Taxation Law: Deductions and CGT Events

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

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ANSWER 1:
a) The taxation ruling 2019/11 provides the view of Commissioner on when can a company
can carry on a business by following the meaning of small business entity as laid down in
section 23 of the Income Tax Rates Act 19862, hereinafter referred to as ITRA 1986
applicable in the income years of 2015-16 and 2016-17 as well as according to section
328-110 of the Income Tax Assessment Act 1997, hereinafter referred to as ITAA 1997.
b) Division 303 of the Income Tax Assessment Act 1997 enumerates the legislation
pertaining to the gift deductibility or contributions deductibility.
c) The top tax rate applicable to an individual who is a residential taxpayer amounts to
54097 dollars in the taxation year of 2019-2020 and this rate is subjected to an extra 45%
of the amount in excess of 180,000 dollars4.
d) Section 118.5 of the Income Tax Assessment Act5 when perused provides that car as well
as motor cycle is not included in the capital gain tax.
e) Destruction or loss of any CGT asset is covered by CGT C1 event under section 104-20
of the ITAA6.
f) The current threshold which is free from taxation for any individual resident for a
taxation year is the income excess of 18200 $.
g) In the case of Hayes v FCT7, High Court decided that an income accruing against any
services provided by a tax payer previously will depict a CGT gain in case of an
assessable income. Moreover, any amount which an employee got from his employer for
1 TR 2019/1.
2 Income Tax Rates Act 1986 s 23.
3 Income Tax Assessment Act 1997 Div 30.
4 www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
https://www.ato.gov.au/Rates/Individual-income-tax-rates/.
5 Income Tax Assessment Act 1997 s118.5.
6 Ibid s 104.20.
7 Hayes v FCT (1956) 96 CLR 47.

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his service will be considered as the capital gain of the assessable income of such
employee. Any income which an individual receive due to personal exertion will be
regarded as the ordinary income of such individual. However, a receipt accrued already
given by a past employer but not provided to the employee will be regarded as the capital
asset as the employee got it as huge money later on after it was accrued.
h) The differences between an ordinary income and a statutory income will be analyzed in
this answer. Any tax payer under the provisions enumerated under the division of taxable
income as per the taxation law has the option to earn two types of income called the
ordinary income and statutory income. Ordinary income means the salary of an
individual in his capacity as an employee. It also include any other kind of money which
he can earn by means of personal exertion whereas any type of income barring ordinary
income is known as that statutory income and it is included within the assessable income.
Some examples of statutory income include dividends, redundancy payment, allowances
and CGT gains. For the purpose of assessing the ordinary income, any type of strict rule
is not followed but for statutory income, it is calculated by applying the provisions of the
statutes. Express mention in relation to ordinary income is not provided in the taxation
statute. However, statutory mention expressly is mandatory in order to consider a
statutory income as the assessable income8.
i) In this answer, point of differences between Medicare levy & Medicare levy surcharge
are enumerated. Many taxpayers are subjected to additional payment of taxes imposed on
regular income tax payable. Such additional taxes are Medicare levy and the Medicare
levy surcharge. Both of these taxes are applicable to the taxpayers. These are imposed
8 O’Connell, Ann. "Australia." (2017)Capital Gains Taxation. Edward Elgar Publishing.

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under the Medicare Levy Act 19869 and the Income Tax Assessment Act10. The Medicare
levy surcharge has been incorporated aiming at encouraging the high income earners to
pay health care insurance indirectly decreasing the Medicare burden. The tax payers not
having any type of private health insurance are subjected to the Medicare levy surcharge.
This can be applied on the taxpayer’s total income together with fringe benefits for the
taxation year. The Medicare levy rate and the Medicare levy surcharge rate generally
ranges between 1%, 1.5 % and 1.25 %.
Answer 2:
The residency requirements are provided u/s 6(1) of the Income Tax Assessment Act11. It
involves three tests which are the domicile, residing and the super admission tests. Apart
from this 183 days test is also of consideration for assessing the taxation liability of an
individual who either lives in Australia or has some connection with it. These two tests
involve two types of principles provided under the said section. These principles are
‘permanent place of abode’ and the ‘usual place of abode’12. Though apparently both appears
to be of same meaning but they are different when considered as per the Australian taxation
law. This principle of place of abode is discussed in detail in the judgment of I.R.C. v.
Lysaght13 which states that place of abode means a residential property held by an individual
tax payer as its owner or lessor who is staying in such place with family.
Again the judgment of FC of T v Applegate14 case elaborates on the principle of
‘permanent place of abode’. In that case, it is seen that the ‘permanent place of abode’
9 Medicare Levy Act 1986.
10 Income Tax Assessment Act (Cth) 1936.
11 Income Tax Assessment Act (Cth) 1936 s 6.1.
12 Jones, Daryl. "Complexity of tax residency attracts review." (2018) Taxation in Australia 53.6: 296.
13 I.R.C. v. Lysaght (1928) A.C.234.
14 FC of T v Applegate 79 ATC 4307.