Taxation Law Assignment: Detailed Analysis of Taxation Scenarios

This taxation law assignment analyzes three distinct scenarios under Australian tax law. The first scenario examines the tax implications of gifts received, including a gold bracelet and cash, considering the $10,000 and $30,000 gifting rules. The second scenario assesses the tax treatment of incentives received by a business owner, such as tickets to sporting events and a free trip, focusing on the fair market value of such incentives. The final scenario evaluates the residency status of an individual operating a food stall, determining whether they are considered a resident or non-resident for tax purposes based on the resides, domicile, and 183-day tests. The assignment provides detailed explanations, calculations, and relevant legal provisions to support the conclusions, referencing key Australian taxation law resources.

TAXATION LAW

TABLE OF CONTENTS
Question (a).............................................................................................................................3
Question (b).............................................................................................................................3
Question (c)..............................................................................................................................4
References...............................................................................................................................7

QUESTION (A)
Facts
Johanna had received gold bracelet worth $5230 from her parents. Further, she has also
received $2000 from her parents for an opening bank account for her young daughter, and
they also contribute $50 to this account.
Provision
In Australia, as an individual, tax provisions are applied by Australian Taxation Office on
income which has been derived from providing services, i.e. working. However, tax provision
is also applicable on investment income such as interest, dividend. Further, we might be
subject to capital gain tax in accordance with the available provision1. In general, there is no
tax on a gift if is in below than available limits.
A single person is eligible for free gifting area of $10000 per financial year. Further the same
is limited to $ 30000 per 5 financial years, as per the provisions levied by the Australian
government. In case the total gifts made exceed $10000, the remaining amount is taxable as
a deprived asset. The same is known as $10000 rule.
Conclusion
In present scenario the total amount of gifts received by her parents is
Gold Bracelet $5230
Cash for opening saving account $2000
Further deposit $50 per week $2600
$50*52 (no. of weeks in a year)
Total $9830
As the total amount of gift is $10000, thus nothing will be taxable in the present year.
However, now gifts amounting $20000 will be available for $30000 rule.
1 Woellner, Robin, Stephen Barkoczy, Shirley Murphy, Chris Evans, and Dale Pinto. Australian
Taxation Law Select: legislation and commentary. (CCH Australia, 2011).

QUESTION (B)
Facts
Suka runs multiple businesses in the city. While purchasing a range of goods the supplier
has offered him incentives so that he gets encouraged to buy more. He has received
following incentives:
 Tickets to the Melbourne Grand Prix and Australia Tennis.
 One supplier has provided free return trip to New Zealand.
Provisions
Taxation rules for incentives received;
As a general rule, incentive prizes and other rewards which have been received by
individuals for certain achievements or encouraging for more trading are taxable as ordinary
income. Even if the same is received in the form of cash merchandise or travel, the same is
taxed in the same manner2. In case the incentive is received in merchandise or travel
instead of cash, the fair value of the incentive is included in the income. The fair market
value of incentive depends on the item received or the travel which has been received.
Ascertainment of Fair Market Value:
Ascertaining the fair market value of travel is a complex job. In accordance with Carlson
Marketing study, fair market value of land travel would be 73 to 76 percent of the land cost.
However, in case of air travel, no discount is considered, and the full amount of expenses
are considered for ascertaining the fair value3. The reason for allowing a discount of 25% in
land travel is that the following expenditure will not be incurred:
 Cost relating to tour director
 No requirement of customized material
 Cost relating to food and beverages provided to group
 Administrative charges to special services
Conclusion
2 Pinto, Dale. "Taxation of financial transactions." In Australian Taxation Law, (CCH Australia Limited,
2011). 1239-1326.
3 Lang, Michael. Introduction to the law of double taxation conventions. (Linde Verlag GmbH, 2014).

In the present scenario, the travel incentive which has been received by Suka will be taxed
as ordinary business income. Further, for ascertaining the fair market value of incentive, all
the expenses relating to travel will be considered. In case it is travel tour than no discount of
25% will be allowed and the same will be available in case of the land tour.
QUESTION (C)
Facts
Bin runs a food stall in Hong Kong and came to Australia in January 2017 to look up if he
can set up business in Melbourne. He also wanted to check the availability of schools for his
children and a place to rent. He founded a shop on rent and set up a coffee shop. He also
founded a place on rent and school for children.
However, in March 2017 Bin’s wife Maggie ran the coffee shop as Bin has to go back to
Hong Kong in order to finalize the matter. He did not return until July 2017 and tells that he
will go back for at least 2 months for settling the case of food stall.
Provisions
For determining the residency for taxation purpose; Australian Taxation office has provided a
no. of the test. The first test is known as resides test. In case an individual resides in
Australia, the same is considered as an Australian resident for taxation purpose, and the
same does not require to apply any other test4.
Meaning of resides
“to dwell permanently or for a considerable time, in case one is settled or generally abode, to
live in a particular place.”
The other two tests are:
 Domicile Test: If in a situation a person is a domicile, which means that the
permanent home of that individual is Australia and the specified authorities are
satisfied that permanent place of abode is in Australia5.
4 Barkoczy, Stephen. "Foundations of Taxation Law 2016." (OUP Catalogue 2016).
5 Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance
structures: Evidence from Australian firms." Journal of International Accounting, Auditing and
(Taxation 22, no. 1 2013): 12-25.

 183 Day Test: In accordance with this test if a person resides in Australia for more
than half of income year whether continuously or with breaks; the same is considered
to be resident.
 Superannuation Test: It is applied in case of government employees.
Conclusion
The court and ATO specify the normal definition of resides while deciding the residency
status for income tax purpose. In the present scenario, Bin does not pass resides test as he
has come to Australia in January 2017 and has left same in March 2017.
Further, he does not pass domicile test as he lives in a rented property and it has been just a
short term he has arrived in Australia. Even 183-day test has not passed as he has been just
for 2 months in Australia.
As per above analysis, as Bin has not passed any of the tests; thus the same will be taxable
as non-resident for the year 2016-2017.

REFERENCES
Robin Woellner, , Stephen Barkoczy, Shirley Murphy, Chris Evans, and Dale Pinto. Australian
Taxation Law Select: legislation and commentary. (CCH Australia, 2011).
Dale Pinto,. "Taxation of financial transactions." In Australian Taxation Law (CCH Australia Limited,
2011). 1239-1326.
Stephen Barkoczy,. "Foundations of Taxation Law 2016." (OUP Catalogue 2016).
Grantley Taylor,, and Grant Richardson. "The determinants of thinly capitalized tax avoidance
structures: Evidence from Australian firms." Journal of International Accounting, Auditing and
(Taxation 22, no. 1 2013): 12-25.
Michael Lang. Introduction to the law of double taxation conventions. (Linde Verlag GmbH, 2014).