Taxation's Law

This document provides detailed information on Taxation's Law, including tax consequences, deductions, and exemptions. It answers common tax questions and provides reasoning behind the tax calculations. The document also includes a table of contents for easy navigation.

Running head: TAXATION’S LAW
TAXATION’S LAW
Name of Student
Name of University
Author’s Note
Course ID

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TAXATION’S LAW
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:...................................................................................................................10
References:....................................................................................................................................17

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Answer to Question 1:
DESCRIPTION IMPACT ON TAXABLE
INCOME
REASONING
Net exempted income and
non-exempt and non-
assessable Income
Less: $100,000 and $50,000 The amount $100,000 is the
part of the exempted income
which is under “section 6-20”
and it is termed to be non-
assessable. As per above
mentioned state the $50,000 is
also considered as the non-
assessable income and it cannot
treated under the tax1. By
division 36, it is not considered
as the exempted income when the
treatment of tax loss carried on.
This will not be considered in
deducting of tax loss.
Depreciation Less: $30,000 This expenses which incurred
by the taxpayer is charged
over profit2. It does not have
1 Barkoczy, Stephen, Foundations Of Taxation Law 2014
2 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew. Principles Of Business
Taxation 2014.

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any kind of effect on the
expenditure which is seen as
the capital and it is capital in
nature. The applicable
provision will be relating to

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the capital allowances.
Bad Debt Less:$20,000 As per stated in the section
“25-35 (1A), of the ITAA
1997”bad debt is liable for the
deduction as it is the part of the
financial year3. From the
3 Krever, Richard E, Australian Taxation Law Cases 2015

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calculation it can be understood
that the company’s taxable
income on accrual receipts. It is
seen that the taxpayer has deduct
the expenses that was not paid by
the creditor from the last year.
Long Service Leave Paid Less:$10,000 As per stated in the “section
26-10 of the ITAA 1997”,
taxpayer is liable to claim
deduction on the annual leave

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which it is concerned in that
financial income year. As per
stated in the case of
“Development Pty Ltd v FCT
(1981)”the provision paid in the
case of long leave is liable to
deduction only when the
transaction made in that financial
year of the taxable year4.
4 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)

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Dividend from Cash Add:$50,000 As per stated in the “section 44
(1) of the ITAA 1936”. The court
in “FCT v McNeil (2007)”the
dividend which is realized by the
taxpayer in that financial year
will be treated as the assessable
income in the tax calculation for
that income year5. The above
mentioned section also tells that
the any amount which can be
5 Sadiq, Kerrie, Principles Of Taxation Law 2014

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considered as the gain will be
treated as the ordinary income
and hence it will be taxable. In
this case the dividend of $50,000
will be included as the gain made
from cash.
Borrowing Cost Less:$833 Borrowing cost is considered
as expense which states that
the taxpayer has taken the loan
which is escalated for five
years or the period of the loan,
whichever is lower6. The
borrowing cost is greater than
6 Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook Co./Thomson
Reuters, 2013)

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$100 and it is escalated for
five years or the period of loan
duration whichever is lower.
As the case taxpayer is liable
for the deduction of the
amount of $833 as it is more
than $100for the current
financial year. The taxpayer
will get the deduction till the
end period of loan.
Donation Less:$1000 and $5,000 As per the division 30 the gift
or any kind of contribution
made by the taxpayer is higher
than $2 is provided to the
deductible recipient as
considered to be deductible.

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As per the case “FCT v
McPhail (1968)”gift or
contribution or donation can be
deductible there are no chance of
getting material advantage in
terms of return7. In this case the
donation which is made by the
taxpayer for the amount of $1000
and $5000 respectively will be
deductible under the division 30.
Capital Gains `received from
Shares
Add:$30,000-$10,000 =
$20,000
As per the quarantined rule the
capital loss can be offset
against the capital gains. In
this case the capital loss which
is offset from the sale of
stocks in the market made
7 Woellner, R. H et al, Australian Taxation Law 2014

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against the capital gain
occurred from the sale of
shares which is purchase 13
months earlier8. Similarly in
the case capital loss of
$10,000 is being offset from
the capital gain of $30,000
which is as per quarantine
rule.
Capital Loss from Antique Carry Forward-$10,000 As per mentioned in the
“Section 108-10 (4)”the
collectibles added made from
capital loss should carry forward.
The offset done against the
capital gains9. If the company
does not mention about the
8 Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19 (2017): 21
9 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).

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capital loss in its financial
statement then the capital loss is
carry forward to next year.
Deduction from Services Less:$30,000 The amount earned by the
non-employee against the
services rendered will be
treated and it is deductible as
employee deductible. In this
case the company is allowed
to made claim for the
deduction for the sum of
$30,000 relating to the
payment made by the
company to the director’s
husband.
Cost of Goods Sold Less:$30,000 As per stated in the “section
70-35”to reduce the taxable
income the taxpayer holds the
option to value the stock in hand
at the end of the year10. In this
case the company is allowed to
10 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.

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get the deduction for the cost of
goods sold of $30,000 which is
calculated in accordance with the
LIFO method so to minimize the
taxable income.
Prior Year Tax Loss Less:$50,000 As per mentioned in the
division 36 the income which
is exempted of the amount
$50,000 has been used to
balance the tax loss which was
realized in the previous year
so that the tax liability can be
bring down and hence can be
minimized11. The amount of
$70,000 which is minimized
will be carried forward to the
next taxable year and it will be
treated.
Repairs Less:$5,000 As per mentioned in the
“section 25-10, ITAA 1997”the
deduction can be done on the
11 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.

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amount spend for the repair of
the second hand packing machine
for the factory. It falls under the
purview of the deduction because
the expenses rendered by the
company are on the asset which
will fetch income to the company
after the repair has been done.
Answer to Question 2:
DESCRIPTION TAX CONSEQUENCES REASONING
Interest on Loan Less: 15 % of $34,000 is
deductible
As stated in the “taxation
ruling of TR 93/30”if the home
and office is in the same place for
conducting the business where
the occupation and expenditures
is used then it can be applicable
for the deduction12. This
mentions the interest on loan or
expenses incurred by the
taxpayer in the form of lighting
12 Robin and Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation and Commentary. OXFORD University Press, 2019.

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or depreciation. As per the rule,
the portion which is used for the
business purpose is only allowed
for deduction. As per stated in
the case of “Swinford v FCT
(1984)”the writer who do their
job from the home are permitted
for the deduction13. In accordance
with the previous case John will
be allowed to claim deduction for
the 15% of $34,000 since it is
related work purpose. The claim
made at $34,000 * 15%= $5,100.
Carpet $6000 (Non Deductible) As stated in “taxation ruling of
TR 97/23” if the work done by
the taxpayer goes beyond the
word repair and the entire cost of
capital is considered as
expenditure then no part of the
amount is allowed for deduction
under section 25-10 for notional
repairs. As per stated in the case
of “FCT v Western Suburbs
13 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).

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Cinemas (1952)” the taxpayer is
not allowed for the deduction if
the expenses made on the goods
for the betterment of the goods.
In this case the replacement done
on the carpet for $6000 is seen as
the increase in the betterment of
the existing assets so it is non-
deductible.
Antique Desk Allowable Deductible As stated by Australian
Taxation Office, the taxpayer
is liable to claim for the
deduction which is the portion
of the running expenses and
also includes the expenses
made on furniture and fitting.
The taxpayer is liable to pay
the value which is less than
the value of $300. This is used
for business purpose only.
Travel Expense 72% of work purpose
deductible
As per mentioned in the
“section 8-1, ITAA 1997”the
expenditure which incurred by
the taxpayer during the course of

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work are liable for deduction. As
mentioned in the legislative that
the taxpayer is liable to claim for
the expense made on travel on
the two place of work. The travel
made by the taxpayer should be
directly related to the work where
it is seen that the income is
gained during the travel. As
mentioned in the case “section 8-
1, ITAA 1997” the travel made
between first and last school was
taxable in nature14. In the case of
John, who made expenses made
all for the purpose of working
where the clear motive was to
gain profit are to be allowed for
72% of the car running as it is
related to the working that John
made.
Sale of House Partial Main Residence
Exemption
As per mentioned in the
“section 118-190”partial main
residence is only permissible to
14 Barkoczy, Stephen, Foundations Of Taxation Law 2014

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the taxpayer who are used the
place only for the purpose of
producing taxable income15.
During the whole period John
used the 15% of his house for the
purpose of self-employment
business and hence it is seen that
that 15% will be taxable. Due to
this reason John fetch a amount
of $605,000 from the sale of his
house where the business was
conducted. The portion which o
be calculated for the capital gain
will be
Capital gains x percentage of
floor area = Assessable portion
$6, 05,000 x 15% = $90,750.
To compute the deduction for
which he is liable after the
selling of the house where he
is use to conduct business and
fetch taxable income for 12
15 Sadiq, Kerrie, Principles Of Taxation Law 2014

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month period can use the
discount method or the
indexation method.
Sale of Antique Capital Loss Taxpayers are required to
quarantining the capital loss from
the capital gains or they should
carry-forward the capital loss to
the subsequent year. John has
realized the capital loss against
the selling of furniture. This
capital loss can be balance d by
the capital gained made by John
while selling the house. If it is
not realized in this year then it
can be carried forward to the next
year.
Proceeds – $3,850
Less Cost base – $7,250
Capital loss = $3,400

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References:
Barkoczy, Stephen, Foundations Of Taxation Law 2014
Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19 (2017):
21.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew. Principles Of Business Taxation
2014.
Krever, Richard E, Australian Taxation Law Cases 2015
Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Robin and Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation and Commentary. OXFORD University Press, 2019.
Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook Co./Thomson
Reuters, 2013)
Sadiq, Kerrie, Principles Of Taxation Law 2014

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Woellner, R. H et al, Australian Taxation Law 2014