Taxation Law

Get study material, solved assignments, essays, and dissertations on Taxation Law at Desklib. Find answers to questions on TR Ruling 2019/1, Division 30 ITAA 1997, highest marginal tax rate, CGT event C1, tax free threshold, Hayes v FCT (1956), ordinary income vs statutory income, Medicare Levy vs Medicare Levy Surcharge, usual place of abode vs permanent place of abode, HECS-HELP, travel expenses, self-education expenses, childcare expenses, fridge repairing expenses, clothing expenses, legal expenses

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Answer to question 1:.................................................................................................................3
Answer A:..............................................................................................................................3
Answer B:...............................................................................................................................3
Answer C:...............................................................................................................................3
Answer D:..............................................................................................................................3
Answer E:...............................................................................................................................4
Answer F:...............................................................................................................................4
Answer G:..............................................................................................................................4
Answer H:..............................................................................................................................5
Answer to I:............................................................................................................................5
Answer to question 2:.................................................................................................................6
Answer to question 3:.................................................................................................................8
Answer to question 4:...............................................................................................................11
Answer A:............................................................................................................................11
Answer to B:........................................................................................................................12
Answer C:.............................................................................................................................12
Answer D:............................................................................................................................13
Answer to question 5:...............................................................................................................14
Answer A:............................................................................................................................14
Answer B:.............................................................................................................................14

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Answer C:.............................................................................................................................15
Answer D:............................................................................................................................16
Answer E:.............................................................................................................................17
References:...............................................................................................................................18

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Answer to question 1:
Answer A:
The matters that is covered under the “TR Ruling 2019/1” when the company carries
on the business. The ruling is largely associated to the opinions of commissioner’s when the
company conducts its business inside the sense small business entity under “sec23 ITRA
1986” as relevant from 2015-16 and 2016-17 onwards1.
Answer B:
“Division 30, ITAA 1997” covers the rules that is associated with working out the
deductions for certain types of gifts or contributions that is made by the taxpayers2.
Answer C:
For the Australian resident that are individual taxpayers and has the highest income of
more than $180,000 the highest amount of marginal tax rate that is applied on the individual
is 45%.
Answer D:
Car or motorcycle is regarded as the personal use asset that is mainly kept by the
taxpayer for their personal use and enjoyment. Capital gains and capital loss is only allowed
for exemption from car and motorcycle when the first element of the cost base is below
$10,000. Generally, car or motor cycle is not exempted from the CGT.
1 Taxation Ruling TR 2019/1
2 Division 30, Income Tax Assessment Act 1997 (Cth)

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Answer E:
An important explanation relating to the CGT event C1 has been made under the “sec
104-20, ITAA 1997”. The CGT event C1 deals with the destruction or loss of the CGT asset.
The CGT event C1 happens when the CGT asset you own is lost or destroyed. This event is
applicable to a portion of CGT asset that is lost or destroyed3. The time of this event is
considered important such as when the taxpayer first receives the compensation for the loss
or destruction or if they do not receive any compensation for the loss or destruction of the
CGT asset.
Answer F:
For the income year of 2019-20 the tax free threshold limit for the Australian resident
is the $18,200.
Answer G:
The judgement passed in “Hayes v FCT (1956) 11 ATD 68” explains that an
accountant who was given a substantial amount of shares as gift in the public company by his
former boss. The accountant in this case provided an unpaid advice to the previous employer
on the casual basis and carried out some small unpaid services4. The case highlighted a
significant amount of friendship among the two party’s families. The judgement of the case
denoted that gift received by taxpayer cannot be held as income because it does not have any
relation with the revenue producing activities and personal relationship between them was
only out of occasion of gift.
3 Section 104.20, Income Tax Assessment Act 1997 (Cth)
4 Hayes v Federal Commissioner of Taxation (1956) 11 ATD 68

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Answer H:
Differences between Ordinary Income and Statutory Income:
The ordinary income generally characterised as the income apart from the long-term
capital gains. Ordinary income can comprise of the income from the wages, salaries,
commissions, bonus5. The statutory income on the other hand represents the combined
income of any individual derived from all the sources, remaining following the appropriate
deductions and exemptions that is given under the “ITAA 1997”. The most common
examples of the statutory income are the capital gains tax and dividends.
The ordinary income is generally derived from the direct or indirect sources
irrespective of inside or outside of Australia. The statutory income is not like the ordinary
income and a taxpayer includes in their taxable income due to the specific rule in the taxation
law.
Answer to I:
The differences between the Medicare Levy and Medicare Levy Surcharge are as follows;
Medicare Levy Medicare Levy Surcharge
 The Medicare Levy is viewed as the
basic manner based on which most
of the working population of
Australia makes contribution
towards the cost of Medicare.
 If the tax payers are found to be
earning more than $27,069 in the
 The Medicare Levy Surcharge is
regarded as the additional charges
that is applicable to the Australian
taxpayers that have the yearly
income of more than the certain
amount and does not has the private
hospital coverage.
5 Section 6-5, Income Tax Assessment Act 1997 (Cth)

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most current tax year, then they will
be needed to pay the Medicare Levy
at a simple rate of 2% of their
taxable income.
 The charges of Medicare levy ranges
from 1% to 1.5%. The Medicare
Levy Surcharges is applied to all the
high income earners which means
that families earning more than
$180,000 and singles earning more
than $90,000 per year will be
required to pay tax.
Answer to question 2:
Both the phrases “usual place of abode” and “permanent place of abode” signify
different meanings in Australia. The former phrase is applicable for the ordinary peoples
staying in Australia without any purpose6. The latter will be considered as a “resident of
Australia” as they have served more than half of an Australian financial year. The Australian
taxation commissioner applies “resides” test to determine the status of resident. As a
consequence of that, individuals having extended holidays will no longer will be considered a
part of Australian citizens.
Meanwhile, a person not abiding the norms of “usual place of abode” will be marked
as a non-resident of Australia. The concept of “usual place of abode” depends on the subject
of fact. The phrase is generally applicable for those who are physically present in Australia.
Place of abode for an individual delineates the various aspects of the particular vicinity where
he or she is staying. Although, accommodation allotted for an overnight stay, weekly or
monthly to visitor does not represent place of abode.
6 Kenny, Paul, et al. Australian Tax 2016. 2016.

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In terms of Australian citizenship rule, a citizen must need to comply the meaning of
“subparagraph (a) (i)” of residence in order to have permanent place of abode. Moreover,
the citizen should need to ensure that all the requirements associated his or her satisfaction is
not outside of Australia. Contextually, the federal law “Applegate v FCT (1979)” has
provided the criterion which determines the citizenship status for “permanent place of
abode”. Applegate is reported to have retained his citizenship in Australia along with having
a permanent citizenship status of another country7. This “permanent” term related to this
background was actually fixed or habitual place of abode in nature.
Likewise, the legal provision under “Harding v FC of T (2019)” allows the taxation
authority to do the assessment of a taxpayer with respect to his or her citizenship status in
Australia8. This puts adequate emphasize on whether the person belongs from Australia or
other states of a nation.
Overall, the above mentioned examples regarding Applegate and Harding explain that
application of any kind of stringent rule will not be enabled to draw a transparent picture on
“permanent place of abode”9. The decision solely depends on the instance of the issues.
Answer to question 3:
HECS-HELP: $850:
7 Applegate v FCT (1979) ATC 4307
8 Harding v Federal Commissioner of Taxation (2019) FCAFC 29
9 Anderson, Colin, et al. “The Australian Taxation Office - What Role Does It Play in Anti-
Phoenix Activity?” Insolvency Law Journal, vol. 24, no. 2, 2016, pp. 127–140.

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The explanation given in the “sec 26-20, ITAA 1997” states that a taxpayer was
unable to avail income tax deduction facility in a relation to the study-associated expenses for
HESC-HELP10. Here, the trainee accountant was reported to incur a cost of $850 for self-
education. The verdict under “sec 26-20, ITAA 1997” denied the income tax deduction for
the particular trainee accountant.
Travel – work to university $110:
As mentioned in the “sec 8-1, ITAA 1997”, an individual is allowed to obtain income
tax deduction if expenses incur due to travel cost from workplace to place of study. In this
case, the trainee accountant made expense of $110 in order to travel from workplace to the
study place resulting in that the expenses was permissible for genral deduction under “sec 8-
1, ITAA 1997”11.
Books $200:
As specified by “Taxation Ruling of TR 98/9” act self-education cost related to
stationaries, textbooks, calculators are allowable for taxable subtraction under “sec 8-1,
ITAA 1997”12. According to the decree mentioned in “FCT v Studert (1982) ATC 4463”
expenses for course fees, conveyance charge and accommodation cost are tax-deductible
permissible elements as these cost will enhance future prospect of his recent employment.
Contextually, the trainee incurred a cost of $200 in order to buy the books for self-
education. Referring “FCT v Studert (1982) ATC 4463” a tax deduction is allowed under
10 Sadiq, Kerrie et al, Principles Of Taxation Law 2014
11 Section 8-1, Income Tax Assessment Act 1997 (Cth)
12 Taxation Ruling of TR 98/9

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“sec 8-1, ITAA 1997” as the self-education expenses were related to his betterment of his
present job13.
Childcare expense of $80 during the tenure of evening class:
As per the outcome of “sec8-1 (2) (b), ITAA 1997” child care cost will not be
permissible for general deduction. The child care expenses occur when the mother employs a
baby sitter while doing work at office. This results in generating no productive outcome to
the employee taxable earnings.
Similarly, the childcare cost of $80 in order to attain the evening class is not allowable
for tax subtraction as per the statement given in “sec8-1 (2)(b), ITAA 1997”14. This sort of
expense is irrelevant in the enhancement of the taxable income as stated in the legal provision
of “Lodge v FCT (1972)”.
Fridge repairing charge of $250 at home:
Referring “sec25-10, ITAA 1997” a taxpayer is allowed to obtain deduction facility if
expense incurs due to restoration process of an asset and latter this enhances assessable
earnings. Owing to get counted as a part of taxable income, restoration process should need
to be associated with the income generating process. Otherwise, any kind of refurbishment
activity done in domestic level will not be counted as a part of assessable income.
Meanwhile, deduction will not be permissible in relation to the provision for private or
capital expenditure. As mentioned in the context, the cost of $250 related to the fridge
13 Section 8-1, Income Tax Assessment Act 1997 (Cth)
14 Lodge v Federal Commissioner of Taxation (1972) HCA 49

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restoration for domestic purpose will be non-deductible under “sec25-10, ITAA 1997” as the
cost does not enhance assessable income.
Black trousers and shirt consumption cost of $145 for official reason:
There will be no permissible deduction in case of purchasing a cloth as per the
positive provision of “sec 8-1, ITAA 1997”. Any kind of expenses related to the personal
attire will not allowed for permissible taxable deduction as this does not generate assessable
income for an employee15. Likewise, the expenditure of $145 made for office suits, such that,
purchase of black trousers and shirt will not be permissible as per the judgement made in
“Westcott v FCT (1997)” owing not to have any positive association with the assessable
income. .
Legal expenses incurred in writing up new employment contract with new employer
$300:
Referring to the positive aspect of “sec 8-1, ITAA 1997” outgoings occurred due to
obtain new employment is not permissible for tax deduction. Contextually, expenses made by
a taxpayer was not allowable for general deduction in accordance with the verdict of
“Maddalena v FCT (1971)”. The taxpayer here was a footballer by profession and he had
incurred the cost owing to do travelling to new club during the course of negotiating career
contract16. Similarly, according to the verdict of “Maddalena v FCT (1971)”, the legal fees
incurred in order to do a new employment contract was not permissible for tax deduction
15 Westcott v FCT (1997) ATC 2129
16 Maddalena v FCT (1971) 45 ALJR 426

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cost. This judgement was developed on the basis of the legal provision mentioned in “sec8-1,
ITAA 1997”.
Answer to question 4:
Answer A:
As explained by the ATO, several types of CGT events is applicable on the lease of a
land. Accordingly, a CGT event F1 comes into existence when a person grants the lease to
somebody, or if they extend or they renew the lease which they had granted earlier17. The
sum of the capital gains or loss from the CGT event F1 constitute the difference between the
premium they get for granting the lease and outgoings the land holder occurs in granting it.
The CGT discount is not applied when CGT event F1 happens.
John here grants the lease of land to David at a premium of $7,000. When the lease of
land was granted to David by John a CGT event F1 happened. John must note that no CGT
discount would be applicable on the premium he would get from the lease of land.
Answer to B:
17 Kenny, Paul. LexisNexis Concise Tax Legislation 2016.

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As evident from the above stated computation the sale of IOOF shares has resulted in
capital gains whereas the sales of Greencross shares has led to capital loss. As the IOOF
shares were not held for more than 12 months, hence no CGT discount can be claimed by
Deepak in this case.
Answer C:
Basic exemptions are allowable for the capital gains or loss that originates from the
CGT event-where the CGT asset forms the dwelling and under “sec118-110 (1), ITAA 1997”
the taxpayer is dwelling on the main residence all through the entire period of ownership18.
Whereas if the land is used by taxpayer for conducting the business then a partial main
residence exemption is allowed to the taxpayer up to the portion of the floor area that is used
for generating assessable income.
In the recent case Li bought a house in March 2010 for $200,000 while the house was
used by Li for physiotherapy business. The house was eventually sold in March 2019 for
$700,000. The calculation of capital gains tax are as follows;
Capital gain x Percentage of floor area = Assessable portion
= $700,000 – $400,000 = $300,000 (net capital gain)
= 300,000 x 20% = $60,000
As Li entered into the contract of purchasing the house before 21st September 1999
and formed a contract of selling it following that time and also held the land for more than 12
months, she can use the 50% CGT discount.
18 Sadiq, Kerrie & Coleman Cynthia & Hanegbi, Rami Et AL., et al. Principles of Taxation
Law 2017. 10th ed., THOMSON LAWBOOK CO, 2017.

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Answer D:
The cost base of the asset represents the price that is paid for purchasing the asset.
The cost base of the CGT asset generally comprises of the cost of asset when they purchase it
along with some other cost that are related with the purchase, holding and sale of asset. The
cost base of the CGT asset generally comprises of the five elements. This includes the money
that is paid for the CGT asset, incidental cost that is occurred for the acquiring the asset,
ownership cost of asset, capital cost of increasing the value of asset and capital cost of
preserving or defending the assets title19.
On the other hand, when the CGT event occurs to the GGT asset and they have not
made any capital gain, then they need the assets, reduced cost base to determine whether they
have made any capital loss or not20. Similar to the five elements of cost base, the reduced cost
base is also made up five elements but the third element is different. It mainly deals with the
balancing adjustment amount which means that any value that is assessable is mainly because
of the balancing adjustment for the asset.
Answer to question 5:
Answer A:
As per the “s6-5, ITAA 1997” income of income character will be considered as a
part of taxable income21. Income derived from both relevant and irrelevant sources will be
19 Bell, Craig D. “Taxation.” University of Richmond Law Review, vol. 51, no. 1, 2016, pp.
103–123.
20 Kenny, Paul, et al. Australian Tax 2016. 2016.
21 Section 6-5, Income Tax Assessment Act 1997 (Cth)

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considered under taxable income. The irrelevant sources of income can be related to illegal or
corrupted activities.
Owing to the contextual evident, income derived from illegal activities related to
drug-dealing or smuggling or pilfer activities will be counted as a part of taxable income in
relation to the legal provision of “s6-5, ITAA 1997”.
Answer B:
Interest generated in regular basis is considered as a part of taxable income as this
enhances the assessable income after a certain period of interval. Similarly, interest gain of
$500 from bank will be considered as an item of assessable income. In accordance with the
provision of “s6-5, ITAA 1997”. However, natural windfall gain is not considered as a part of
income character22. Consequentially, gaining of $2,000 related to crown casino acts as a
windfall gain, resulting in that it does not consider under natural taxable earnings.
Meanwhile, residential rent acts as a measure of assessable income. The rental gain of $2000
stated in the context, regarded as a part of taxable income under “s6-5, ITAA 1997”.
22 Tully, Stephen. “Taxation: Interpreting Bilateral Tax Treaties.” LSJ: Law Society of NSW
Journal, no. 28, 2016, pp. 76–77.

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Answer C:
As stated by the “sec 6, ITAA 1936”, income gained owing to personal effort is
considered as a part of taxable earnings. For instance, salaries, gratuities, allowance, wages
and other personal exertion related earnings will be determined as a measure of taxable
income as all these earnings measure the work capacity of an individual employee23.
Likewise, a case of employment salary mentioned in “Dean v FCT (1997)” was recognized
as assessable income as per the provision of “sec 6-5, ITAA 1997”.
The receivable amount of $500 by an employee will be considered as a part of taxable
income. This consideration was taken due to the legal provision of “sec 6, ITAA 1936”. This
example states that the employee was able to receive the certain receivable amount owing to
his personal exertion24. This results in the enhancement of his personal assessable income,
stated by “sec 6, ITAA 1936”. In this context, the verdict of “Dean v FCT (1997)” has
considered the receipt amount of $500 as a measure of the assessable earnings in accordance
with the legal assessment of “sec 6-5, ITAA 1997”25.
23 Section 6-5, Income Tax Assessment Act 1997 (Cth)
24 Sadiq, Kerrie et al, Principles Of Taxation Law 2014
25 Dean v Federal Commissioner of Taxation (1997)

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Answer D:
Answer E:

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References:
Anderson, Colin, et al. “The Australian Taxation Office - What Role Does It Play in Anti-
Phoenix Activity?” Insolvency Law Journal, vol. 24, no. 2, 2016, pp. 127–140.
Applegate v FCT (1979) ATC 4307
Bell, Craig D. “Taxation.” University of Richmond Law Review, vol. 51, no. 1, 2016, pp.
103–123.
Dean v Federal Commissioner of Taxation (1997)
Division 30, Income Tax Assessment Act 1997 (Cth)
Harding v Federal Commissioner of Taxation (2019) FCAFC 29
Hayes v Federal Commissioner of Taxation (1956) 11 ATD 68
Kenny, Paul, et al. Australian Tax 2016. 2016.
Kenny, Paul. LexisNexis Concise Tax Legislation 2016.
Lodge v Federal Commissioner of Taxation (1972) HCA 49
Maddalena v FCT (1971) 45 ALJR 426
Sadiq, Kerrie & Coleman Cynthia & Hanegbi, Rami Et AL., et al. Principles of Taxation Law
2017. 10th ed., THOMSON LAWBOOK CO, 2017.
Sadiq, Kerrie et al, Principles Of Taxation Law 2014
Sadiq, Kerrie, et al. Principles of Taxation Law 2016. Ninth ed., Thomson Reuters, 2016.
Section 104.20, Income Tax Assessment Act 1997 (Cth)
Section 25-10, Income Tax Assessment Act 1997 (Cth).

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Section 6-5, Income Tax Assessment Act 1997 (Cth)
Section 8-1, Income Tax Assessment Act 1997 (Cth)
Taxation Ruling IT 2650
Taxation Ruling of TR 98/9
Taxation Ruling TR 2019/1
Tully, Stephen. “Taxation: Interpreting Bilateral Tax Treaties.” LSJ: Law Society of NSW
Journal, no. 28, 2016, pp. 76–77.
Westcott v FCT (1997) ATC 2129

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