Australian Taxation Law Homework: Income Tax, Deductions and CGT

This homework assignment delves into various aspects of Australian taxation law, analyzing scenarios related to an academic teacher's income and expenses. It addresses the tax implications of fringe benefits like gym memberships, and awards. The assignment explores assessable income, deductions for union fees, travel costs, and interest expenses, while also considering the tax treatment of royalties, capital gains tax, and the main residence exemption. Furthermore, it examines the taxation of income from solar panel electricity generation and the impact of ATO rulings and private rulings on tax liabilities. The assignment concludes with an analysis of the capital gains tax implications on the sale of a capital asset and the main residence exemption.

Australian Taxation Law

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Question 2..................................................................................................................................3
Question 3..................................................................................................................................3
Question 4..................................................................................................................................3
Question 5..................................................................................................................................4
Question 6..................................................................................................................................4
Question 7..................................................................................................................................4
Question 8..................................................................................................................................5
Question 9..................................................................................................................................5
Question 10................................................................................................................................5
Question 11................................................................................................................................6
Question 12................................................................................................................................6
Question 13................................................................................................................................6
Question 14................................................................................................................................6
Question 15................................................................................................................................7
Question 16................................................................................................................................7
Question 17................................................................................................................................7
Question 18................................................................................................................................7
References..................................................................................................................................9

QUESTION 1
Taxation Ruling 2007/12 deals with the provision of Fringe benefits tax relating to minor
benefits. In accordance with the section, the notional amount relating to the taxable value of
benefit which is exempt is less than $300. Further, certain benefits which are specifically
excluded from section 58 P comprised expense payment benefits. As voucher relating to a
gym membership is an expense payment benefit thus the same will be taxed in accordance
with fringe benefits taxation provision and will be included in wages of the employee.
QUESTION 2
The amount which has been received regarding as non-refundable voucher will be included in
assessable income as a fringe benefit. The membership of gym is considered as a recreational
activity and is a part of the expense payment fringe benefit, the same will be included in
assessable income of Clara (Australian taxation office. Rental properties, 2016). However, no
tax will be paid on same as it has been already paid by the employer. The same will be
assessed under section 15-2 of ITAA 97, which deals with gratuities and benefits received as
an employee1.
QUESTION 3
Clara cannot claim $1000 or part thereof gym fees as in accordance with ATO provisions one
can claim a tax deduction on gym membership fees only in case he proves that it is
necessarily required for his or her learning activities2. In the present scenario, as Clara is an
academic teacher; she won’t be able to claim a deduction as the same are not necessarily
required for teaching tax and law to undergraduate and postgraduate students3.
QUESTION 4
The value of morning tea, statue and voucher are not ordinary or statutory income; thus the
same is not assessed under 6-5 or 6-10 of Income Tax Assessment Act 1997. The same is a
non-assessable windfall gain.
1 Federal Commissioner of Taxation v Cooling (1990) FCR 42
2 ATO, Taxation Ruling TR 95/33 Income tax: subsection 51(1)
3 Australian taxation office. Claiming deductions 2017. 2017. [Online]. Available through <
https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-D10/Claiming-
deductions-2017/?=redirected>. [Accessed on 27th September 2017].

QUESTION 5
It was held in case of Kelly v. FC4 that as a prize was incident to employment and normal
incident to an employee. The case related to a footballer who received a cash reward for
being best and fairest player. In the present case also as the award is being provided for good
teaching; thus the voucher which has been rewarded will not be classified as statutory income
or ordinary income. Hence Clara will not be able to claim deduction relating to purchased
book nor will he include prize as assessable income.
QUESTION 6
A union fee is a deductible expenditure as per general deductions which have been specified
in section 8-1 of ITAA 97. Further, it has been specified in the section that assessed is able to
claim deductions relating to work while performing the operation as an employee in case an
expense is incurred, i.e.:
A bill for which employee is liable and required to pay.
In case the bill is not received, but payment is required to be paid.
These expenses comprise:
 Clothing expense
 Education expenses
 Union expenses
 Tools and equipment expense
Union expense is part of above expenses; Clara will be able to claim deduction under section
8-1 of ITAA 97 regarding payment of union fees of $ 750 in the income year.
QUESTION 7
Deduction of travel cost:
In accordance with provisions specified by Australian taxation office; the expenses which
have been done in for travel can be claimed only if the same is directly related to work as an
employee. It comprises:
4 of T (1985) 80 FLR 155

 Public transport comprising air travel
 Meal, accommodation and related expenses
In case the expense which is made is above $300 than evidence relating to same is required to
be maintained by the employee. In the present scenario, the expenses relating to the
conference which comprise airfare $750, registration cost of conference NZ $ 595; meal and
accommodation $ 550; other travelling expenses $ NZ 78 as are relating to the job of teaching
the same will be deductible to the extent paid by her. However, the expense paid while she
stayed at her sister will not be deductible for taxation purposes.
QUESTION 8
Income tax law of Australia specifies common law or ordinary meaning of royalty which
comprises the below-specified characteristics:
 Payment in return to exercise a beneficial privilege.
 The amount is paid to the amount who own right.
 Consideration can be reasonably ascertained.
 Consideration is paid while exercising right.
In the present case, Clara has received payment for joining rival University in case she leaves
her current job. Thus, as the amount paid is a kind of payment relating to exercising privilege
right and is in accordance with characteristics required for the ordinary purpose the same will
taxed as ordinary income under section 6-5 ITAA 97.
QUESTION 9
There are no CGT consequences as the receipt of $10000 by Clara is in accordance with the
common or statutory meaning of royalty. Thus, the same will be assessed as ordinary income.
QUESTION 10
In accordance with Australian Taxation provisions, a general deduction relating to
management and maintenance of house along with interest can be claimed against current
year’s income5. Thus the amount of interest $15000 can be claimed as deductible
5 Australian taxation office. 2016. [Online]. Available through
<https://www.ato.gov.au/General/Property/Residential-rental-properties/Expenses-deductible-immediately---
management,-maintenance,-interest/>. [Accessed on 27th September 2017].

expenditure. Further, the amount which has been paid for the computer, i.e. $2950 can be
claimed in the form of depreciation as the same is used mainly for academic purpose. Clara
can claim depreciation in accordance with the straight-line method or written down value
method, i.e. in accordance with the use of the asset.
QUESTION 11
Presently, no statutory law or provision exists which provides that return which is provided
by solar panel electricity generation in assessable income; the same cannot be specified as
statutory income under section 6-10 of ITAA976. However, further it has been specified that
as usual categories such as wages, other income relating to royalty or income property or
combination of both, etc. amounts to ordinary income; thus the amount received as rePosit
arrangement will be treated as ordinary income7.
QUESTION 12
The interest expenditure of $ 2100 relating to interest on $30000 for solar energy package is
the whole deductible. The whole amount can be claimed as a tax deduction. However, an
assumption has been made it is a secured loan; thus the interest paid on the secured loan is tax
–deductible.
QUESTION 13
Saving of any expenditure cannot be treated as income. Thus, $2500 which has been saved by
Clare relating to electricity expenses will not be treated as income. Moreover, no deduction
can be claimed for same as the amount has not been expended.
QUESTION 14
The intention of Clara is correct that she had no intention of making profits; thus she can
appeal that as no specific statutory provision exists for this income thus the same cannot be
treated as ordinary income. Moreover, in UK subsection 782 (A) of Income Tax-specific that
no tax liability arises in case of income arising to an individual from the sale of electricity
6 Australian taxation office. Amounts not included as income. 2016. [Online]. Available through <
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Amounts-not-included-
as-income/>. [Accessed on 27th September 2017].
7 Australian taxation office. Other income. 2017. [Online]. Available through <
https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-D10/Claiming-
deductions-2017/?=redirected>. [Accessed on 27th September 2017].

generated in case it is applied for domestic premises of an individual. In the present case as
Clara has also applied for domestic premises; thus the receipt of $450 should also be not
taxable.
QUESTION 15
In accordance with private ruling provided to taxpayer by ATO which specifies credit or
payments; both are not to be specified as assessable income. The reason behind the same is
that householder in not operating business and the arrangement is also of domestic nature8.
The main difference is that if credit is not availed within twelve month than the same will be
of no use after specified time.
QUESTION 16
In some cases payments are received and in some cases credit is provided. However, credit is
provided with some time limit such as a period of twelve month9. In case credit expires than
no payment or return is being made by electricity department.
QUESTION 17
In accordance with Australian Taxation provisions relating to capital gain tax, in case a
capital asset is sold such as real estate or shares than assessee is required to report regarding
capital gain or loss in income tax return and required to pay tax accordingly. As in present
scenario capital asset is sold by Clara, thus the CG implication will be applied at the date of
sale.
QUESTION 18
Usually, main residence i.e. the place where you live (home) is exempt from capital gain tax.
Further for availing the exemption you are require to provide proof that you are living on it as
no exemption is available on a vacant land.
The main residence exemption is available in following cases:
 In case the property is used as main residence as soon as one has practically settled.
8 Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select:
legislation and commentary. CCH Australia.
9 Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee Performance &
Reward: Concepts, Practices, Strategies, p.218.

 In case a new house is purchase before selling old house; than both the houses can be
treated as main residence up to six months10.
 After expiry of six months, one month is required to be chosen.
In present case capital gain taxation provisions will be applied; however if Clara is able to
prove that it is her main residence than she will not be required to pay any taxes.
10 Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

REFERENCES
Books and Journals
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee
Performance & Reward: Concepts, Practices, Strategies, p.218.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation
Law Select: legislation and commentary. CCH Australia.
Online
Australian taxation office. 2016. [Online]. Available through
<https://www.ato.gov.au/General/Property/Residential-rental-properties/Expenses-
deductible-immediately---management,-maintenance,-interest/>. [Accessed on 27th
September 2017].
Australian taxation office. Amounts not included as income. 2016. [Online]. Available
through < https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-
declare/Amounts-not-included-as-income/>. [Accessed on 27th September 2017].
Australian taxation office. Claiming deductions 2017. 2017. [Online]. Available through <
https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-
D10/Claiming-deductions-2017/?=redirected>. [Accessed on 27th September 2017].
Australian taxation office. Other income. 2017. [Online]. Available through <
https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-
D10/Claiming-deductions-2017/?=redirected>. [Accessed on 27th September 2017].
Australian taxation office. Rental properties. 2016. [Online]. Available through <
https://www.ato.gov.au/law/view/view.htm?docid=SAV/RENTAL/00001&PiT=9999123123
5958#FTINTEREST/>. [Accessed on 27th September 2017].
Legal cases
Federal Commissioner of Taxation v Cooling (1990) FCR 42

Kelly v. FC of T (1985) 80 FLR 155