Taxation Law

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Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
References:.................................................................................................................................8

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Answer to question 1:
Issues:
Whether the taxpayer will be held as the Australian resident under “section 6 (1) of
the ITAA 1997”? Whether the taxpayer will be held liable for taxation under the ordinary
meaning of “section 6-5 of the ITAA 1997”.
Rule:
According to the “section 6 (1) of the ITAA 1997”, an Australian resident generally
implies that the person has their domicile in Australia except when the taxation commissioner
is satisfied that the taxpayer has the perpetual place of dwelling outside Australia. As per the
“taxation ruling of TR 98/17” migrants or individuals that comes to Australia with the pre-
arranged employment contract would be treated as the Australian resident (Kenny,
Blissenden and Villios 2018). However, the period of physical presence and intention of
staying in Australian forms the matter of fact. The court in “FCT v Joachim (2002)” held the
taxpayer to be Australian resident since the taxpayer had the permanent residence in Australia
and also maintained his family home.
According to “section 6 of the ITAA 1936” personal exertion income comprise of
salaries, wages or bonus earned in capacity of employee. As stated in “Section 6-5 of the
ITAA 1997” ordinary income includes the majority of the earnings that is earned by the
taxpayers (Sadiq et al. 2018). As held in “Scott v CT (1935)” receipts should be determined
in accordance with the necessary principles of ordinary concepts.
Payments that are received by the taxpayers for surrendering or limiting right are not
treated as income. As held in “Pritchard v Arundale (1972)” payment of lump sum

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compensation for surrounding the status of “Partner” was not held as income (Taylor et al.
2018).
According to “subsection 6-5 (2) of the ITAA 1997” the taxpayers are required to
include the gross earnings for assessment purpose. As held in “Firstenberg v FCT (1976)”
the employment earnings should be assessed under cash basis (Woellner and Woellner 2018).
Wages and salaries or income from any other occupation are held taxable under the cash
method despite they are related to the future or past periods of earnings.
To impose tax the sources of income must be determined. The double taxation
agreement restricts the ATO from implementing tax on certain income and allocates the
rights of taxation to a particular nation (Dumiter and Jimon 2016). As held in “FCT v
Spotless Services Ltd (1995)” source of income should be ascertained where interest payment
obligation originates.
Application:
Joseph resided in UK before moving to Australia to take up the employment for ten
years with Lifestyle Pty Ltd. referring to “taxation ruling of TR 98/17” Mary Joseph arrived
Australia with a prearranged work agreement. Referring to “FCT v Joachim (2002)” Mary
would be treated as Australian resident under “section 6 (1) of the ITAA 1997” as she
entered Australia with the intent of residing for a period of 10 years and her behaviour
reflects continuity of living here.
Later, Mary was given a stopover expense of $2500 to visit Singapore. Referring to
“section 15-2” the amount of $2500 is a statutory earnings because it is related to her
employment and is considered for taxation. Mary was paid with $200,000 for surrounding her
independent status. Referring to “Pritchard v Arundale (1972)” surrounding of independent

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status amounted to relinquishing or restricting her rights and the amount is excluded from
assessment as it is not an income.
During the income year Mary earned salaries and wages. Referring to “Scott v CT
(1935)” the salary and bonus is income from personal exertion and is counted in for taxation
under the ordinary concepts of “section 6-5 of the ITAA 1997”. Mary also received bonus
but was paid on 10 July. Quoting “Firstenberg v FCT (1976)” the bonus is included for
assessment based on receipt basis despite it was related to future period of earnings.
Later, Mary received rent and bank interest from UK that amounted to £36,000 and
£800 for June 2018. Based on DTA with UK the bank interest and rental income is not
included for taxation and the taxing rights has been allocated to source nation of UK.
Particulars Amount ($)
Assessable Income
Gross Salary 1,50,000
Bonus 30,000
Total Assessable Income 1,80,000
Computations of Assessable Income
For the year ended 30th June 2017/18
Conclusion:
Mary is held as Australian occupant within the meaning of “section 6 (1) of the ITAA
1997” while the employment income and bonus is included for assessment as income based
in ordinary meaning of “section 6-5 of the ITAA 1997”.
Answer to question 2:
Issues:
The present issue is related to the determination of adopting correct process of
ascertaining tax accounting for transactions within the “subsection 6-5 (2) and (3) of the

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ITAA 1997”. Is the non-transferable business benefits will be treated as ordinary income
under “sect 21A of the ITAA 1936”?
Rule:
According to the “taxation ruling of TR 98/1” earnings from business is treated as
revenues generated from carrying of business activities. As per “subsection 6-5 (4) of the
ITAA 1997” income that is derived by the taxpayer either in real or in constructive manner
should be classified under cash basis (Braithwaite and Reinhart 2019). The receipts method
of accounting takes into the account the cash receipts that is made all through the income
year.
As defined under “section 21 A of the ITAA 1936” benefits that are non-convertible
in money will be considered as if it were convertible in cash. As per the “section 21 A of the
ITAA 1936” if a non-cash business benefits is received by the taxpayer then it would be held
as income (Barkoczy 2016). The business benefits would be bought within the value of arm’s
length reduced by any value of the recipient’s contribution.
The court of law in “FC of T v Cooke & Sherden (1978)” held that the worth of free
overseas holiday that are inconvertible into cash received by the retailer as the sales
incentives will not be held as income (Woellner et al. 2018). However, with the application of
legislative response under “section 21 A of the ITAA 1936” non-cash business benefits
would be held as ordinary income under the ordinary concepts.
The ATO states that a person may derive certain amount that does not attracts tax
liability and therefore does not forms the part of assessable income. Certain rewards or gifts

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are not held as ordinary income (Black 2018). Nevertheless, gifts may be subjected to
taxation if they are significant in amount and received as the part of business activity or in
relation to revenue producing activities as an employee or contractor.
Application:
Evidences from the case study suggest that Jimmy and Jane carried a retail business as
Orange that sold software and computers. A receipt of $1,200,000 was reported by Jimmy
and Jane. Citing the “taxation ruling of TR 98/1” the sum of $1,200,000 should be treated as
business income derived from business activities (Gideon 2017). Referring to “subsection 6-
5 (4) of the ITAA 1997” these receipts should be accounted under the cash method of
accounting.
During the year Jimmy and Jane reported highest sales and was rewarded with a trip
to Hong Kong. Referring the decision of court in “FC of T v Cooke & Sherden (1978)” the
inconvertible free trip to Hong Kong amounted to non-transferable non-cash business
benefits. Referring to the principle of “section 21 A of the ITAA 1936” the amount of
$10,000 received by Jimmy and Jane as free overseas holiday is an inconvertible business
benefits will be treated as income and is included for assessment based on the ordinary
concepts of income.
Jane received an iPad from one of its clients as the part of 10th anniversary of business
that valued $500. The market value of the iPad amounted to $500 and will be treated
assessable income because Jane received the gift from her business activities that holds
relevant relation with the revenue producing activities.

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Particulars Amt ($)
Receipts
Cash Receipts 1200000
Add: Opening Debtors 230000
Less: Closing Trade Debtors 320000
Gross Receipts 1110000
Non-Cash Business receipts 10000
Non-Cash Gifts (IPAD) 500
Total Assessable Income 1120500
Calculation of Assessable Income
For the year ended 30th June 2017-18
Conclusion:
The business receipts has been included for assessment under the cash basis of
accounting within the meaning of “subsection 6-5 (4) of the ITAA 1997”. Whereas, the non-
cash business receipts in the form of trip to Hong Kong amounted to income within the
meaning of “section 21 A of the ITAA 1936”. While the gifts received was in relation to the
business activities and is included for taxable purpose.

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References:
Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.
Black, D., 2018. The incidence of income taxes. Routledge.
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax
Office comply and who benefits?.
Dumiter, F. and Jimon, Ș., 2016. Double Taxation Conventions in Central and Eastern
European Countries. Journal of legal studies, 18(32), pp.1-12.
Gideon, M., 2017. Do individuals perceive income tax rates correctly?. Public Finance
Review, 45(1), pp.97-117.
Kenny, P., Blissenden, M. and Villios, S. 2018. Australian Tax.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J. and Ting,
A. 2018. Principles of taxation law.
Taylor, C., Walpole, M., Burton, M., Ciro, T. and Murray, I. 2018. Understanding taxation
law 2018.
Woellner, R. and Woellner, R. 2018. Australian taxation law.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2018. Australian taxation
law 2018.