Taxation and Revenue Law: Direct and Indirect Tax, IT Act, Residency, Capital Gain, and Loss

This article covers various topics related to Taxation and Revenue Law such as Direct and Indirect Tax, IT Act, Residency, Capital Gain, and Loss. It discusses progressive and regressive tax, tax implications of loans and bartering, VAT, and general anti-avoidance rule for income tax.

Taxation and Revenue
Law

Contents
TASK 1............................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................4
Question 3....................................................................................................................................4
Question 4....................................................................................................................................5
Question 5....................................................................................................................................5
Question 6....................................................................................................................................5
Question 7....................................................................................................................................6
Question 8....................................................................................................................................6
Question 9....................................................................................................................................7
Question 10..................................................................................................................................7
TASK 2............................................................................................................................................7
QUESTION 1..............................................................................................................................7
Question 2....................................................................................................................................9
Question 3....................................................................................................................................9
Question 4....................................................................................................................................9
Question 5....................................................................................................................................9
Question 6..................................................................................................................................10
Question 7..................................................................................................................................10
Question 8..................................................................................................................................10
Question 9..................................................................................................................................11
Question 10................................................................................................................................11
REFERENCES..............................................................................................................................13

TASK 1
Question 1
Direct and Indirect Tax-
There are mainly two categories of tax as the direct tax and the indirect tax. The direct tax
is the tax that is levied directly on the income and gains of an individual or the firm. The direct
tax is calculated on the basis if the income that is earned by an individual. Moreover, the direct
tax is paid directly to the government by the individual or an organisation upon which the tax is
so levied. The indirect tax as the name confers in indirectly paid by the individuals to the
government of the country. The indirect tax is paid on the services and the goods that are being
purchased by the individuals from the retail shop in the market. The indirect tax is indirectly paid
by the customer. Moreover, the tax is levied firstly on the manufacturer of the product. Then, the
tax is charged from the wholesaler who has purchased the products from the manufacturer to sell.
Then it is charged from the retailer and finally it is charged by the customer of the product. This
is the process of paying the indirect tax as intermediaries are involved in this (Allen, 2020).
The burden of paying the tax in case of direct tax cannot be shifted from that individual.
On the contrary to this, the burden of paying the tax always shifted to another individual in case
of indirect tax as so many intermediaries are involved in this process. The direct tax is paid
straight by the individual. But, the indirect tax is paid by the intermediaries. The direct tax is paid
when the income so earned reaches in the hands of the concerned individual. On the other hand,
the indirect tax is paid when the goods and the services reached to the adequate individual. The
collection of tax in case of direct tax is much difficult as compare to the indirect tax. The
examples of the direct tax are the income tax, wealth tax, etc. The illustration for the indirect tax
are the GST tax, Sales Tax, etc.
The progressive tax can be explained as the tax rate which is higher for the high earning
individuals in the society. Moreover, the regressive tax imposes the equal level of tax rate on all
the individuals irrespective of the earning capacity of the individual. The sales tax is the
example of the regressive tax (Martin, 2018). The main aim of the progressive tax is to ensure
that the tax rate is fair to all the tax payers of the country. This would empower the country in
order to develop the weaker and the backward section of the society. Moreover, in Australia, the

tax is applied both Regressively and progressively. This is because the tax is charged more in
case of income tax and equal in case of sales tax in the country.
The provisions of the Income Tax Act, 1936 is applied by considering the Income Tax
Act, 1997 because the IT Act, 1936 is the base for the new IT act. The fundamental of the tax are
applied after viewing this at. The IT act, 1936 provides the method for the assessment of the
income. Moreover, the rates are changed timely by the government of the country. Moreover, the
new additions are added on the IT Act, 1997 that is to be levied on the individuals who are
applying the tax in the country.
The section 51 of the Australian Constitution confers the power to Commonwealth to impose the
tax on the individuals in the country. Moreover, the section 90 of the constitution also empowers
the exclusive powers with regard to the tax imposition. Moreover, the state is also eligible to
impose the tax on the citizens as per section 114 of the constitution of Australia (Mc Gregor and
Lowndes Williamson, 2018).
Question 2
2.1 Brainstorm is a non-resident because none of the lived in Australia. All the directors lived in
different country. One of the directors is resident in Singapore. So that Brainstorm company is
non-resident and they are not pay tax in Australia.
2.2 If assume that Brainstorm is a resident of Australian then the company will pay the tax of
income. Brainstorm is involving in the business of constructing projects and it has pay the tax of
its profit in overseas country. They will receive the part year tax free income only resident tax
will pay.
Question 3
The citizens of Australia are taxed on the basis of the IT Act of Australia. The residency
plays an important role in levying the tax on the individuals. The citizens of the Australia have to
paid tax on the overall incomes that is earned at the world wide level. Moreover, the individual
has to pay the tax on all the sources of the income as per the IT Act of Australia. The migrated
person who has received the citizenship of the Australia also has to pay the taxes as the tax paid
the person who has origin from Australia itself. Moreover, the rate of the tax depends upon the
income of the individual. Moreover, the definition of the resident makes any person Australian

citizen if he abodes in Australia. The main principle to be the Australian resident that the
domicile of an individual is that the person must has the permanent resident address is in
Australia. The Mr. Fu must not have made the house in Sydney for his wife and children. This is
because it would be the permanent address of Mr. Fu and the substantial address would be of the
Hong Kong. Moreover, the client has to pay taxes as per the Australian tax laws (Sadiq &
Krever, 2021).
Question 4
Anne has to pay the taxes for the classes or the lessons she has attended in the first and second
year. As it is clearly, mentioned that the deal is only available if the student pays for the 100
lessons before taking the second lesson. In the very 1st year Anne attends 20 classes in the
second year she attended 45 classes but for the third and fourth year she has not attended any
lessons.
Astaire Dance Company has to pay the taxes for the 100 lessons because the dance
company has taken the money or the fees in advance.
Question 5
5.1 The basis of accounting refers to the timing varieties when the financial events get recorded.
There are two main bases which are termed as cash basis and accrual basis.
Cash basis will be recording the finances of Robin in which money will be exchanged and
accrual basis will be recording the duration of the transaction of the robin in which it is clearly
mentioned that cash has been received or paid.
5.2 Among the most notable implications of tax are Innovation and product development, Brand
rationalization. In this case, even after Robin retired to pay the principal amount with the interest
according to the original repayment schedule.
Question 6
6.1 An ex gratia payment is a payment that has no contractual obligation. In this case ex gratia
payment of $1000 is subject to tax as there is nothing given regarding the termination of
Reginald so we assume that he is still working.
6.2 In this case, Reginald in return of his services received razor and electric kettle from Cosmo,
this transaction in kind is referred to as Bartering, which is legal in Australia. “Barter dollars” the

fair value of the goods and services received are taxed as if they are cash. One can owe income
tax, employment tax, or even excise tax on bartering income, even if you haven't received a
single penny. In the eyes of IRS, both Reginald and Cosmo have to include the fair value of the
razor and kettle on their tax returns as taxable income.
6.3 The Tax Code permits an employer to make an interest-free loan to an employee of up to
$10,000 without having to treat the foregone interest as compensation to the employee. Reginald
was given a loan of $500. No taxable benefit is given to the parties.
Question 7
Taxation implication of the loan made by IE to Nicole
Since the loan provided by IE is of specified period of time i.e. 13 months with an interest rate of
1% and another interest free loan for two years thus it is referred to as a Term Loan. In this case,
even after Nicole retired she is liable to pay the principal amount with the interest according to
the original repayment schedule. Nicole will recognize taxable compensation and IE will
recognize compensation expense on the date the loan is made.
Taxation implication of the fruits given to Nicole by Fred
In this case, Nicole in return of her services received fruits and vegetables from Fred, this
transaction in kind is referred to as Bartering, which is legal in Australia. “Barter dollars” the fair
value of the goods and services received are taxed as if they are cash. One can owe income tax,
employment tax, or even excise tax on bartering income, even if you haven't received a single
penny.
In the eyes of IRS, both Nicole and Fred have to include
the fair value of the fruits and vegetables on their tax returns as taxable income. Fred will also be
able to claim a deduction on his Form 1040, Schedule C, for professional services.
Taxation implication on the payment made by Nicole to Fred for the damages
A lump sum payment is made by Nicole to Fred for the damages caused due to faulty wiring.
This is referred to as “punitive damages” so the money given by Nicole to Fred as punishment
for Nicole's actions is taxed as income and interest earned is taxed as interest income.
Question 8
Agreement 1

A service agreement between Micron ltd and logic ltd is subject to VAT
a) All amount agreed to pay as consideration should include VAT
b) If any amount is mentioned as VAT, the service receiver (logic ltd) is liable to VAT amount.
 Micron ltd is liable to give invoice mentioning each amount to logic ltd.
Agreement 2
Any transaction between business to business are subject VAT in case of goods.
Minimum 1% of VAT is charged on each transaction between the parties here, micron ltd and
logic ltd. The VAT is chargeable from 1% to 27%.
Question 9
If Shoppers would consider tax gains into account which is exempted on only half of the
percentage if it has been owned for less than 12 months. It is further 20% implemented in case of
land being acquired by any person for business purposes thus when the shoppers would be
having a benefit of approximately 2.5 million after eliminating the cost of land and expenses
which have been incurred over the time period such as arranging the connection of gas,
electricity, water and sewage. Thus it is advisable that they must consider the tax which would be
levied on the selling of land and take in account the expenses which would incur and the profit
that they would be able to generate after lending shops for rental purposes.
Question 10
It is the general anti-avoidance rule for income tax. It protects the honesty of Australian Income
Tax System by assuring that arrangements that have been formulated to acquire tax benefits will
fail. Part IV A is used in a practical way. It concentrates on the component of what has been
done.
TASK 2
QUESTION 1
a) In this following case all expenditure incurred by Raymond will be deducted from the amount
received at the time of sale in September 2012. The Actual Capital Gain of Raymond is
calculated below,
Capital Gain = Revenue from sale of assets – Expenses incurred on the property

= $60000 – ($30000 + $1000)
= $29000
In this case the amount will be charged to Long term capital gain the property is kept for more
than 12 months. Thus it will be liable to pay Long term capital tax on the taxable amount.
b) House bought by Ben in 2008 is purchased for $50000 which is valued at $70000 in 2016 but
it was sold for $50000 which incurs a capital loss of $20000.
Bill has built a house which have cost him $100000 and sold that house in 2016 for
$250000 the difference in the amount is the Capital Gain of the company that is $150000.
c) Penny is an individual whom have purchased a stamp and sold it for $1000, so the amount
which is chargeable under the long term capital gain is $600. The land is sold for the lower
amount that is $50000. It has incurred a loss of $5000, thus the person has overall incurred a
capital loss of $4400.
d) Anne has entered into a contract with the company which taken over the cutlery business. The
amount paid by the company for not doing such kind of work is a contract under the law. But in
case the individual is forcefully made enter into the contract thus can sue for his rights. If his
decision is made under any of the following that is cohesion or any forceful action.
e)
i) If she had acquired the wooden cabinet before the year 1985 then it will be considered in
the act and not liable for any capital gain on the product.
ii) If the wooden cabinet is purchased for $500 then the person whom sold he product he
liable for the capital gain on the sale of the product.
iii) The purchased amount for the TOM will be $9000 and the will be liable for only $1000
capital gain on the Wooden Cabinet.
f)
i) In the first case the he will not be liable for any of capital gain incurred on the sale of the
capital assets as it is purchased before 1985. Thus the amount so gained from the sale of the
building will not form part of Capital Gain.
ii) If the cottage would have acquired in 1990 then, the amount remained after deducting the
expenses incurred on the cottage will be the Capital gain on cottage. That is the amount which is
taxable under capital gain is $200000 - $120000 that is $80000.

g) In the following case the Acme Pty limited will not charge any capital gain because the
transaction is authorised before the year 1984.
Question 2
In the following case the expenses incurred by the Sam Spade for the purpose of office will not
be charged for his income. The amount so spend by the Sam will be deductible for the company
from the expenses incurred by the company. The amount incurred by the company for the paint
of the premises will be added to the cost of building and it will be eligible for the deduction.
Question 3
It is being advised to Steel company Ltd that they must focus on deduction of expenses in
relation with repairing the leaking roof in old buildings and also repairing some of the old and
dangerous paint and awnings as well which would help to reduce and stop the damage resulting
towards timber. It is possible that the firm is able to build and construct a new production plant
factory at the rear of existing buildings. It would be beneficial for the company to renovate and
update the necessary changes demanded and required by the business rather than to invest and
start over from scratch which would demand huge amount of funds. It would be beneficial for
the enterprise to purchase some additional locomotives which could be used after repair that
would result to be cost effective and environment friendly as well. It is also recommended that in
relation to deal with the growth of specialised modern based goods would be providing
capability to economically be able to produce small to medium amount of quantity of a wide
range of parts.
Question 4
In the following case, the income earned by the company is different and income earned by the
company is different. The amount of share sold by Sam to Jill makes the sole owner of Nostra
Pty Ltd. the company will pay an amount which is equal to the share of the company payable for
the company. The income will be clubbed to the income of Jill because it will be charged to the
rates of the company.

Question 5
The tax related to the franked shares is already paid and is not liable to pay further tax on such
dividend. The amount of $24.00 is liable for the tax that is the tax amount for the company is
$12.00 and for the individual $7.2. In the case of Franked amount, the tax has already paid by the
company and no further tax will have paid by the company. The tax will only be charged for the
individual that will be $10.8. The total tax payable by the individual is $18.00 and on the other
the company will require to pay $12.00 for the purpose of tax.
Question 6
a) In this case the dividend of $1400 to sue is already franked to 50% which is $700 that will
charged @50% that is $350 will be charged to the company. The individual will have charged
for the whole of the amount received that is $1400 will be charged for tax @30% that is $420.
b) In this case the company has paid the dividend to the other company which will be recipient of
dividend and will be charged @25 %. So in this case the amount charged for the tax for
Transport International Ltd (TI) will be $10500. XYZ Ltd. have to pay a tax liability of $10500.
Thus the amount which the company will require to pay for the dividend of the company.
Question 7
a) Calculation of Taxable Income of Mechanics for the year ended 30 June 2020.
Taxable income = Total income of the year – Total expenses incurred during the year
= $7632000 – $3521000
= $4111000
b) The taxable income of the company is chargeable @ 30 % which is calculated as below,
Total tax liability of the company = $4111000 * 30%
= $1233300
c) Franking amount is the amount which includes the tax liability that is arisen from the dividend
and income earned by the company. The company is required to pay an amount to the
government as the tax liability for the income earned by the company during the financial year.

Question 8
Beneficiaries of the smith family are liable for the amount which is received and paid from the
trust. One of the beneficiary is minor thus he will be only liable for the income of the trust and in
case of any liability that arises in the trust he will not be liable for any of the liability. The other
beneficiary is legally authorised to take charge of the trust and the actions of the trust. These
beneficiaries need to address the liabilities and income of the trust. Thus the amount paid to the
individual will be treated as the amount paid to these individual and will be deducted from the
total income of the beneficiaries.
Question 9
The net income from the investment being made by the deceased estate would be returned to
David's father as he is appointed as a trustee till the date David turns 21 and the income is
rendered on annual basis which yield a generated fund of $120000 for his education purposes,
maintenance and advancement as well. For the years ending on 30th June for 2018, 2019, 2020
and 2021 must be handed over to David for the needs and wants he demands rest must be taken
care of by his father. If David would die before he turns out to the age of 21 then the income
generated from investment would be given to his father as he is accountable for the rest activities
and is at present, the trustee which makes timely advancements for better life.
Question 10
a) According to the provisions of Australian Income Tax Act, the first $1066.19 of rental income
from property is tax free, this is property allowance.
Reporting to HMRC is being made if the rental income is between $1066.91 to $2665.99 in a
year.
Reporting on self-assessment tax return is being made if it is:
 $2665.99 to $10662.88 after allowable expenses.
 $10661.89 or more before allowable expenses.
According to the provisions of Australian Income Tax Act, interest received or accrued to a
resident is considered as assessable income irrespective of its source or payment form. Deduction
on income received as a way of interest is not allowable under Australian Income Tax Act.

Applying the relevant provisions in the given case, rent received by Bob of $ 520.00 i.e.,
$10.00 per week is allowable as deduction whereas income received as way of interest is taxable.
Thus Bob will succeed in argument related to rent but will not succeed in interest income.
(b) Part IV A of the Australian Income Tax Assessment Act is the general anti-avoidance rule for
income tax. It protects the honesty of Australian Income Tax System by assuring that
arrangements that have been formulated to acquire tax benefits will fail. Part IV A is used in a
practical way. It concentrates on the component of what has been done.

REFERENCES
Books and Journals
Allen, C. (2020). Taxation of Live Stock in Australia: A Critical Review of Tax Law and
Policy. Australian Tax Review, 49(3), 209-233.
Martin, F. (2018, January). Tax deductibility of philanthropic donations: reform of the specific
listing provisions in Australia. In Australian Tax Forum (Vol. 33, No. 3, pp. 533-550).
McGregor-Lowndes, M., & Williamson, A. (2018). Foundations in Australia: Dimensions for
international comparison. American Behavioral Scientist, 62(13), 1759-1776.
Sadiq, K., & Krever, R. (2021). Corporate Residency in Australia: Back to the Future?