Taxation

This document provides information on various aspects of taxation including tax offsets, capital gain tax, income tax rates, and more. It includes examples and explanations of different tax concepts. The document also discusses the tax treatment of different expenses and transactions. It is a useful resource for students studying taxation.

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

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1)
a)
The effective life pertaining asset that can be considered as a depreciating asset is to
be computed by the commissioner in the compliance of the Taxation Ruling TR 2018/41.
b)
Div. 13 belonging to ITAA 97 contains the detailed discussion in relation to the the
tax offsets that are available to a taxpayer2.
c)
The maximum tax rate that a taxpayer resident in Australia has the possibility to
subjected to in the income year 2018/19 is an amount of $54097 with a forty-five cents for
each dollar in any income exceeding $1800003.
d)
Under section 118.25 of the ITAA 97, the trading stock are an exempt from the
capital gain tax4.
e)
The CGT event B1 provided in section 104.15 of the ITAA 97, the taxation of the use
of the asset under the category of CGT asset beforehand the handover of the actual transfer of
ownership has been provided5.
1 TR 2018/4
2 The Income Tax Assessment Act 1997 (Cth), div. 13
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. 118.25
5 The Income Tax Assessment Act 1997 (Cth), s. 104.15

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f)
Section 4.10(3) of the ITAA 97 contains the formula for computing the payable
income tax pertaining to a taxpayer. This can be calculated by subtracting the tax offsets off
the product of assessable income and the rate of tax applicable6.
g)
The proceeding of Federal Commissioner of Taxation v Day 2008 ATC 20-0647 has
introduced an objective approach towards the permissiblity of expenses for availing
deductions by virtue of section 8.1 belonging to ITAA 978. Prior to this, there was an affinity
of the courts to render all the expenses that has a relationship with the domestic venture not to
be allowed for deduction, even if it has contributed towards the process of yielding income.
In that particular proceeding, the court has contended that in case the cost has an association
so proximate with the in income yielding process that its deductibility cannot be disallowed,
then its connection with the domestic purpose will be ignored. It can also be stated that, in
case, the expense has an active role to play in the course of yielding income, which is taxable,
it is required to be permitted as a deduction with respect to this section.
h)
Average tax rate and marginal tax rate are the two rates related to taxation that has the
difference in the application and in the computation. The average tax rate is to be applied
upon the total taxable income pertaining to a person, making payment of the tax. Again,
marginal tax rate is required to be imposed in the increment that the taxable income
belonging to a person suffers. Hence, it can be stated that the calculation of the same will be
based on this incremental income. In the event of average tax rate, the computation is to be
6 The Income Tax Assessment Act 1997 (Cth), s. 4.10(3)
7 Federal Commissioner of Taxation v Day 2008 ATC 20-064
8 The Income Tax Assessment Act 1997 (Cth), s. 8.1

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done taking the total income belonging to a person as a base. Again, the marginal tax rate will
be calculated by taking increment in the income of a person as a base.
i)
Consumption tax is to be implied as a tax, levied upon the consumption of the goods
and services that the consumers avail. In this kind of tax, the focus is upon the money spent
on the consumption of the goods and services and not the size of consumption related to
goods and services. This can be compensated directly or indirectly but in most of the cases
consumption taxes are indirectly payable. Examples of consumption taxes are sales tax,
excise duties, GST and other forms of taxes, which are levied upon the consumption of goods
and services in Australia. The main form of consumption tax is the goods and services
tax(GST) that imposes at 10% of tax upon the price of majority of the goods relating to
consumer that a person spends to avail.
2)
a)
Under section 8.1 of the ITAA 979, any expense, that has been incurred in the revenue
yielding process will be treated as a deduction for the purpose of tax assessment. In this case,
Brett availed a loan to appropriate the payments towards his employees for his business,
which leads to taxable income. Henceforth, it would be allowed for the purpose of deduction
under this section.
b)
The portion of the expense, which can be traced to the income yielding process would
be permitted as deduction by virtue of section 8.1 belonging to the ITAA 9710. If a part of the
income has been used for income development process and the rest portion for private use,
9 The Income Tax Assessment Act 1997 (Cth), s. 8.1
10 The Income Tax Assessment Act 1997 (Cth), s. 8.1

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then only that portion will be allowed as a deduction, which has been accrued for the purpose
of earning income. In the situation, Julie has been charged with $500 relating mobile phone.
She claimed that 60% of the same has been accrued for the purpose of making calls for
business and the remaining for private use. Therefore, she will only be allowed as deduction
amounting to $300 for the purpose of this section.
c)
Expenses, which has a direct connection with the income earning will only be treated
as a deduction for section 8.1 of the ITAA 9711. In this situation, Sally has sustained an
expense of $1200 for hiring a babysitter for minding her children. This cannot be treated as
an expense in the process of income development and hence, the same will not be permitted
as a deduction for the purpose of this section.
d)
Losses that cause reduction in the commercial funds will be required to be construed
as the deduction under the ITAA 97 in section 8.112. This includes any stolen property that
has abridged the commercial funds belonging to taxpayer. In the present situation, Jerry has
been deprived of his financial resources as his employee has stolen goods worth rupees 20000
dollars from his business. This is required to be permitted as a deduction for this section.
e)
The preparation of a venture, which has the prospect of yielding income will not be
treated a deduction under section 8.1 of the ITAA 9713. Hence, it can be stated that in this
case, the taxpayer has invested in a big election party contesting in election to form local
government. It should not be streated as a deduction under the section.
11 The Income Tax Assessment Act 1997 (Cth), s. 8.1
12 The Income Tax Assessment Act 1997 (Cth), s. 8.1
13 The Income Tax Assessment Act 1997 (Cth), s. 8.1

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3)
a)
The CGT event F2 asylums any grant of lease that has been made by the owner of the
property. This include granting of lease or renewal of lease or an extension of an existing
lease. It will also include a sublease. In case of such kind of lease, the proceeds will be
subject to a discount of 50% for div. 115 of the ITAA 9714. In this case, as Andy was the
owner belonging to the land and Andy has given the land on lease to Brian with the charge of
$5000 premium. He will be able to avail the 50% discount for the purpose of capital gain
taxation and the transaction will be construed as a CGT event F2.
b)
The CGT event D2 is required to be applied when there is an option granted in
relation to land. The capital proceeds arising from this transaction will be treated with the
50% discount rule under section 115 of the ITAA 9715. In this case, John has offered an
option to Farm Ltd for the purpose of selling his land of 100acre for the price of $80,000.
However, to avail the same, a payment of 40000 needs to be made. This can be brought under
CGT event B1 and the same will be acceptable with a discount of 50%.
c)
Under section 118.10 of the ITAA 9716, permanent residence are exempted from the
treatment against capital gain tax. However, if a property has been used both for residential
purpose for a specific period and as a rented property for another period, any sale proceeds
that will accrue from the same will be treated proportionately with respect to both the aspects.
In this case, Olivia and Jamie has been renting out the property for two years after the
purchase of the same. Afterwards, they decided to use the same as their residence. After ten
14 The Income Tax Assessment Act 1997 (Cth), div 115
15 The Income Tax Assessment Act 1997 (Cth), div 115
16 The Income Tax Assessment Act 1997 (Cth), s. 118.10

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years of such a usage, they resolved to sell the same. The proceeds accrued required to be
conceived proportionately as a gain of capital nature as pertaining to the renting out purposes
and the rest as an exempt from CGT as it has been used for the residential purposes. In the
portion of the proceeds relating to the rented out portion a 50% discount will be allowed in
the part of capital gain tax under section 115 belonging to ITAA 9717.
d)
Capital Gain Tax Computation
In the Books of Chris
For the year ended 2019
In this situation, Chris would be taxed upon the $13320 received as the disposal of BHP
shares as a gain of capital nature. However, the discount of 50% in relation to div 115
belonging to ITAA 97 will not be allowed as the shares were not retained by him for more
than twelve months18. Again, the loss of the sale of shares belonging to Wesfarmers needs to
be carried forward to be treated in the next year.
17 The Income Tax Assessment Act 1997 (Cth), div 115
18 The Income Tax Assessment Act 1997 (Cth), div 115

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4)
a)
The prices that a person wins is required to be considered as a receipt, that is not
taxable. Again, if such a winning can be proved to have been received in the furtherance of
yielding the income, then this prize of winning will be required to be treated as taxable. This
can further be supported with the case of Kelly v FCT 85 ATC 428319. In the instant situation,
the winning of a prize amounting to $2000 incurred by the person for a winning of a
television advertisement. It needs to be analysed that whether the advertisement has any
contribution in the course of income development. As the television advertisement has been
carried out for the purpose of effecting promotion with respect to business, which in turn has
a viewpoint of yielding taxable income, the same is to be effected as an income yielding
process. The winning from such a television advertisement will be held taxable and is
required to be assessed in the hands of the taxpayer as per section 6.5 of the ITAA 9720.s
b)
When an employee gets as an income for the services rendered to the employer will
be contended as an income taxable in the hands of the employee. However, such income need
to be extended from the employer. This kind of income is taxable as per section 6.1 of the
ITAA 9721. This includes the wages, salaries, perquisites, allowances and any other benefits.
In the instant situation, the amount of $500 that has been received by the employee has been
extended to him for the purpose of appearing in the workplace. It cannot be treated as an
income as the same has been received as a reimbursement and not as an income. Hence, this
will not be taxed in the hands of the employee.
19 Kelly v FCT 85 ATC 4283
20 The Income Tax Assessment Act 1997 (Cth), s. 6.5
21 The Income Tax Assessment Act 1997 (Cth), s. 6.1

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c)
Gifts that are extended to a person in general sense is not to be treated with taxation as
per the Act. However, if extended in the course of yielding income activity, is needed to be e
conceived as income accrued from the activity and needs to be taxed. The same can be
supported with the case of Squatting Investment Co Ltd v Federal Commissioner of Taxation
[1953] HCA 1322. In the situation, the iPhone that the client has gifted, but it cannot be said
that the phone has been provided in the continuance of the business. Hence, it will not be
taxable.
d)
Lump sums are generally taxable under the category of capital gain. However, if that
lump sum has been accrued as a compensation for the loss, which has been caused to the
taxpayer in his personally will required to be kept outside the purview of capital gain as
provided as per section 118.37 belonging to the Act23. In the present scenario, $10000 cannot
be construed as a assessable income for the purpose of tax as same has been established for
the loss caused to the taxable person in his personal ability for the purpose of a car accident.
This will not be taxed in the hands of such a taxpayer, as this is a compensation of the
personal injury and not a capital gain.
e)
In the instant case, this share has been bought for $5 by a person who can be subjected
to tax. Afterwards, the worth is escalated to $7.5. This cannot be said to be an income,
taxable as it is more of anticipated future income and not a realised one. This is because the
sale of share has not been effected yet. Hence cannot be treated as taxable.
22 Squatting Investment Co Ltd v Federal Commissioner of Taxation [1953] HCA 13
23 The Income Tax Assessment Act 1997 (Cth), s. 118.37

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5)
Issue
Is Nisu is to be conceived as a tax resident within Australia in the year of income tax
2018-19.
Rule
The ITAA under section 6(1) defines the term resident in Australia24. For the
determination of the same, the section provides certain test that are the required to be
implemented for assessing the status of residency of an individual in Australia.
The first test that the section provides is the residence test. This test will be applicable on a
person for rendering him a resident for tax purposes in Australia. This test requires the person
to reside in Australia. To be applied with the other tests under the section the satisfaction of
the residence test is necessary. The Tax Ruling 98/17 provides for this test25.
The second test is the domicile test. Any person striving to achieve the status of residency
in Australia and who has made a clearance in relation to the resides test, will be applied with
the domicile test for the determination of his Australian residency. The person under this test
needs to have a domicile present within the purview of Australia. For the purpose of this
section, domicile is required to be construed as more than a rented accommodation. The test
has been formulated for in the TR 265026. Again, this test can only be successfully applied, if
the commissioner is satisfied that the person does not have any permanent place of abode
which is situated outside Australia. In case the permanent place of abode can be traced, the
person’s residency in Australia would automatically be rendered rejected. The same can be
supported with the case of R v. Hammond (1852) 117 E.R. 1477 at p. 148827.
24 The Income Tax Assessment Act 1936, s. 6(1)
25 TR 98/17
26 The Tax Ruling 2650
27 R v. Hammond (1852) 117 E.R. 1477 at p. 1488

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In case a person has satisfied both the resides test and domicile test, he will be subjected to
the 183 day test for being rendered a resident within Australia. To implement this test, he will
be required to exist in Australia physically for a period of 183 day or above.
Another test in this regard, is Superannuation test, which is applicable to the employees of
the government of Australia. It also includes the family of such employees.
Application
In the instant scenario, Nisu has arrived at Australia for pursuing his studies. Prior to this,
he used to stay in Nepal. His intention of arriving at Australia is for the purpose of staying
there for a period of 3 years during, which he will be pursuing his studies. During his stay for
this period, he has a rented accommodation. He also obtained a part time job during this
period. During this period, he made several friends and also merged with the soccer team in
the course of his stay in Australia. This raises a question with respective to his status of
residency in Australia. The application of the test under section 6(1) of the ITAA needs to be
applied. The first test that need to be applied is the resides test. In this furtherance, it can be
said that Nisu has been continuously staying in Australia. During this period, the resides test
will be satisfied. For the purpose of application of the domicile test, it needs to be analysed
that whether Nisu has any permanent place of abode, which is located outside Australia. It
can be said that as Nisu has been living in Nepal, his permanent place of abode is to be
construed to be present in Nepal, that is outside of Australia. His motive of coming to
Australia was only for 3 years. On top of that, a domicile cannot be imply a rented
accommodation. This test has not been cleared by Nisu for his lack of permanent of abode
and his domicile in Australia. Hence, it can be said that he is a not a resident in Australia and
the application of the other test will not be necessary.

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Conclusion
Nisu is not to be conceived as a tax resident within Australia in the year of income tax
2018-19.

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Reference
Kelly v FCT 85 ATC 4283
R v. Hammond (1852) 117 E.R. 1477 at p. 1488
Squatting Investment Co Ltd v Federal Commissioner of Taxation [1953] HCA 13
Tax Ruling 98/17
Taxation Ruling TR 2018/4
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
The Tax Ruling 2650