In-depth Analysis: Taxation Law and Practice in the Australian Context

This case study provides a detailed analysis of Australian taxation law and practice, covering various aspects such as the functions of taxation, taxation rulings, tax agent registration, capital expenditure deductions, and specific deductions under the Income Tax Assessment Act 1997. It examines scenarios involving self-employed individuals, tax residency, assessable income, and allowable expenses, applying relevant sections of the ITAA 97 and case law to determine tax liabilities and deductions. The study also addresses the treatment of compensation for lost trading stock and provides calculations for income tax based on taxable income and applicable tax rates. The document is available on Desklib, a platform offering study tools and solved assignments for students.

Running head: TAXATION LAW AND PRACTICE
Taxation Law and Practice
Name of the Student:
Name of the University:
Author Note:

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TAXATION LAW AND PRACTICE
Part A:
1) Functions of taxation in Australia are as follows:
a) Economic development-
One of the main purposes of the taxation is to ensure the economic development
of the country. The economic development of any country is dependent upon the
capital formation of the country. For the purpose of capital formation, the
government of the country mobilises resources, so that rapid capital formation
could take place (Enste, 2018).
b) Full employment-
The taxation in the country can be effectively utilised to monitor the demand for
goods and services within the country. Lowering of the taxes would result in
increase in the demand and thereby increase the employment of the resources.
c) Price stability-
The taxes can be used to stabilise the prices. By raising the amount of direct taxes,
the amount of private expenditure can be reduced. Thereby reducing the prices of
the commodity (Basu, 2016)
2) Taxation ruling refers to the binding statements or rules made by the Commissioner.
The commissioner is bound by the rulings. This means that a taxpayer who has relied
on the rulings cannot be penalised later even if it is proved later that the ruling was
incorrect by the court. Some of the binding rulings issued by the Australian Taxation
Office include

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TAXATION LAW AND PRACTICE
a) Public rulings- it is generally issued to explain the application of a particular tax
law to the common tax payers and includes TR, ITR, GSTR, TD, GSTD, CR and
PR.
b) Private rulings-
This is a kind of advice given in respect of the application of the tax law, which is
related to a particular specific arrangement. Only that specific taxpayer is
supposed to rely on the ruling (Tan et al., 2016).
c) Oral Rulings-
This contains advices in respect of the application of the law for a taxpayer who is
an individual.
3) The ruling deals explains in which circumstances the packaging items that are being
held by the wholesaler, retailer can be considered as trading stock as defined under
section 70-10 of the Income Tax Assessment Act 1997. The ruling is applicable in
case the items are acquired, manufactured and produced by a taxpayer and held for
the purpose of –
a) Purpose of affecting sale in the normal course of business.
b) Purpose of manufacturing in the normal course of business.
The ruling also considers whether returnable packaging be treated as trading stocks.
4) The requirements of an individual seeking registration as a tax agent are as follows:
a) Minimum age should be 18 years for the purpose of application.
b) The person must be fit and proper
c) The person will have to satisfy qualification and experience requirements.
d) The person maintains or will be able to maintain professional indemnity insurance
that meets the requirements of the body (Symes, 2016).

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TAXATION LAW AND PRACTICE
e) The application must be filled in online and all the supporting documents must be
given.
5) The two divisions that give out the details about the deduction available in respect of
capital expenditure are division 250 and division 150.
6) The act relates to specific deduction because of the following:
a) Tax related expenses.
b) Expenses on repairs.
c) Expenses related to lease document.
d) Borrowing expenses.
e) Expenses in respect of bad debts
f) Loss by theft.
g) Local government election expenses
h) Deduction of work in progress amounts.
7) The decision taken in the case is relevant fordetermining the overseas travel expenses
and other items like the food and other incidentals. It determined whether the same
will be deductible under the section 8-1(1) (a) of the Income Tax Assessment Tax Act
1997 (Berns, 2017).
8) If any amount is received as a compensation for the loss of the trading stock, the
acquisition cost of the stock is reduced by the value of the compensation. No capital
gain or any sort of tax will be attracted unless and until, the taxpayer disposes of the
trading stock.
9) The applicable tax rate for an individual having an income of $75000 in the year
2107/ 18 is $3572 plus 32.5 cents for each $1 over the amount of $37000.
10) The formula mentioned in the section 4 10 (3) is as follows:

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TAXATION LAW AND PRACTICE
Income tax = (Taxable Income * Rate) – Tax Offsets.
The process of the calculations is as follows:
i) The taxable income for the taxable year as to be computed first.
ii) Then the basic income tax liability on the taxable income earned has to be
worked out using the following:
a) The income tax rates that is applicable for the income year.
b) Any of the special provisions that is applicable for working out that
particular liability.
iii) The tax offsets that are applicable for the particular year must be worked out.
A tax offset is responsible for reducing the taxable income of an individual.
iv) The tax offsets calculated must be deducted from the basic income tax liability
of the individual. The result that is obtained will determine the income tax the
individual owes to the government.
Part B
In this case, Lisa is a self employed marketing consultant and the issue is to ascertain
whether the expenses are allowed as deduction as per the provision of the tax law. The
section 8-1 of the Income Tax Assessment Act 1997 provides that a taxpayer can deduct
expenses that it incurs in producing assessable income (Picciotto, 2017). The expenses those
are necessary in carrying out the business for producing the assessable income are allowed as
deduction. It is further stated in the section that the following expenses cannot be claimed as
deduction:
 The loss or outgoing of domestic or private nature;

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TAXATION LAW AND PRACTICE
 The loss or outgoing of the capital nature;
 The expenses that are incurred for producing the exempted income;
 The expenses that are specifically prevented from deducting;
In this section the deduction that can be claimed by Lisa are discussed. The section 25-10 of
the ITAA 97 provides that an individual can claim deduction for expenses it incurred for
repairing the premises or producing the assessable income. The capital expenditure cannot be
claimed as deduction under this section (Braithwaite, 2017). The repairing expense that leads
to substantial improvement in the item of expenses are not allowed as deduction. The
expenses related to installation of new ceiling are substantial capital expenditure. However, in
the current case the expenses related to repairing of leaking roof is not a capital repair and
hence it is allowed as deduction. The painting expenses for home office are allowable
expenses and can be claimed as deduction. The replacement of the wooden floor in the office
room is a substantial expenditure so it is treated as capital expenditure. The resurfacing
expense related to client car parking is not an allowable expense. It is because this expense
does not fall within the definition of allowable expenses. It is because this expenditure is not
incurred for producing assessable income. The gardening expenses can be claimed for
immediate deduction (O'faircheallaigh, 2017).
Calculation of Deductible Expenses
Particulars Amount
Repairing to leaking roof $2,400.00
Painting of Office room $5,200.00
Gardening expenses $9,000.00
Allowable Deduction $16,600.00

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Part C:
The Tax ruling 98/17 deals with the issue of residential status for determining the taxable
income of an individual. In order to be considered a resident the individual has to pass any of
the three tests. The tests are as follows-
1) Ordinary resident
2) Domicile test
3) 183 days test
4) Super annulation test.
In the present case, Satya was not present in the country for 183 days hence he fails that
test. The superannuation test does not apply in this case. However, the ordinary test and the
domicile test do suggest that Satya is an Australian citizen for the period concerned. This is
because of none of his act suggesting that he is going to leave Australia (Marett, 2018). While
away, he lived in the house given by the company and not any other place, which he
purchased. Farther more he only leased out his residential house in Australia not sold it. All
this suggest that Satya intended to stay in Australia after returning (Edge, 2017).
As he is an Australian resident, his global income is taxable. Therefore the relate income
earned by him will be taxable.
Part D
In this case the issue is to determine the assessable income of Jane for the year. The
section 6-5 of the ITAA 97 provides that the income according to the ordinary concept is
regarded as the ordinary income. In the case of Scott V CT (1935) it is provided that the term
income should be determined in accordance with the ordinary concept and the usage of the

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TAXATION LAW AND PRACTICE
mankind. The income that is earned from working in hospital is an income according to the
concept. Therefore, this income will be included in the calculation of assessable income. The
income in the nature of windfall gain or from gambling is not an income (Gitman et al.,
2015). Therefore the income from winning horse races will not be included in the calculation
of assessable income. In the case of Scott V FCT it was held that the gifts of personal nature
are not income. It should be noted that in case of Moore V Griffiths (1972) it was held that
mere prize should not be treated as income. In the current case personal gift received from
brother should not be treated as assessable income. The income from personal exertion
should be treated as an assessable income. The personal exertion includes income from
painting and other activity (Murphy et al., 2016). Therefore, the proceed from the two
painting should be included in the assessable income. The income that is earned from the
rental property should be included in the assessable income. It is because the income is
received for providing the right to use the property (McGee et al., 2016). The calculation of
the assessable income is provided below:
Calculation of Assessable Income
Particulars Amount
Income from Hospital 70000
Proceed from sale of painting 2000
Rental Income 20800
Assessable Income 92800
Part E
In this case the issue is to ascertain whether the expenses that are incurred are
allowable expenses. In the case of FCT V Payne the court has denied the deduction of

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TAXATION LAW AND PRACTICE
expenses related to travelling cost between home and the place of work. However, the
travelling expenses for work related purpose is allowed as deduction (Picciotto, 2015). In the
current case, the travelling expenses to Canberra for the employment interview are not
allowed as deduction. The taxation law provides that a taxpayer cannot claim expenses
related to deduction for the cost involved in travelling or transferring for new employment
(Richardson & Lefroy, 2016). Therefore the expenses of moving from Sydney to work place
are not an allowable deduction. If the taxpayer uses phone or internet for the purpose of work
then the taxpayer is allowed to claim deduction for such expenses. However, the taxpayer
should maintain appropriate receipt for claiming deduction. In case the phone is used for
both the private and office purpose then the reasonable percentage should be used for
distributing the expenses. In the current case telephone calls made to the student for work
related issue after the office hour should be allowed as deduction (Scollo et al.,2015). The
cost of telephone calls made is allowed as deduction. The food expenses related to lunch from
the school canteen is not an allowable expense. The travelling expenses to and from the work
is not allowed as deduction. This expense is treated as personal expenses. In the case of
Lunney V FCT it is provided that the travel between the home and work is not an allowable
deduction. Therefore based on the above discussion it can be said that only telephone call
expenses is allowed as deduction.
Calculation of Deductible Expenses
Particulars Amount
Telephone Expenses $700.00
Allowable deduction $700.00

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TAXATION LAW AND PRACTICE
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