and Olivia would be allowed to obtain a partial main residence exemption. However,
upon making a capital gain from the disposal of the property, both the Jamie and Olivia can
make use of the discount method to determine the capital gains tax.
Answer to D:
Computations of Capital Gains Tax
For the year ended 2019
Particulars Amount Amount
13 Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
14 Morgan, Annette, C. Mortimer, and D. Pinto. "A practical introduction to Australian
taxation law 2018." (2018).

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($) ($)
Sale proceeds from BHP Shares (CGT Event A1 (s 104-
10(1)) 18720
Element 1: Cost of Acquisition (s110-25(1)) 5400
Taxable Capital gains 13320
Less: 50% CGT Discount 6660
Net capital gains 6660
The sale of shares in BHP yielded a capital gain of 13,320 however, a 50% CGT
Discount is applied on the sale of BHP shares to determine the net capital gains tax. For the
year ended 2018-19 Chris would record a sum of $6,660 in his tax return.
Answer to question 4:
Answer to A:
Mere prize is not held as income but it might be considered as ordinary earnings if
there are adequate relation with the income earning doings of the taxpayer. The court of law
in “Kelly v FCT (1985)” award received by the professional footballer from the Channel 7
for being the best player is held as the ordinary income15.
Winning prize of $2,000 for the best advertisement of the year would be treated as
income because it is connected to the taxpayer’s income making activities. The sum is an
income because the award is incidental to the taxpayers work and employment.
Answer to B:
As per the “section 6-1 of the ITAA 1936” income from the individual exertion or
income obtained from the private exertion comprises of the earnings, salaries, wages,
commissions, allowances etc. that are received in capacity of employee or in respect of the
services provided for any business activities that are carried on by the taxpayer16.
15 Robin, H. Australian taxation law 2019. Oxford University Press, 2019.
16 Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.

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The sum of $500 that is received by the employee from the employer for the cost
occurred in respect of travel to Sydney for work purpose would be held as income because it
is received by the taxpayer in capacity of employee during the course of employment.
Answer to C:
A gain that are mere gift are not held as income. As held in “Scott v F C of T (1966)”
solicitor received the sum of 10,000 pound from the longstanding wife of client was not held
as income17. Similarly, the receipt of $1,000 from the client here would not be treated as
income.
Answer to D:
Receipts in the form of lump sum payment might give rise to capital gains. However,
under the “paragraph 118-37 (1) (b) of the ITAA 1997” a taxpayer should disregard the
payments or the receipts for the capital gains purpose where the sum is associated to
compensation or damages for any kind of personal wrong, injury or illness18.
The receipt of $10,000 as the damages for the personal injury by an individual
taxpayer from the car accident would be not be treated as income. Such kinds of payments
would be held as tax free.
Answer to E:
Any kind of taxable income derived, or expected to be earned in relation to the future
year by the reason of being made currently entitled to income for the future year is too remote
17 Robin & Barkoczy Woellner (stephen & murphy, shirley et al.). Australian taxation law
select 2019: Legislation and Commentary. OXFORD University Press, 2019.
18 Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. 2018.

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to offer a nexus with the present income year19. A taxpayer here bought a share during the
year for $5 but in the current year the taxpayer still owns the share at a greater market value
of $7.50 would not be treated as income. This is because the income is yet to be earned and
hence it is point too soon to be held as income with in the ordinary concepts of section 6-5,
ITAA 1997.
Answer to question 5:
Issues:
The issues here relates to ascertain whether the taxpayer would be held resident
within the definition of “section 995-1 of the ITAA 1997” or under “section 6 (1), ITAA
1936”.
Laws:
As per “section 995-1, ITAA 1997” an Australian resident signifies those people that
are living in Australia and comprises of those individual that has their home in Australia
except when the taxation commissioner is content that the person’s perpetual place of
residence is out of Australia20. The definition explains that there four different tests to
consider a person an Australian Resident. On satisfying any one of the test an individual
would be held as the Australian resident. It also includes those that are living continuously in
Australia for more than one half or the six months of an income year unless the commissioner
is contented that the person has the actual place of residence out of Australia.
According to “Domicile Act 1982” a person is treated as an Australian occupant if an
individual has their home in Australia except for the taxation officer is contented that an
19 Rolim, Joao Dacio. "Proportionality and Fair Taxation." Intertax43.5 (2015): 405-409.
20 Bankman, Joseph, et al. Federal Income Taxation. Aspen Casebook, 2018.

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individual has their permanent place of dwelling out of Australia. As held in “FC of T v
Applegate (1979)” the court of law stated that the permanent does signifies everlasting or
forever and the evaluated objectively every year21.
The 183 days’ states that an individual would be treated as Australian inhabitant if a
person is in fact living in Australia, constantly or intermittently all through the six months of
the income year except when the commissioner is content that an individual place of house is
out of Australia.
Applications:
As evident here Nisu comes to Australia on 30th December 2018 to take up academic
study. As evident the intended and the actual length of Nisu stay in the overseas nation was
three years. Nisa does not has her Domicile in Australia as her permanent place of residence
is out of Australia. However, Therefore, Nisa does not meets the criteria of Domicile Test.
On the other hand, Nisu arrived in Australia on 30th December 2018 but due to family
commitment she returned on 30th June. It can be said that Nisu has stayed in Australia for one
half of the income year22. Furthermore, the quality and character of Nisu’s stay in is
consistent with those residing in Australia as her behaviour reflected an extent of continuity,
routine or habit with living in Australia. The period of six months can be considered a
considerable time in case Nisu. As the behaviour of Nisu is consistent with living in Australia
is demonstrated over the considerable period of time, she would be treated as resident from
the time when her behaviour began.
21 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
22 Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.

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Conclusion
Nisu has successfully met the criteria of 183 days and has continuously been present
in Australia for more than one-half of the year of income year. Therefore, she is an Australian
resident under “section 995-1 of the ITAA 1997” because she has met one of the four
residency test.

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References:
Bankman, Joseph, et al. Federal Income Taxation. Aspen Casebook, 2018.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law.
Cambridge University Press, 2015.
De Silva, A., et al. "Current issues with trusts and the tax system." (2018).
Eliot, George, Mill on the floss (Macmillan Collector's Lib, 2019)
Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. 2018.
McGregor-Lowndes, Myles. "Lawyers, reform and regulation in the Australian third
sector." Third Sector Review 22.2 (2016): 33.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
Morgan, Annette, C. Mortimer, and D. Pinto. "A practical introduction to Australian taxation
law 2018." (2018).
Morse, Susan C., and Robert Deutsch. "Tax Anti-Avoidance Law in Australia and the United
States." The International Lawyer 49.2 (2015): 111-148.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.). Australian taxation law
select 2019: Legislation and Commentary. OXFORD University Press, 2019.
Robin, H. Australian taxation law 2019. Oxford University Press, 2019.

16TAXATION LAW
Rolim, Joao Dacio. "Proportionality and Fair Taxation." Intertax43.5 (2015): 405-409.
Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
Santhanam, R. "51_Salaries and Income-Tax." (2016).
Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.
Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and
practice. Routledge, 2016.
Woellner, Robin H., et al. Australian Taxation Law Select: Legislation and Commentary
2016. Oxford University Press, 2016.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).