Taxation Law

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Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to B:..........................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Part 1:.....................................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................4
Answer to Part 2:....................................................................................................................4
Answer to question 4:.................................................................................................................5
Answer to question 5:.................................................................................................................6
Answer to question 6:.................................................................................................................7
Article 1: ATO Closing gap on multinational Tax Avoidance:.............................................7
Article 2: Removal of franking credit inequitable: Inquiry...................................................8
Answer to question 7:.................................................................................................................9
References:...............................................................................................................................10

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Answer to question 1:
Answer to A:
Australia is regarded as federation and legislative power is spread among the
commonwealth and states. “Section 51 (ii)” lay down the areas of commonwealth power. As
per “section 51 (ii)” it allows the commonwealth to make laws in relation to the taxation but
requires not to make discrimination between the states or parts of the states (Woellner et al.,
2016). The board of commonwealth has the power to impose tax that should be read as
subject to the beginning of “section 51” which lay down the right to make powers subject to
the constitutions. While “section 90” provides the Commonwealth with the exclusive powers
to impose tax on custom duties and excise.
Answer to B:
The development of Australian government tax policy and its application legislation
is the accountability of the Treasury Ministers. The ATO plays a vital role in the formulation
of policy and legislative procedure which reflects the inter-reliance of legislation, policy and
administrative aspects of taxation system (Barkoczy, 2016). The main function of ATO is to
manage tax and legislation of superannuation that are passed by the parliament. To perform
this, ATO develops the managerial arrangement to apply tax law, educating and advising
taxpayers regarding their rights and obligation.
While the role of High Court is to interpret and implement the taxation of Australia to
the decided cases that have special federal significances together with the challenges to
constitutional validity of laws and hearing appeals from the federal, state and territory courts.
The parliament comprises of lower houses and upper houses (Miller & Oats, 2016). Bills
should be passed through both the house of parliament. The lower house brings forward the
taxation bills to the parliament and the same is proceeds to upper house to pass the bill.

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Answer to question 2:
According to the Double Taxation Agreement between Australia and US. the business
profits derived by the enterprise of one contracting states will be levied taxes only in that
state except the company is performing the business in the different contracting state with the
help of permanent establishment (Jones & Rhoades-Catanach, 2015). If the company is
carrying on the business as aforementioned, the profits derived by the business will be
taxable in the other state only to that extent which is attributable to the permanent
establishment. According to the “section 6-5, ITAA 1997” a resident taxpayer is required to
pay taxes on income from all the sources while “section 6-10, ITAA 1997” states that a non-
resident is required to pay taxes on the Australian sourced income (Gashenko et al., 2019).
A company is regarded as the Australian resident company if it is carrying the
business in Australia and has the central management as well as control in Australia. Usually,
business income is taxable where the transactions are performed. The court of law in “C of T
(NSW) v Hillsdon Watts Ltd (1937)” held that business income is usually where the business
was performed. In other words, it is the place where the contract is performed and forms the
only relevant factor in determining the source (Freudenberg et al., 2017). With reference to
the Double Taxation Agreement the profits from the Australian sales are sourced in Australia
by the US manufacturer. As a result, the profits will be taxable in Australia for the US based
manufacturer because it is sourced in Australia.
Answer to question 3:
Part 1:
Answer to A:
Capital gains is generally applied to the assets that are acquired or other events that
are happening on or following the 20th September 1985. Consequently, the word such as Pre-

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CGT and Post-CGT is generally applied to the assets that are acquired or events that are
happening prior to that date or following that date (Sadiq, 2018). If Indian decides to sub-
divide the property into 80 lots and sell the same any capital gains derived from the land. The
land will be exempted from capital gains tax as the it constitutes a Pre-CGT asset and any
gains derived from the sale of land is not subjected to capital gains tax.
Answer to B:
If Indiana acquired the property on 1st November 1986 and sells the subdivided
undeveloped block of land to the property developer, then in this the potential application for
revenue provision should be considered. It is assumed that land is not the trading stock for
Indiana and the net profit is not a taxable income under “section 6-5, ITAA 1997”. In an
another option if Indiana decides to hold auction of all the 80 blocks of land as the separate
packages to the highest bidder then the subdivided block of land would be considered as the
trading stock and any profits derived from the sale of land will be subjected to tax under
“section 6-5, ITAA 1997” (Robin & Barkoczy, 2019). Finally, if Indiana does not decide to
subdivide the land but instead choose to sale the land entirely to the development company
then the sale of land constitute a capital asset which will be subjected to capital gains tax. The
profits will be taxable as ordinary income and would be subjected to GST.
Answer to Part 2:
Option A:
If the proposed subdivision by Indiana goes further than the mere realisation it would
be treated as profit making undertaking and would amount to carrying on the business of land
development by Indiana. The sale of subdivided 80 block of land would result the land being
treated as the revenue asset assets instead of capital assets and the profits may be treated
assessable under ordinary concepts of “section 6-5, ITAA 1997”.

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Option B:
If Indiana decides to undertake the similar activity by holding auction of all the 80
blocks of land, then the land which is a capital asset would become the land development
business. The subdivided 80 lots would be treated as trading stock from the date when the
business began. Indiana will be deemed to have sold 80 block of land at the market value.
The taxpayer in this situation would be held assessable as a commercial approach was
undertaken to sale the land with profit making intention. The income will be taxable within
ordinary concepts of “section 6-5, ITAA 1997”.
Option C:
If Indiana does not subdivide the land and sells the same to the development
company, the development profit will be considered as assessable ordinary income when the
profit emerges.
Answer to question 4:
Post cessation expenditure may be treated as allowable deduction given the occasion
of loss or outgoing is found in the business operations which was previously carried on by the
taxpayer with the objective of generating assessable income. The court of law in “FCT v
Placer Pacific Management Pty Ltd (1995)” allowed the taxpayer a deduction for expenses
incurred in settling the customers dispute relating to the supply of faulty conveyor belt
(Jover-Ledesma, 2014). The expenses were treated as outgoing which was occurred by the
taxpayer in producing the taxable income from the business activities. The commissioner
stated that the event of loss or outgoing constituted the business arrangement that was entered
into among the customer and taxpayer.
In an another case of “FCT v Brown (1999)” the taxation commissioner allowed the
taxpayer deduction and stated the outgoing of interest payment was found for the loan entered

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through partnership for carrying on the business of generating assessable income (Morgan,
Mortimer & Pinto, 2018). Similarly, in the situation of Amity she will be allowed to claim
deduction for interest on loan because the interest payment is found to have incurred for the
loan agreement entered into by the Amity for carrying on the business activity and for
generating assessable income. Therefore, the amount will be allowable deduction under
“section 8-1, ITAA 1997”.
Answer to question 5:
Capital gains tax is only applicable to the assets that are acquired on or following 20th
sept 1985. A CGT event A1 happens when the taxpayer sales the asset under “section 104-10
(1)) of the ITAA 1997” (Morgan & Castelyn, 2018). An individual’s main residence is
usually exempted from capital gains tax. In order to obtain the exemption, the property
should have dwelling on it. Maurice acquired a home on for a sum of $140,000 and the same
was sold on 1st March for a sum of $325,000. The home was never used for producing
income by Maurice. As a result, Maurice will be entitled to full main residence exemption.
Maurice has also acquired FUL shares in 1984 for $15,000 which was later sold for
$19,000 on 15th March. The shares acquired by Maurice is a pre-CGT asset which is
exempted from capital gains tax. As per “section 108-20 (2), ITAA 1997” personal use assets
represent assets which is kept by the taxpayer for the purpose of their personal use and
enjoyment. However, under “section 118-10 (3), ITAA 1997” any form of capital gains or
loss should be disregarded when the personal use assets acquisition cost is less than $10,000
(Robin, 2019). Maurice bought a furniture for $9,500 on 20th May which was sold on 1st May
2018 for $5,000. As a result, the capital loss derived from the sale of furniture should be
disregarded by Maurice as the cost base is less than $10,000.

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As per the ATO if an individual acquires a vacant block of land either for personal
purpose or for the investment purpose then it is usually held as capital asset that are subjected
to capital gains tax upon the disposal of land. The vacant block of land was acquired for
$100,000 on 20th June 1997 but was sold for $465,000 on 15th May 2018. The sale of land
resulted in CGT event A1 under “section 104-10(1)), ITAA 1997” (Grange et al., 2014).
While the interest expenses are included under element 3 of cost base as the non-capital cost
of ownership to determine to net capital gains. The net capital gains for Maurice is given
below;
Answer to question 6:
Article 1: ATO Closing gap on multinational Tax Avoidance:
Facts
The article states that ATO has been running a special taskforce and has recovered
more than $8 billion from the multinational company. Around 1500 largest companies pay
approximately $44 billion tax revenue each year in Australia due to the improved
compliance, tax and lawful education (Afr.com, 2019). A certain amount of tax gap was
witnessed for 2015-16 which represented a trend of reducing gap. The article states that a

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percentage of compliance has been met and there is an increase of more than 95% in tax
performance.
Concise explanation of taxation concepts:
The article explains the tax avoidance as the legal use of tax regimes in the single
territory to the advantage of multinationals to lower the sum of tax which is payable within
the law.
Explanation of connection between concepts and indicators of good tax policy:
The article explains that ATO projects that taskforce would continue to work towards
good tax policy by focussing on tax effects on the entire system. It indicates that there is an
improvement in the tax gap more generally.
Article 2: Removal of franking credit inequitable: Inquiry
Facts:
The article states that the labour has proposed the removal of refundable franking
credits for the individuals and self-managed super funds is considered inequitable and highly
flawed found by the parliamentary inquiry (Afr.com, 2019). The article states that the
committee has taken into account of removing the refundable franking credits for both the
individuals and SMSF funds and considers the policy unequal.
Concise explanation of taxation concepts:
The article clearly states that imputation credits would allow the Australian
companies to pass the taxes at the company level and ultimately to the shareholders. The
article states that PBO projects revenue from the labour policy would be around $5.2 billion
in 2021-21 which will increase to $48.6 billion by 2027-28.

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Explanation of connection between concepts and indicators of good tax policy:
The article states that the committee has considered the removal of refundable
franking credits for both the individuals and SMSF. It also states that the policy is inequitable
and contains flaws. Abolishing the refundable credit would be unfair to modest income
earners that are retired as they are not likely to return to workforce for making up the lost
income.
Answer to question 7:
The role tax advisor in making sure that the clients comply with the necessary
taxation laws are given below;
a. The tax practitioners help the clients in administering their tax affairs by enabling
them to make sure that their clients understand their rights and obligations (Igt.gov.au,
2019).
b. The tax agents play an important role in promoting compliance among clients by
improved risks and compliance strategies through better focussed information request
and dialogue with clients.
c. The tax advisers play is considered critical and vital leverage point for clients as the
key intermediary for tax and superannuation system.

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References:
ATO closing the gap on multinational tax avoidance. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/ato-closing-the-gap-on-multinational-tax-
avoidance-20190318-p51577
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Chapter 7: Tax practitioners and advisors | Inspector-General of Taxation. (2019). Retrieved
from http://igt.gov.au/publications/reports-of-reviews/use-of-compliance-risk-
assessment-tools/chapter-7-tax-practitioners-and-advisors/#P2035_307929
Franking credit removal 'inequitable': inquiry. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/franking-credit-removal-inequitable-and-
deeply-flawed-inquiry-20190404-p51az9
Freudenberg, B., Chardon, T., Brimble, M., & Isle, M. B. (2017). Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, 21.
Gashenko, I. V., Zima, Y. S., & Davidyan, A. V. (2019). Principles and Methods of Taxation.
In Optimization of the Taxation System: Preconditions, Tendencies and
Perspectives(pp. 33-39). Springer, Cham.
Grange, J., Jover-Ledesma, G., & Maydew, G. 2014 principles of business taxation.
Jones, S., & Rhoades-Catanach, S. (2015). Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
Jover-Ledesma, G. (2014). Principles of business taxation 2015. [Place of publication not
identified]: Cch Incorporated.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.

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Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). (2019). Australian
Taxation Law Select 2019: Legislation And Commentary. Oxford University Press.
Robin, H. (2019). Australian Taxation Law 2019. Oxford University Press.
Sadiq, K. (2018). Australian Tax Law Cases 2018. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.