Australia Taxation Law Assignment - Masters Level Course

This document presents a comprehensive solution to a Taxation Law assignment at the Masters level, focusing on Australian tax law. The assignment addresses five key issues: the tax implications of capital losses, the definition and application of Fringe Benefit Tax (FBT), the allocation of losses f...Read More

Running head: TAXATION LAW - MASTERS LEVEL - AUSTRALIA
Taxation Law - Masters Level - Australia
Student’s Name
Course Code

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TAXATION LAW - MASTERS LEVEL - AUSTRALIA
Answer to question 1:
Issues:
The present situation is based on the representation of total profits from capital or loss
incurred by the taxpayer under the ITAA 1997(Ato.gov.au 2017).
Legislation:
a. Section 108-20 of the Income Tax Assessment Act 1997
b. Section 108-10 of the Income Tax Assessment Act 1997
(Source: Created by Author)

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Applications:
a. Loss of $1,000 incurred by selling home theatre system are not permissible for set off
as no losses are acceptable on disposal of assets used for personal reasons section
108-20 of the ITAA 1997(Ato.gov.au 2017).
b. According to the section, 108-10 of the ITAA 1997 collective damages are not to be
considered against normal gains by selling shares and are balanced only against the
collective gains under section 108-10 of the ITAA 1997 (Ato.gov.au 2017).
c. Since Eric has earned gains on the disposal of regular assets and there is no present
ordinary capital or any type of appropriate discounts the net capital gain for Eric for
the current year stands $15,000.
Conclusion:
It can be concluded that, no loss will be permitted for balancing from the disposal of
assets, which is used for private purpose. Hence, Eric has made profits from the sale of
ordinary assets.
Answer to question 2:
Issue:
The current problem is related with the definition of Fringe Benefit Tax of the
taxpayer defined under the Fringe Benefit Act 1986 (Ato.gov.au 2017).
Legislation:
a. Taxation rulings of TR 93/6
b. Fringe Benefit Tax Assessment Act 1986

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Application:
Calculation of Fringe Benefit Tax
(Source: Created by Author)
The taxation rulings of TR 93/6 describes that financial institutions sometimes make
provisions to balance the loan account, which is referred as interest-offset arrangement
(Ato.gov.au 2017). These products comply to counter balance interest that is charged by the
customers and therefore the customers are not responsible to pay any amount of income tax
on the benefits rising from the account. In agreement with the Taxation Rulings of TR 93/6
if the bank releases Brian from repaying interest on loan then no amount of income tax is
needed to be paid by Brian.

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Conclusion:
To conclude from the above application based on prescribed laws and regulations
there are no liabilities of tax payments. Given the fact for the release of Brian by financial
institutions, the acquired payment for interests liable to him is assisted by the counterbalance
interest is given by proper procedure.
Answer to question 3:
Issue:
The existing subject is related to the procuring a taxable position of loss suffered by
the Jack and Jill from the rental property.
Legislation:
a. Taxation rulings of TR 93/32
b. F.C. of T. v McDonald (1987) 18 ATR 957
c. Section 51 of the ITAA 1997
Application:
The taxation ruling of TR 93/32 is described as the clarification of splitting up net
income or loss produced from the rental property between the shareholders of the property
(Ato.gov.au 2017). The ruling is concerned with the assessment of taxable position of the Co-
owners whose actions are irrelevant for running a business. The current situation of Jack and
his wife Jill is apprehensive to the estimation of taxable situation of the rental property. Both
Jack and Jill enter into the scenario to buy a rental property as a joint tenant with Jack being
authorised to 10% of the profit from the property and Jill is eligible for 90% of profit from

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the property. However, the contract between Jack and Jill described that on the event of
incurring loss from the rental property, Jack shall be responsible to pay 100% of such loss.
According to the Taxation rulings, TR 92/32 Co-ownership of rental property
amounts to a partnership for income tax reasons but it is not a partnership in general law
except the ownership determines running a business (Ato.gov.au 2017). In cases where co-
ownership is in the form of a partnership for income tax purposes only, the profit or loss
coming from the rental property is attributed to the co-ownership of the rental property and
from the distribution of losses or profits made in the partnership. As it is clear from the
existing situation of Jack and Jill the co-ownership of rental property between them is a
partnership to tackle income tax but it cannot be regarded as the partnership in general law.
The taxation rulings of TR 92/32 establishes that co-owners of the rental property are
usually not the partners, when it comes to general law and a partnership agreement either in
the form of oral or written does not affect the sharing of income or loss generated from the
property (Ato.gov.au 2017). Hence, Co-owners of the rental property Jack and Jill will
normally hold the property as the joint tenants or tenants in common. These tenancies are
further classified in the co-owners interest.
As stated in the case of F.C. of T. v McDonald (1987) 18 ATR 957 where the
taxpayer and his wife legally and constructively owned two strata title units as joint tenants
(Ato.gov.au 2017). The agreement between them established that the net profits derived from
the rental property would be distributed as 25 percent to McDonald and 75 percent to Mrs
McDonald. Mr McDonald would incur the whole amount of loss. The question arises that
whether the operating loss on the properties was completely born by the taxpayer or by the
taxpayer and his spouse divided equally. There was no such concern regarding the deduction
of loss amount. It was mentioned that there was no partnership in general law and the only

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noteworthy relationship between the parties was that of the co-ownership. Since the parties
were joint owners in terms of law and justice, the loss suffered for letting the premises should
be shared equally with details that the respondents were also entitled for a deduction
amounting to half of the loss incurred.
In the current case of Jack and Jill, it can be established that the loss should be equally
specified for the purpose of taxation and does not allow a deduction simply by virtue of the
agreement. As the matter of fact, Jack was involved in two significant losses. At the first, he
gave significant portion of his income entitlement and he indemnified his wife Jill against any
type of loss from the investment. The statement of loss compensation was voluntarily made
by Jack and gave shape to a domestic arrangement, where he sought after to advance his
wife’s finance, as section 51 does not permit a deduction simply by virtue of the agreement
(Ato.gov.au 2017).
On the contrary, if Jack and Jill decide to sell the property, the cost base and the
reduced cost based of the property should be included in the amount, which will be paid
together by them along with the incidental cost prevalent at the time of acquisition. Given the
fact, the Jack and Jill are the co-owners of the property, the capital gains or loss will be
accounted as per the ownership interest in the property.
Conclusion:
For drawing conclusion, it is a known fact that there was no kind of partnership
defined under the general law and the loss suffered should be shared equally with the
deduction of half of the loss suffered by Jack and Jill.
Answer to question 4:
IRC v Duke of Westminster [1936] AC 1 was frequently mentioned in the event of
tax avoidance (Ato.gov.au 2017). The case stated a principle that each man is allowed to

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order his affairs so that the tax assigned in the fitting Act, will be less. Although it can be
established that this ruling was very effective for others for avoiding tax by lawfully
establishing complex structures, the subsequent cases has been weakened by the courts when
consideration of overall impact is done. Citing an example of the court in the later stages,
more approach that is restrictive was adopted under the WT Ramsay v. IRC principle, which
stated that if a transaction has pre-arranged artificial steps that served no form of commercial
purpose other than saving tax, the appropriate approach was to impose tax to the extent of
entire transaction.
In the current scenario, this principle in Australia, states that if an individual succeeds
in ordering them with the aim of securing a specific result, then, it does not matter how
unappreciative the commissioners of Inland Revenue or the fellow taxpayer might be of their
ingenuity, they cannot be forced to pay any increased amount of tax (Russell 2016). As point
was made by the later decisions, that it permitted the individuals and corporations to
construct the financial contracts with the aim of dropping the tax liability unless the structures
are within the framework of law.
Answer to question 5:
Issues:
The current matter is based on the asserting whether the revenue coming from the sale
of timber will be considered as assessable income for the taxpayer as primary producer or not
under subsection 6 (1) of the Income Tax Assessment Act 1936 (Ato.gov.au 2017).
Legislations:
a. McCauley v. The Federal Commissioner of Taxation (1944) 69 CLR 235
b. Subsection 6 (1) of the Income Tax Assessment Act 1936
c. Subsection 36(1)

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d. section 26 (f)
Application:
In the light of current events, it is discovered that Bill owns a large piece of land on
which there are several pine trees. Bill initially intended to use the land for grazing sheep and
wanted to have it cleared. Bill came in agreement with a logging company, which is ready to
pay him $1000 for every 100 meters of timber, which the logging company can harness from
his land. The taxation rulings of TR 95/6 talk about the consequences of income tax arising
from the activities of primary production and forestry (Ato.gov.au 2017).
The ruling states that the relevance of receipts derived from the sale of timber
constitute assessable income irrespective of the fact that taxpayer participated in the activities
of forestry industry. The ruling is usually applicable on the person who practice forest
operations and on people who are not associated with disposal of timber. The ruling states the
consequences of tax on a person, which enters into the business of forest operations. As
stated under subsection 6 (1) of the Income Tax Assessment Act 1936 a taxpayer who is
involved in the forest activities is termed as the primary producer liable for income tax if the
forest activities forms the part of a business (Ato.gov.au 2017).
According to the subsection 6 (1) of the Income Tax Assessment Act 1936 primary
production is usually defined as the planting or tending of tress in a plantation that is made
for felling of tress in a forest (Ato.gov.au 2017). As it can be observed from the case study,
Bill will be considered as the primary producer since he was involved in the activities of
primary production under subsection 6 (1) of the Income Tax Assessment Act 1936 for
felling of trees in a plantation owned by him (Ato.gov.au 2017). Moreover, the forest
activities include felling of trees in a plantation or forest even though the concerned taxpayer
has not planted or tended the trees.

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Owning a large chunk of land, Bill has not planted the trees but the total amount of
receipts, which was derived by Bill from the sale of felled timber, makes an assessable
income of the taxpayer in the respective year, during which the sale of timber was done
(Peiros and Smyth 2017). The disposal of existing timber where the taxpayer sold derived
from the trees, which were not necessarily planted by the taxpayer and tended for the purpose
of sale, becomes the part of assessable income. Even though the sales become part of assets
completely or partially of a business, the value of trees will be considered as assessable
income of the taxpayer under subsection 36(1).
On the contrary, if the taxpayer were only paid a lump sum of $50,000 by giving the
rights to remove the timber to the logging company, such receipt of money would constitute
“Royalties”. According to the section 26 (f) receipt of “royalties” by the taxpayer on granting
the right to cut the timber from the land acquired by the taxpayer will establish assessable
income of the assesses during the year of income in which the timber was felled (Ato.gov.au
2017). The royalties received by Bill in the current scenario gives the company right to sell or
remove tress on the land owned by the taxpayer. Under these circumstances, no business
involving forest operations is being done by Bill, given that the taxpayer has not planted the
trees or tended for the purpose of sale. As held in McCauley v. The Federal Commissioner
of Taxation (1944) 69 CLR 235 payments received by the owner for the right to remove or
cut down trees is based on the amount of timber removed under the authority to do so
(Ato.gov.au 2017). The amount received by Bill in the form of royalty constitutes assessable
income under section 26 (f).
Conclusion:
Taking reference of subsection, 36(1) it can be concluded that sale of felled timber
will be considered as assessable income and imposes tax liability on the sum received for
selling the timber.

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References
Ato.gov.au 2017. Home page. [online] Ato.gov.au. Available at: http://www.ato.gov.au
[Accessed 20 Sep. 2017].
Peiros, K., and Smyth, C. 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), 394.
Russell, T. 2016. Trust beneficiaries and exemptions from CGT: Reflections on the Oswal
litigation. Taxation in Australia, 51(6), 296.
Taylor, G., and Richardson, G. 2013. The determinants of thinly capitalized tax avoidance
structures: Evidence from Australian firms. Journal of International Accounting, Auditing
and Taxation, 22(1), 12-25.
Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., and Pinto, D. 2016. Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.