Taxation Law

This document provides an analysis of taxation law, focusing on the income derived from personal exertion and the expenses incurred in producing that income. It discusses the issues, rules, and applications related to taxable earnings, deductions, and capital gains. The case study examines various scenarios and provides conclusions based on relevant tax laws and rulings.

Running head: TAXATION LAW
Taxation Law
Name of the Student
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Table of Contents
Answer to question 1:............................................................................................................................2
Headings:...........................................................................................................................................2
Issues:................................................................................................................................................2
Rule:..................................................................................................................................................2
Application:.......................................................................................................................................4
Conclusion:........................................................................................................................................5
References:............................................................................................................................................6

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Answer to question 1:
Headings:
The current case brings forward the issues that is associated to the income derived from the
personal exertion and the expenses that are occurred at the time of producing the income.
Issues:
The present study will be emphasizing on the following issues;
a. Are the income that is earned by exercising the private efforts or through the personal
exertion will be considered chargeable for tax under the “sec 6-5, ITAA 1997”?
b. Are the outgoings which is sustained at the time of earning taxable earnings or while
generating assessable earnings will be held as deduction under legislation of “sec 8-1, ITAA
1997”?
Rule:
Accordingly, it should be noted that earnings through personal efforts or individual exertion
are regarded as taxable earnings under “sec 6, ITAA 1936”. The verdict in “FCT v Hayes (1956)”
explained that individual exertion earnings are regarded as the incidence of employment or payment
received by the taxpayer in lieu of providing services1. Notably, when the employee is given any sort
of benefit from the employer, then for the employee it is not taxable under “sec 23L ITAA 1997”. The
giver or employer is held for FBT up to the extent of benefit provided to employee.
While receiving any type of payment as prize in respect of the employment then it is held as
income. The verdict in “FCT v Kelly (1985)” explained that upon the receipt of reward for fairest and
best football player was treated as taxable income under ordinary sense of “sec 6-5, ITAA 1997”. As
the payment was received in relation to use of taxpayers skills and employment it was held as
income2. Notably, no deduction is permitted under “sec 8-1, ITAA 1997” travelling expenditure
between home and workplace. But travel expenditure is only permitted for deduction if the outgoings
is associated between two workplaces. The verdict in “Weiner v FCT (1978)” explained that the
commissioner permitted travel expenses deduction to taxpayer for travel between two or more
workplace because travelling was itinerant part of taxpayer revenue producing activities3.
1 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing,
2016.
2 Graetz, Michael, et al. Federal Income Taxation, Principles and Policies (University Casebook
Series). Foundation Press/West Academic, 2015.
3 Arnold, Brian J. International tax primer. Kluwer Law International BV, 2019.

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There are situations were receiving simple prize money is not an treated income, however
emphasis should be placed where the prize money received holds satisfactory relation with revenue
producing activities. The verdict in “Stone v FCT (2005)” the taxpayer was held taxable for receipts
of numerous prize money and endorsements4. This is because the taxpayer was conducting the
business of professional athlete and income that was earned as taxable under ordinary sense of “sec 6-
5, ITAA 1997”.
There are situations under “sec 21A, ITAA 1997” where a person may receive benefit that is
holding nexus with the revenue generation acts but they cannot be converted into cash. The verdict in
“FCT v Cooke & Sherden (1980)” explained that benefits that are not convertible in cash are not
treated as earnings with ordinary sense. There are situations where the nexus is identified for common
personal efforts earnings such as fees earned while providing services. The verdict in “Brent v FCT
(1981)” explained that receipts for narrating the story in media for exclusive publication was
considered reward for service which was taxable under ordinary meaning of “sec 6-5, ITAA 1997”.
A CGT event A1 takes place under “sec 104-10 (1), ITAA 1997” upon selling the GGT asset.
Accordingly, under “sec 108-15 (1), ITAA 1997” when purchasing the collectables as set they will be
sold as set only and CGT provisions are applied on the sale of collectables.
Denoting “sec 110-25, ITAA 1997” the purchase price of asset usually comprises of items of
acquisition cost namely incidental cost, stamp duty, legal fees etc. The “taxation ruling of TR 97/23”
is associated to repairs that are deductible depending upon the nature of expenses. “Sec 25-10, ITAA
1997” explains that repair usually involves repairing something that is damaged or deteriorated but
does not involves changing or causing an improvement in the asset5. While an individual taxpayer is
entitled to get tax deduction for repairs made to property when it is sublet for producing income.
Evidences suggest that taxpayers often have land as the capital asset and develops the asset in
most enterprising manner to consider the profits as capital given the land development is not anything
but a simple realisation of capital assets. The verdict in “FCT v Statham & Anor (1989)” explained
that proceeds obtained from selling and subdividing the land will not be held as taxable proceeds
4 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
5 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

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either under “sec 25 (1) or 26 (a), ITAA 1936”6. When the isolated or extraordinary transactions are
not held as ordinary earnings then proceeds will attract CGT.
Application:
The case opens up and explains that Sarah is a full time employer and draws a salary of
$120,000 per annual from her employment. It should be noted that earnings derived through personal
efforts by Sarah are regarded as taxable earnings under “sec 6, ITAA 1936”. Quoting “FCT v Hayes
(1956)” individual exertion earnings are regarded as the incidence of employment or payment
received by Sarah in lieu of providing services. The payment will be taxable under ordinary sense of
“sec 6-5, ITAA 1997”7. A laptop was given to Sarah by her employer for work purpose. The laptop is
not taxable under “sec 23L ITAA 1997” because it is a fringe benefit given by Sarah employer in
relation to employment. While the employer should be held for FBT up to the extent of benefit
provided to Sarah.
A cash award for best accountant was received during the year by Sarah. Quoting “FCT v
Kelly (1985)” upon the receipt of reward for best accountant is treated as taxable income under
ordinary sense of “sec 6-5, ITAA 1997”. As the payment was received in relation to use of Sarah’s
skills and employment therefore, it is held as income. Sarah is very much hardworking and soon after
completing office she goes to teach in college for part-time purpose where she incurs travel expenses.
Mentioning “Weiner v FCT (1978)” the travel expenses of Sarah is permitted for deduction because it
is travel between two or more workplace and travelling was itinerant part of Sarah’s revenue
producing activities. However, the salary from part-time teaching is a taxable earnings from personal
efforts under ordinary sense of “sec 6-5, ITAA 1997”.
During the free time Sarah competes in a long jump competition in pursue of sporting
excellence. As a results she received prize money and coffee machine. Quoting “Stone v FCT
(2005)” Sarah should be held taxable for receipts of numerous prize money and endorsements. This is
because Sarah is conducting the business of professional athlete and income that is earned by her is
taxable under ordinary sense of “sec 6-5, ITAA 1997”. As the coffee machine is a non-convertible to
cash so it is not an income. Mentioning the example of “FCT v Cooke & Sherden (1980)” the coffee
machine received is a non-cash convertible benefit and hence non-taxable under ordinary sense of
6 Burton, Hughlene A., and Stewart Karlinsky. "Tax professionals' perception of large and mid-size
business US tax law complexity." eJTR 14 (2016): 61.
7 Main, Jim. "Taxation: Buying or selling: beware the sting of GST." LSJ: Law Society of NSW
Journal 55 (2019): 73.

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“sec 6-5, ITAA 1997”8. Whereas, citing “Brent v FCT (1981)” the money that is received for
appearing at several sporting events constitute reward for service which is taxable within ordinary
sense of “sec 6-5, ITAA 1997”.
A set of collectables was purchased by Sarah that for a purchase value of $1,550. She later
disposed it for $4,400. Citing the “section 104-10, ITAA 1997” the disposal has led to CGT event A1.
Referring to the “section 104-15 (1), ITAA 1997” the sale of collectables is treated as single sale and
the provision of CGT us applicable in the case of Sarah9.
Later a holiday home was bought and Sarah occurred acquisition cost on items such as stamp
duty and legal fees. Referring “Section 110-25, ITAA 1997” these cost will be a part of cost base
because they are capital expenses and not permitted for deduction. An initial repairs was done on the
property following purchase that mainly related to broken roof tiles and gutters. Denoting the
explanation of “taxation ruling of TR 97/23” the initial repairs on the property is a not permitted for
deduction under “sec 25-10, ITAA 1997” because these are capital expenditure. She also constructed
a garage on her holiday home and later the holiday home was sold to property developer for $1.2
million.
Citing “FCT v Statham & Anor (1989)” the proceeds derived from disposal of property is
neither taxable under “section 25 (1) nor in 26 (a) of the ITAA 1936”10. The property disposal by
Sarah is not an extraordinary or isolated transactions instead the proceeds which is earned by Sarah is
a taxable under CGT provisions.
Conclusion:
The analysis explains that Sarah is held for tax for income earned through her personal
exertion under ordinary sense “sec 6-5, ITAA 1997”. The receipts established the nexus with her
employment. Whereas she can claim deduction under “sec 8-1, ITAA 1997” for travelling because it
was occurred while generating income.
8 Braithwaite, Valerie, and Monika Reinhart. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University, 2019.
9 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
10 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).

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References:
Arnold, Brian J. International tax primer. Kluwer Law International BV, 2019.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Braithwaite, Valerie, and Monika Reinhart. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University, 2019.
Burton, Hughlene A., and Stewart Karlinsky. "Tax professionals' perception of large and mid-size
business US tax law complexity." eJTR 14 (2016): 61.
Graetz, Michael, et al. Federal Income Taxation, Principles and Policies (University Casebook
Series). Foundation Press/West Academic, 2015.
Main, Jim. "Taxation: Buying or selling: beware the sting of GST." LSJ: Law Society of NSW
Journal 55 (2019): 73.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing,
2016.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).