Taxation Theory, Practice & Law

This report provides an overview of Australian taxation laws and rules related to assessable income, capital gain tax, and exemptions. It covers topics such as income sources, exemptions for gifts and grants, main residence exemption, capital gains tax on assets, and exemptions for personal assets and collectibles. The report is a valuable resource for students studying Taxation Theory, Practice & Law.

Taxation Theory, Practice &
Law

Table of Contents
Question 1........................................................................................................................................3
a. ..................................................................................................................................................3
b....................................................................................................................................................3
c....................................................................................................................................................4
d....................................................................................................................................................4
e....................................................................................................................................................4
Question 2........................................................................................................................................4
a....................................................................................................................................................4
b....................................................................................................................................................5
c....................................................................................................................................................6
d....................................................................................................................................................6
e....................................................................................................................................................7
REFERENCES................................................................................................................................1

The present report is based on the laws and the rules regarding the assessable income and
the capital gain tax as per the Australian taxation. Further different items and things are
associated with different taxation provisions in accordance to which the exemptions are been
granted.
Question 1
In accordance to Australian Taxation, Assessable income of an individual refers to an
income that could be taxed, provided that an individual has earned enough for exceeding its tax
deduction or tax free limit (Chardon, Freudenberg and Brimble, 2016). The assessable income
are said as follows-
 Income earned by way of salary and the wages
 Gratuities, tips & the other types of the payment for the services provided
 Allowances for certain things such as car, laundry, travel and clothing
 Interest earned from the bank accounts
 Dividend received and the other income generated from an investment
 Overtime and the bonuses that is received by an employee
 Amount of commission that is received by the sales person
 Pensions
 Rent
If in case an individual is being paid by way of cash including the cash cheques then he or she
could declare cash as an income at the time they lodge for tax return.
a.
Tips from the customers is counted as an assessable income with respect to the Australian
taxation and ITAA 1977 (Freudenberg and et.al., 2017). This means that tips received from
customers of the value $335 for each is exempted from the tax as it is counted as an income on
person services.
b.
Income received by Emmi with respect to her working in the restaurant is counted as an
employment income which tends to seen as an assessable income of the value $ 25000. As per
the Australian taxation and ITAA 1977, assessable income of $25000 is considered as exempted
because it is below the taxable income limit.

c.
In accordance to the Australian taxation, gifts and the grants are not stated as an
assessable income and are see as tax deductible if the value of the gift equates to $ 2 and more.
As Emmi was gifted with an expensive perfume of the worth as $250 from the customer
which is not resulted as an assessable income for her as followed by the provision under
Australian taxation (Kraal, 2017). However, she had received the gift as the part of his business
that is from customers so it could be taxable.
d.
The drinks and the foods provided to an employees is considered as exempt from the
FBT as it is facilitated and is consumed on the working days within the premises of the business.
This provision is presented in the Australian taxation laws.
As per the case, Emmi is receiving all the entertainment and food benefits from the
restaurant where she works of $380 as a motivation (Assessable income, 2018). This is not an
assessable income as it is tax deductible referring to the provision of Australian taxation.
e.
The provision in relation to providing gift to an employee at the Christmas party might be
counted as the minor benefit which is seen as exempt benefit where a value of gift amounting to
less than $300 (Bayliss, 2019). Such gift attract the Fringe benefit tax but only when its is of the
value less than $300 and other conditions of a minor benefit must be met.
In case as Emmi is receiving the gift of value $15000 not from her employer or
organization but from her father so it would not be considered as her assessable income. It does
not involve any kind of the tax deduction or not associate with any type of the Fringe benefit
taxes.
Question 2
a.
As per Australian taxation it has been seen that main residence is considered to be
exempt from the capital gain tax. For getting an exemption, it is important that an individual
must have dwelling on the main residence and he or she must be living in it. A person is not been
entitled for the vacant block (Minas Lim and Evans, 2018). In case an individual is not seen as
resident of an Australia for the tax purposes at the time he or she is been living in a property,
then they cannot availed requirements for an exemption of the main residence. Moreover if an

individual is a foreign resident at the time when the CGT happens to the residential property in
the Australia then they cannot claim for an exemption of the main residence (Barrett, 2018).
Moreover, exemption regarding main residence is applied when a resident follows all the rules
that are as follows-
 Move in where dwelling is counted as a main residence from a time it has been acquired
by an individual and move in as early as it is practicable after the settlement.
 Moving from the one residence to the another under which if an individual acquires new
home before he or she disposes their old house, a person might able in treating both types
of the dwellings as their main residence for 6 months
 Moving out in which an individual could treat their old home as a main residence
 In case of living in the different home to an assesses children and the spouse he need to
choose one home as his main residence.
 Using the home in order to produce income like renting, running the home business or in
flipping the home.
 Renovating or building the home on the land that is owned by an individual where the
land can be treated as the main residence.
Referring to the above provision it has been analysed that as Liu is an Australian
Resident and wants to sell her main residence for which she is having ownership (Barrett, 2018).
She would be getting an exemption on selling of her main residence as she has ownership and
she is an Australian resident and not used her house for any other purposes and as the house has
been taken before 1985 that is in 1981 so she will be availed with main residence exemption.
b.
According to Australian taxation, capital gain tax on assets states that all the assets that
had been acquired since the starting of the capital gain tax on the 20th September 1985 are been
subjected to the capital gain tax until and unless it is specifically excluded. However, some of the
assets are counted as exempted from the capital gain tax that are as follows-
 Main residence
 car or the motorcycle
 depreciating assets that is used solely for the taxable purposes like business equipment or
the fittings in the rental property
 Any of the asset that is been acquired prior to September 20, 1985

Therefore, as Liu decided to sold her car which was purchased by her in the year 2011 is fully
exempted as per the rules of capital gain tax in the Australian Taxation. This is because the car is
said as fully exempted capital asset on selling of which Liu does not have to pay for any taxes.
c.
As stated in Australian taxation, exemption on capital gain tax the available roll-overs on
a widely basis, there are mainly four concessions which allows an individual in disregarding
some of the capital gain from the use of an active asset in the small business enterprise such as-
 15 year exemption- In case the business constantly owned an active asset for the period
of 15 years and an individual aged above 55 year then he must not be having an
assessable income at the time of selling an asset.
 50% of the active reduction in asset- An individual could reduce a capital gain on the
active asset through 50% along with 50% CGT discount if a person has owned for more
than 12 months.
 Retirement exemption- the capital gain attained from the selling of an active assets are
seen as exempt up-to the limit of value $ 500000. If an assesses are aged under 55, the
amount exempted need to be paid into the complying super fund or the retirement savings
account.
 Roll-over- If he or she is selling active asset, then they could defer all of the part of the
capital gain for the two years or longer period if they acquire replacement asset or
incurring an expenditure in making improvements in the capital towards an existing asset.
The above concessions are availed only in case an owner of the small business organization is
selling an active asset (Capital gain tax, 2018). Thus, as Liu selling its small business at a value
of $ 125000 which involves selling of her active asset that is photography equipments for a value
of $53000 and goodwill as an intangible asset amounting to $50000 on which she would be
getting exemption in respect of capital gain as per the provisions. As she is above 55 years of age
so she doesn't have to pay the exempted amount in retirement account.
d.
In view of the Australian taxation, assets that are personal are considered as CGT assets
rather than the collectables used or is kept mainly for personal use or an enjoyment of the
associates. Any kind of the personal assets that is acquired by an individual for the value less
than $ 10000 is seen as disregarded for the purpose of CGT. The personal uses assets involves

boats, furniture, household items and an electrical goods. In case an individual dispose off any of
its personal assets that will be sold usually as the set then he or she get an exemption only if an
individual acquired a set for the value of $ 10000 and less. All types of the capital losses that has
been made on the personally used assets are seen as disregarded (Bayliss, 2019). It means that
an individual cannot use the capital losses on the personally used assets for reducing their capital
gains on the other types of the personal used assets.
Liu will be getting exemption on selling of the furniture as following the provisions of
the capital gain taxation in Australian taxation. As the furniture sold by her costs not more than
$2000 which is seen as less than $10000, therefore she can avail exemption on selling of the
furniture for $48000.
e.
Australian taxation reflects that collectables involves following items that are used or
kept majorly for the purpose of personal use or an enjoyment of an individual and his or her
associates that are as follows-
 Paintings, drawings, photographs, sculptures, engravings; reproduction of such items or
the property of the similar use or a description
 Jewellery
 Antiques
 Coins
 books or the manuscripts
 first days covers and the postage stamps
An individual is disregarded from any of the capital gain or the loss that he or she made from the
collectable in certain following cases-
 An assesses acquire collectable valuing $500 and less
 Acquired an interest in collectable for the value of $ 500 or the less dated before 16th
December 1995
 Acquired interest in collectable at the time it has a market value of $500 or the less
In case an assesses dispose off their collectables individually that usually they would be
disposing as a set then he is exempted from paying the capital gain tax if the set is acquired for
the amount equating to or less than $ 500 on or after the 16th December 1995. Moreover, capital
losses could be set off against the capital gains.

Liu would enjoy an exemption on the sale of all her painting which had been purchased
fro second hand stores that costs to $500. However, the painting that she had directly purchased
from the artist for the value $1000 which is greater and equating to $500 does not comes under
an exemption limit because the value is higher than $ 500 and as per provisions only those
collectables or paintings are exempted from CGT that are purchased or cost to $500 and less.

REFERENCES
Books and journals
Barrett, J., 2018. Vacant property taxes and the human right to adequate housing. J. Austl.
Tax'n. 20. p.123.
Bayliss, M., 2019. Universal basic income: The potential impact on the Australian tax
system. Journal of Australian Taxation. 21(1). p.74.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F. 31. p.321.
Freudenberg, B. and et.al., 2017. Tax literacy of Australian small businesses. J. Austl. Tax'n. 19.
p.21.
Kraal, D., 2017. Review of Australia's petroleum resource rent tax: Implications from a case
study of the gorgon gas project. Federal Law Review. 45(2). pp.315-349.
Minas, J., Lim, Y. and Evans, C., 2018, August. The impact of tax rate changes on capital gains
realisations: evidence from Australia. In Australian Tax Forum (Vol. 33, No. 4).
Online
Assessable income. 2018. [Online]. Available through:
<https://www.ato.gov.au/Individuals/Lodging-your-tax-return/In-detail/What-is-income-/>
Capital gain tax. 2018. [Online]. Available through: <https://www.ato.gov.au/general/capital-
gains-tax/cgt-assets-and-exemptions/>
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