Taxation

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

1TAXATION
Question 1
a)
The TR 2018/41 ranges over the process that needs to be implied in computing the
assets which has the probability of depreciation under taxation.
b)
The details pertaining to tax offsets available to a taxpayer has been provided under
Div. 13 of the ITAA 972.
c)
The maximum tax rate applicable to a taxpayer for the income year 2018/19 amounts
to 54, 097 + 45% above an income exceeding 180, 000.
d)
Motor cycles, cars and other vehicles are required to be treated as an exempt from
CGT under section 118.5 of the ITAA 973.
e)
The ITAA 974 under section 104.15 prescribes the CGT event B1 that contains
information in relation to taxability of the usage and enjoyment of CGT assets before the
relocation of ownership of that property.
f)
Section 4.10(3) of the ITAA 97, Income tax = (taxable income * tax rate) –
taxoffsetss
1 TR 2018/4
2 The Income Tax Assessment Act 1997 (Cth), Div. 13
3 The Income Tax Assessment Act 1997 (Cth), s 118.5
4 The Income Tax Assessment Act 1997 (Cth), s. 104.15

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g)
In the case of FC of T v Day 2008 ATC 20-064, the permissibility of deductions
under the section 8.1 of the ITAA 97 has been analysed. The high court held that event if the
expense that has been asked for deduction has a connection with domestic purpose will also
be available for deduction if the same has a proximity with the earning process.
h)
Average tax rate has to be computed above the total income of a person, whereas
marginal income has been computed over the income, which is incremental. This can also be
stated that, the average income is imposed upon the total income and the marginal tax upon
the income that has been incurred by way of an increment.
i)
Consumption Tax depicts that form of taxation which is to be imposed upon the
spending of a person in obtaining the goods or services for tax purposes. It includes sales tax,
GST and other consumption related tax. It needs to be imposed upon the spending and not the
quantity.
Question 2
a)
In the present situation, the taxpayer has accrued with the interest for a loan, which he
has availed for paying the wages to his employees. This wages are required for the running of
the business that earns profit for him. Hence, this can be construed as an expense that can be
attributed to the income earning process of the taxpayer. Hence, will be e allowed as
deduction under section 8.1 of the Act5.
5 The Income Tax Assessment Act 1997 (Cth), s 8.1

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b)
In the present situation, the mobile phone charge that Julie has incurred is $500.
However, she has contended that she make business call with 60% off the mobile charge
accrued. This will allow her to avail the deduction of 60% of the charge, which will amount
to $300 this can be supported by section 8.1 of the Act6.
c)
In this instance, Sally has been accrued with expenditure of $1,200 for hiring a
babysitter to manage children. This she has hired so that she can go to work carefree. This
cannot be construed as an expense as has been included in the process of income generation
as it is more of a personal nature. Hence, this will not be allowed as deduction as under
section 8.1 of the Act7.
d)
In this case, an employee of Jerry has stolen goods belonging to the business of Jerry,
which has caused reduction in the financial resources Jerry. Hence, it will be allowed as
deduction under section 8.1 of the Act8.
e)
In this case, the amount of $5000 plus $2000 has been incurred for the investment in
the big party contesting the election for the formation of local government. This is to be
treated as the investment made in the preparation of a business that might be anticipated to
earn income in the future. This cannot be allowed as a deduction under section 8.1 of the
Act9.
6 The Income Tax Assessment Act 1997 (Cth), s 8.1
7 The Income Tax Assessment Act 1997 (Cth), s 8.1
8 The Income Tax Assessment Act 1997 (Cth), s 8.1
9 The Income Tax Assessment Act 1997 (Cth), s 8.1

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Question 3
a)
In the present situation, Andy was the owner of the land and has given the land for
lease to Brian. Their premium recharged is $5,000. This need to be treated as a CGT event F2
and the same will be taxed accordingly. However, the 50% discount allowed under the
division 115 of the Act10 will not be applicable in this case.
b)
In this case, John has offered to Farm Ltd, to sale his land for or $80,000, if the same
has been availed with additional payment of $40,000. This needs to be brought under the
purview of CGT event B1 as provided under section 104.15 of the Act11. This will be taxed in
accordance with the same and the discount available under section 115 of the Act12 will also
be applicable.
c)
In the instant situation, Jamie and Olivia bought the house and rent it out immediately.
Afterwards decided to use it for the residential purpose, but after 10 years they decided to sell
the house. The proceeds of the house will be subjected to subdivision. The part of the proceed
that will pertain to the renting out of the house will be treated as a capital gain and the
division of the procedure that has been used for residential purposes will be treated as an
exempt. However, in the division 115 of the Act13, 50% will be allowed as a discount on the
proceeds relating to rent out.
d)
10 The Income Tax Assessment Act 1997 (Cth), div 115
11 The Income Tax Assessment Act 1997 (Cth), s. 104.15
12 The Income Tax Assessment Act 1997 (Cth), div 115
13 The Income Tax Assessment Act 1997 (Cth), div 115

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Capital Gain Tax Computation
In the Books of Chris
For the year ended 2019
Particulars Amount Amount
BHP shares sale proceed (CGT Event A1) 18720
Acquisition Cost 5400
Taxable Capital Gain 13320
Wesfarmers shares sale proceed (CGT Event A1) 10500
Acquisition Cost 26000
Loss on Sale 15500
Net Capital Loss 2180
The capital gain will be treated as a CGT event but the 50% discount will not be allowed as
the shares were not held for more than 12 months. Capital loss will be carried forward in the
following year.
Question 4
a)
In the present case, the winning of the prize with respect to a television advertisement is
required to subjected to tax as the same has been given in the television for the purpose of
promoting the business. This can be construed as a business or earning venture and will be

6TAXATION
taxable under section 6.5 of the Act14. This can be illustrated with the case Kelly v FCT 85
ATC 428315.
b)
In present case, the $500 has been given by the employer to the employee for the
purpose of reaching the workplace. This can be more construed as a reimbursement in
relation to an expense and same cannot be subject to taxation under section 6.5 of the Act.
Hence, it will not be subject to tax16.
c)
Gifts are treated as proceeds, which are not taxable. However, if the gifts are for the
purpose of business transactions is needed to be taxed under the Act. In this case, the gifting
of a iPhone by a client cannot be treated as a business transaction gift but needs to be
constituted as a non taxable gift. This can further be illustrated with the case of Atkinson v
Federal Commissioner of Taxation [1951] HCA 6417.
d)
In this case, the receipt of money that the taxpayer has received was a compensation
that has been made against a car accident that has been caused to him and which has led to
several personal injuries. This needs to be treated as a compensation and not an income.
Hence, will not be subject to tax under section 118.37 of the Act18.
e)
The increase of share price held by the taxpayer needs to be construed as anticipated
income and not income. Hence, the same cannot be subjected to tax. In this case, the shares
14 The Income Tax Assessment Act 1997 (Cth), s 104.15
15 Kelly v FCT 85 ATC 4283
16 The Income Tax Assessment Act 1997 (Cth), s 6.5
17 Atkinson v Federal Commissioner of Taxation [1951] HCA 64
18 The Income Tax Assessment Act 1997 (Cth), s 118.37

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that have been held by the taxpayer and the price of the same has increased from $5 to $7.50.
This will be treated as an anticipatory income and not a realised income. Hence, it will not be
treated in taxation.
Question 5
Issue
Whether Nisu is to be considered as a resident in relation to the income tax year
2018/19.
Rule
Four test are required to be applied for the determination of the residency of a person.
This has been provided under the section 6(1) of the Act19.
 Resides test needs the person to stay in Australia to be rendered a resident and be
eligible of the purpose of being applied with the domicile test. It has been provided in
Tax Ruling 98/1720.
 Domicile test requires a person to have a domicile in Australia. Domicile is more than
just a rented accommodation. This has been provided in Tax Ruling 98/1721. In case
the person has a permanent place of abode in the exterior of Australia, it test will
automatically be rendered as void.
 Next to that, the 183 day test will be applicable, which requires a person to have been
residing in Australia for 183 day or more.
 Superannuation test is applicable to government employees.
Application
19 The Income Tax Assessment Act 1936, s. 6(1)
20 TR 98/17
21 TR 98/17

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In the present case, Nisu has been staying in Australia for the purpose of studies and
has been planning to stay there for three years. He availed a rented an accommodation, made
friends, joined a soccer team and availed a part time job. Hence, Nisu will clear the resides
test but the domicile test will not be applied as the permanent place of abode in Australia is
situation in Nepal. Hence, Nisu is to be considered as a resident in relation to the income tax
year 2018/19.
Conclusion
Nisu is to be considered as a resident in relation to the income tax year 2018/19.

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Bibliography
Kelly v FCT 85 ATC 4283
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
The Tax Ruling 2650
Atkinson v Federal Commissioner of Taxation [1951] HCA
FC of T v Day 2008 ATC 20-064
Taxation Ruling TR 2018/4