Taxation

This document discusses various aspects of taxation, including deductions, capital gains, residency determination, and more. It provides insights into the Income Tax Assessment Act 1997 and relevant case laws. The document also covers the difference between ordinary income and statutory income, as well as the difference between Medicare Levy and Medicare Levy Surcharge. It concludes with a discussion on capital gains tax and exemptions for main residences.

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

1TAXATION
1.
a)
TR 2019/11: deals with the fact that at what time a company is indulge into business.
b)
ITA Act 97, div 302: deals with treatment that gifts and contributions are required to be given as
deductible expenses.
c)
Highest Rate of Tax (2019/20): $54097 + 45% on excess of 180,0003.
d)
ITA Act 97, s 118.54: motorcycle along with card are eligible for being rendered as exemption
with respect to capital gain tax.
e)
ITA Act 97, s 104.205: any lost or demolished article owned by an individual is to be inferred as
capital gain event of C1 category.
f)
Tax Free Income Threshold: $18200 is the earning below which a person is not liable to be
imposed with taxation.
g)
1 TR 2019/1
2 The Income Tax Assessment Act 1997 (Cth), div 30
3 www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
<https://www.ato.gov.au/Rates/Individual-income-tax-rates/>.
4 The Income Tax Assessment Act 1997 (Cth), s 118.5
5 The Income Tax Assessment Act 1997 (Cth), s 104.20

2TAXATION
Significance of Hayes v FCT (1956) 96 CLR 476: it has been ruled out in this proceeding that the
monetary value received by a person who has been employed for the services rendered while employed
towards the former employer and extended by him would imply the receipt to be taxable as a capital asset.
Hence, capital gain taxation would apply upon any earnings that has been received by an employee
subsequent to the continuity of his employment and paid by the employer with whom the employee has
been previously employed with. This can be viewed as contrary to the fact that all the earnings produced
by application of personal toil or labour will be made assessable as income from personal exertion and
would come under the head of ordinary income. However, the reasoning extended by the court in this
context is that the amount has been extended by a past employer for the past services extended towards
previous employment. This depicts the fact that the earning has been accrued at a previous date but has
not yet been received by the taxpayer. It has been extended to the employee on a later date and this
timespan points towards its conversion into an asset of CGT regime. This explains the decision of the
court of rendering such an amount to be included while computing the capital gain taxation liability.
However, there are two probabilities that are required to be considered while making such as a function of
including such amount in in the tax computation of CGT. The first consideration is the intention with
which the money has been extended by employer. Consideration should also be given towards the
intention of the employee while accepting such an amount from a former employer.
h)
Difference between Ordinary Income and Statutory Income
Ordinary Income Statutory Income
It is an income by virtue of the ordinary meaning
prevailing with respect to income.
It is an income by virtue of the statutory provision
rendering it to be an income.
This form of income does not require a
recognition of the statute for being rendered as an
income.
This form of income needs to be mandated by the
statute to be recognized as an income.
6 Hayes v FCT (1956) 96 CLR 47

3TAXATION
Even in the absence of any legislation giving
recognition to it as an income, it would not lose its
recognition as an income.
In the absence of any statutory mandate giving
recognition to it as an income, it will lose its
identification as an income.
The taxability of the same is a universal concept. The taxability of the same is a statutory concept.
This income is taxable even without the authority
of the statute.
This income needs authority of the statute to be
considered for taxation.
Example: salary income, business income. Example: capital gain taxation.
i)
The difference between Medicare Levy and the Medicare Levy Surcharge
Medicare Levy Medicare Levy Surcharge
It is an additional levy upon income tax. It is an additional levy upon the summation of the
income tax and the fringe benefit tax.
It has been introduced for an assistance to be
extended towards the Medicare that regulates the
health system of the public within the boundaries
of Australia.
It has been introduced for the purpose for
diminishing the load that has been falling upon
the Medicare in the absence of this system.
The rate applicable in case of this form of levy is
2%.
The rate applicable in this form of levy is 1%,
1.25% and 1.5%.
It is regulated by the Medicare Levy Act 19867
and the ITAA 368.
It is regulated by the Medicare Levy Act 19869.
It needs to be applied on individuals exceeding
the minimum threshold.
It needs to be applied upon the individuals
belonging to the higher brackets of taxation.
To applied to the individuals to be considered for
Medicare.
The individuals who does not have any private
health insurance.
7 The Medicare Levy Act 1986
8 The Income Tax Assessment Act 1936 (Cth)
9 The Medicare Levy Act 1986

4TAXATION
2.
There are two ideas that can be conceived from the test of determining residency of a person
namely the resides test and the domicile as provided in ITA Act 97, 6.1. One of them is the ‘permanent
place of abode' and the other is the ‘usual place of abode'. The striking similarity of these two ideas can
be noticed from the ordinary meaning of the same but there is a difference existing between these two
ideas. However, the concept of place of abode is to be understood before discussing the differences
between these two ideas. Place of abode is any e property that has been utilised for the purpose of day to
day dwelling of a person as has been mentioned in the case of Levene v IRC (1928) AC 217 10. For
defining the concept of ‘permanent place of abode' analysis of the case of FC of T v Applegate 79 ATC
430711 is required. Although this is a place where a person jewels on a daily basis but the permanency
needs to be accrued from the motive of the person in continuing to live there for a considerable length the
period. This period does not demarcate forever, but it points towards the motive of the individual living
there until a foreseeable future. Again, the expression ‘usual place of abode’ is to be constituted from the
concepts of customary and habitual. This is a place where a person has residing and has became used to it.
As has been contained in the case of F.C. of T. v. Jenkins 82 ATC 409812, an accommodation obtained on
lease can also be brought under the concept of ‘usual place of abode’
3.
a)
Any monetary outgoings that can be established as incidental with respect to the process of
gathering earnings included in the assessment of taxation is needed to be input as deduction as for the
provision in ITA Act 97, s 8.113. Again, if it can be established that the outgoing has been linked with the
private use pertaining to the taxpayer it would require treatment of a non-deductible outgoing as for the
10 Levene v IRC (1928) AC 217
11 FC of T v Applegate 79 ATC 4307
12 F.C. of T. v. Jenkins 82 ATC 4098
13 The Income Tax Assessment Act 1997 (Cth), s 8.1

5TAXATION
principles enumerated in the decision of Lunney v Commissioner of Taxation [1958] HCA 514. The
payment towards HECS-HELP has been made with respect to a student loan that has been revealed by the
taxpayer. This needs to be constituted as a personal outgoing and will not be deductible from assessable
income.
b) The experience of outgoings that occurs while travelling in the direction of workplace renders
the outgoing to be considered as deductible outgoing according to ITA Act 97, s 25.10015. The outgoing
incurred while traveling to workplace from University amounting to recognition as an outgoing of
deductible nature.
c)
Any monetary outgoings that can be established as incidental with respect to the process of
gathering earnings included in the assessment of taxation is needed to be input as deduction as for the
provision in ITA Act 97, s 8.116. Again, if it can be established that the outgoing has been linked with the
private use pertaining to the taxpayer it would require treatment of a non-deductible outgoing as for the
principles enumerated in the decision of Lunney v Commissioner of Taxation [1958] HCA 517. The books
on the subject accounting has been purchased for the enlightment of the taxpayer with respect to the
professional skills and the amount incurred for the same of $200 is to be construed as deductible because
of its direct link with his profession.
d)
Any monetary outgoings that can be established as incidental with respect to the process of
gathering earnings included in the assessment of taxation is needed to be input as deduction as for the
provision in ITA Act 97, s 8.118. Again, if it can be established that the outgoing has been linked with the
private use pertaining to the taxpayer it would require treatment of a non-deductible outgoing as for the
14 Lunney v Commissioner of Taxation [1958] HCA 5
15 The Income Tax Assessment Act 1997 (Cth), s 25.100
16 The Income Tax Assessment Act 1997 (Cth), s 8.1
17 Lunney v Commissioner of Taxation [1958] HCA 5
18 The Income Tax Assessment Act 1997 (Cth), s 8.1

6TAXATION
principles enumerated in the decision of Lunney v Commissioner of Taxation [1958] HCA 519. Child care
expenses during the evening classes of the taxpayer amount into $80 will not be included in the
deductions as it has been connected with personal use.
e)
Any monetary outgoings that can be established as incidental with respect to the process of
gathering earnings included in the assessment of taxation is needed to be input as deduction as for the
provision in ITA Act 97, s 8.120. Again, if it can be established that the outgoing has been linked with the
private use pertaining to the taxpayer it would require treatment of a non-deductible outgoing as for the
principles enumerated in the decision of Lunney v Commissioner of Taxation [1958] HCA 521. Fridge
repair expenses kept at home of the taxpayer amount into $250 will not be included in the deductions as it
has been connected with personal use.
f)
The acquisition of workplace clothing should not be included in the deductions under ITA Act
97, s 8.122. Hence, the amount of 145 dollars experience for availing shirt and black trousers will not be a
deduction.
g)
Any monetary outgoings that can be established as incidental with respect to the process of
gathering earnings included in the assessment of taxation is needed to be input as deduction as for the
provision in ITA Act 97, s 8.123. The cost of signing employment contract is and expense towards
foundation of income earning procedure and not an income on a procedure in itself has the same will not
be deductible.
19 Lunney v Commissioner of Taxation [1958] HCA 5
20 The Income Tax Assessment Act 1997 (Cth), s 8.1
21 Lunney v Commissioner of Taxation [1958] HCA 5
22 The Income Tax Assessment Act 1997 (Cth), s 8.1
23 Ibid.

7TAXATION
4.
a)
In cases where owner of a property rents out the property on a lease his situation will come under
the concept of F2 category of capital gain event. This can be a new lease, extension of existing lease,
renewal of a lease or any other events relating to a lease. Moreover this category would imposed with
50% discount. Therefore, as John is the owner and leased out his property to David for a premium of
$7000, it will be regarded as F2 category of capital gain event and needs to be applied with a discount of
50%24.
b)
CGT liability
Item AUD$ AUD$
Transaction of IOOF Shares
Capital gain 1200
CP 6700
CB 5500
Transaction of Greencross Shares
Capital gain 5880
CP 14160
CB 20040
Capital Loss
4580
c)
The income earned by disposing of a property, which has been used as the main residence of a
person will be treated as exempt from CGT gain as per ITA Act 97, 118.10025. again if that property has
been used for any scheme that is expecting profit would not be rendered as exemption from CGT. In case
24 Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016)
25 The Income Tax Assessment Act 1997 (Cth), s 118.100

8TAXATION
part of the property has been used by the taxpayer as main residence and the other part for profit making
the scheme needs to be applied to that part only for which it has been used for business purpose. Capital
gain = $ (700000 + 400000) * 20% = $ 60000.
d)
Cost base as defined in ITA Act 97, s 110.2526, is the cost suffered in in acquiring an asset of
capital nature and comprises of the acquiring cost, cost for holding the asset, cost of disposing off, cost of
preserving the asset and incidental costs. On the other hand, reduced cost base as defined in ITA Act 97, s
110.5527 is the calculation with respect to the event of capital nature that is not disclosing any profit. This
needs to be computed for the purpose of discovering any hidden loss within the transaction.
5.
a)
Any earnings incoming from happenings that are unlawful and not executed as a business
arrangement will not achieve inclusion within the earnings, which are taxable. This contention has
involved as per the decision arrived in FC of T v La Rosa 2003 ATC 451028. Owing to the non inclusion of
the earnings from activities which are unlawful within the assessable earnings, it can be contended the
outgoing suffered as a consequence of such unlawful activities should not be given recognition as
outgoings of deductible nature.
b)
Any amount received as interest by virtue of a lump sum volume of cash will require recognition
as earning of ordinary nature by virtue of fruit and the three concepts which renders the cash or property
as the tree from which arises the fruit called interest. Any earnings that can be produced by exploiting a
property need recognition as earning of ordinary nature under the same concept. As per the principles
26 The Income Tax Assessment Act 1997 (Cth), s 110.25
27 The Income Tax Assessment Act 1997 (Cth), s 110.55
28 FC of T v La Rosa 2003 ATC 4510

9TAXATION
arising from Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 129, gambling
related earnings or earnings from windfall games will not achieve inclusion within the assessable income
of a person and the inclusion is only possible when the same has not been continue as an amusement. This
non-inclusion of such income can be best explain with the case of Evans v. F.C. of T. 89 ATC 454030.
Therefore it can be stated that $500 earned as interest from Bank mark out the same as income of ordinary
nature as per ITA Act 36, s 6.531; earnings from casino needs non recognition as assessable income owing
to its nature pointing towards an amusement and rent received as an earning from house is an ordinary
income as it involves exploiting property. Hence, Net Taxable Value = 500+2000 = $2500.
c)
The allowance that might be received by an employee by virtue of his employment for the
services he performed as has been paid by the employer is to be subjected to taxation as per ITA Act 97, s
15.232. Hence, the sum of $500 as earned by the employee as an allowance should be taken into
consideration as taxable in the hands of the taxpayer.
d)
Medicare Levy
Amount ($)
Income 20,000
Rate Less than minimum threshold
Medicare Levy Payable 0
Income 24900
Rate 2%
Medicare Levy Payable 498
Income 100000
Rate 2%
Medicare Levy Payable 2000
29 Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 1
30 Evans v. F.C. of T. 89 ATC 4540
31 The Income Tax Assessment Act 1936 (Cth), s 6.5
32 The Income Tax Assessment Act 1997 (Cth), s 15.2

10TAXATION
e)
Payable Tax
Calculation ($)
25,000
Earning
Tax Rate 19% on excess of $18,200
Tax Payable $(25000 – 18200) of 19% = $6800 of 19% 1292
Earning 40,000
Tax Rate 3,572 + 32.5% on excess of $37,000
Tax Payable $3572 + 32.5% of (40000-37000) = $3572 of
32.5% of 3000 = $(3572 + 975)
4547
Earning 95,000
Tax Rate 3,572 + 20,797 + 37% on excess of $90,000
Tax Payable $20,797 + 37% of (95,000-90,000) = $20,797 of
37% of 5000 = $(20,797 +1850)
22647

11TAXATION
Bibliography
Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 1
Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016).
Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016).
Evans v. F.C. of T. 89 ATC 4540
F.C. of T. v. Jenkins 82 ATC 4098
FC of T v Applegate 79 ATC 4307
FC of T v La Rosa 2003 ATC 4510
Hayes v FCT (1956) 96 CLR 47
Levene v IRC (1928) AC 217
Lunney v Commissioner of Taxation [1958] HCA 5
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
The Medicare Levy Act 1986
TR 2019/1
www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
https://www.ato.gov.au/Rates/Individual-income-tax-rates/