Australian Taxation System Analysis: A Case Study Approach

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Taxation Theory, Practice & Law

Table of Contents
Introduction...................................................................................................................... 3
Question 1........................................................................................................................4
Question 2........................................................................................................................6
Question 3........................................................................................................................8
Conclusion..................................................................................................................... 10
References.....................................................................................................................11

Introduction
The taxation system of every country made according to the business of that country and
income of peoples, this study will be briefly summarizing the important provision of the
Australian taxation system. The entire taxation system of Australia is made with a
combination of direct and indirect taxes and the central government of Australia as well state
government both levy taxes on the business that runs on the state as well as income of
individuals. The federal government is directly responsible for the collection of GST (goods
and services tax) which is a common tax that is applicable on both customers as well as
business who sales goods and services in Australia. This study will be summarizing the
taxation system of Australia with the help from cases namely sales of Helen important assets,
sales of Barbara economics books and income of Patrick. The above three cases provide a
brief overview of the provisions of the Australian taxation system.

Question 1
Here, Helen is a woman who wants to collect funds by the selling of assets. The reason for
being to sell the assets is that she wants to start her business of fashion designer in order to
earn a good profit. This is the will of Helen for the purpose of how to collect funds and start a
business.
The following are the assets that were sold by Helen in order to obtain capital that will invest
in her new business i.e., fashion designer.
On December 1, 2018, Helen sold a painting picture at the price of $ 12,000 which was earlier
bought by her father on dated February 1985. She had an income (profit) through the sale of
the painting by $ 8,000, which is adjusted through the inflation rate and also according to the
economic growth (Lignier, and Evans, 2012,).
On January 1, 2018, she also sold a historical sculpture at of $ 6,000 that was bought by her
in the year of 1993 and the month was December by the $ 5,500. To compare the purchased
price and the cost of selling, it can be said that this transaction of selling assets does not get a
more benefited to her because of by the selling such assets after, in a very long time, she is
able only to earn $ 500 which is very much amount.
Dated on March 20, 2018, another transaction of selling is that Helen was sold an antique
piece of jewelry at $ 13,000. In the year of 1987 in October month, the antique jewelry which
was sold in March 2018 was the same bought by her by the price of $ 14,000. Through the
selling of this asset, it included a loss of $ 1,000 to her which is more and this will affect the
collection of the amount in terms of opportunity.
Sr.
No. Particulars
Purchas
e Price
Purcha
se Date
Selling
Price
Sellin
g date
Type
of
Asset
Capita
l gain
Tax
Conseque
nce
1
Painting of
Helen's
father 4,000 Feb-85 12,000
Dec-
18
Non-
Taxabl
e -
2 Sculpture 5,500 Dec-93 6,000
18-
Jan
Long
term 500
3
Jewelry
Piece 14,000 Oct-87 13,000
18-
Mar
Long
term (1,000)
4 Picture 470 Mar-87 5,000 18-Jul Exempt -
Final tax
payable (500)
No Tax
Conseque
nce
On the 1st of July in the year of 2018, she sold a picture which is important to her at the price
of $ 5,000. Now this time such a picture (sold by her)is purchased by her mother in the month
of March 1987 in $ 470 only. To compare both cost and selling price, it can be easily

understood that this transaction of selling of a picture that was bought by Helen's mother is
generating a big amount of capital in terms of profits. All the assets that were sold by Helen
are not more profitable except the last on which is sold by her (purchased by her mother).
Now it can be said that the business of fashion designer is must be necessary to carry
successfully because of Helen sold her all-important business assets in order to start its new
business. If anyone whether individual or company sold business long terms assets then in
this situation individual or company able to take direct advantage of 50 percent in terms of
exception. Here individual i.e. Helen so she also able to take such benefit of getting an
exemption from the sale of business assets.
According to the provision of Australian taxation system, it has been described that if any
picture (painting) purchased before September 20th, 1985 it get an exempted from the tax
point of view. Hence it is analyzed that there was no liability is created on the head on Helen.
In the country of Australia, purchased of paintings are exempted from the tax provision. The
provision said that any assets which are termed as long term assets are totally exempted
from the liability of tax which was earlier purchased by her mother. So it concluded that this
will also not get to create any type of liability regarding tax purposes. Now it's time to make a
discussion on the jewelry part. The jewellery is held by her is more than a year (12 months).
According to the provision of tax in reference with Australian, if the jewelry is held more than a
year than the liability is not it means it is fully exempted (Burkhauser, et. al., 2015).
While calculating the long term capital assets, the discounting factor is more important and
the rate of discounted factor is 50 percent that will be applying on the net capital gain through
the sale of assets (company or individual person). If any loss incurred in the selling off assets
it will be subtracted from the capital gain after the providing discount. On loss situation, no
discounted rate is provided on the capital gains.
The benefit of a discounted rate to Helen:
This rate is providing a benefit to Helen in reference to the liability of tax. As the discounted
rate is applicable on long term assets then in case of Helen's assets this will also be
applicable and by this, it will help in reducing or eliminate any tax liability over there. The
method discounted rate is easy to understand and calculate and in this case this method can
be aid as best for the method for Helen. Therefore, it is analyzed that there was no tax liability
is created due to every transaction are considered exemption in terms of capital gain and the
assets sold by her are fully tax-free.

Question 2
The economist researchers generally write economics books than it's always be seen how the
government of a country frame their taxation policies on this case. the profession of Barbara
is an economist researcher and Barbara has not to write any books on the principles of
economics but still, Barbara can be called an economic researcher because of the profession.
The eco books limited is a private company that writes many books on economics but they
want to write a book on principles economic so they provide this contract on Barbara on
$13000. Barbara is not an experienced person in the writing of the book but Barbara still
accepts the offer because of knowledge in economics, she knows she can write this book with
help from her personal knowledge and skills of economic analysis. The copyright of a book is
the important thing because after the copyright of book no one can again print book without
permission of author so Barbara provides copyright of book to eco books limited because they
provide $13400 of the amount to Barbara on the behalf of printing principle of economics
book. Barbara writes the entire book through her own knowledge and the eco books limited
pay Barbara as per the terms and conditions of the contract. The eco books limited company
is also run a library so the eco books limited offer Barbara a sum of $4350 so that the eco
books limited can use the book in the library and students get benefits from it ( Hauptman et.
al., 2014). A sum of $3200 Barbara also receives on the behalf of manuscripts so overall
Barbara gets many kinds of benefits from the writing of the book.
Particulars Amount
Sale of Copyright
13,
400
Sale of Manuscript
4
,350
Collection of interview
manuscript
3
,200
Total
20,
950
Basic Exemption Limit
18,
200
Remaining amount
2
,750
Basic tax 523
Medicare levy 55
Total Tax Payable 578
The economic benefits of an individual are always taxable under the different provisions of the
taxation system of Australia, the income which is Barbara get from publication must be taxed
under the different provisions of ATO. The PSI (personal service income) is a term used in the
taxation which is defined if an individual gets income from his/her own intellectual skills or

knowledge that income will be considered in the PSI income. The peoples how to earn the
income in PSI category must be charged according to different provisions as compare to
normal income. The sale of the manuscript is also considered in the PSI because Barbara
uses her own skill and gives a lot of time to write the book. If a person uses 50% or more than
it than the income is considered in the personal service income. The eco books limited and
Barbara also maintains an employer and employee relationship because of a contract the
make to share income of the book (Ruf and Weichenrieder, 2012). The benefits of personal
service income will be provided to both the parties Barbara as well as eco books limited so
the income of Barbara as well as eco books limited liable for the income tax under the
different provisions of Australia.

Question 3
As per the brief, the father is supporting his son business and for this, both father and son
make a verbal contract. The father (Patrick) pays an amount of 52,000 to his son (David) on
an agreement that he repays such amount at the end of five years of $ 58,000. The amount
paid by the father is considered a a loan. David, the son of Patrick paid the whole amount of $
58,000 after two years by submitting cheque in front of him.
Loan Plan (Patrick)
Particulars Amount
Amount of Loan 52,000
Repayment Amount 58,000
National Interest 6,000
Actual Amount Paid 54,600
Interest paid (Actual) 2,600
Amount paid to his son, David is included in the process of deduction provisions due to the
reason of being that the amount granted to his son comes under the terms and conditions of
the price of arm's length. Hence he should a benefit of deductions on the tax amount.
Assessable Income for David
Particulars Amount
Income Assessable 52,000
Notional Interest 6,000
Actual Amount Paid 54,600
Interest paid (Actual) 2,600
According to the income tax of Australian, David here is liable with reference if income tax
provision due to the capital (money) is included in the business income. Therefore it is
mandatory for David to pay tax amount as per the Australian tax system (McHugh et. al.,
2013).

Conclusion
The taxation provision of Australia is deducting tax on the income of citizens of Australia as
well as the business of Australia according to the taxation system of the government of
Australia. The above three questions had provided a brief overview of the taxation system of
Australia through the help of capital gain consequences on individual, sale of assets and
income a person. The government of Australia charges to tax under the different tax
categories such as GST (goods and services tax), payroll tax and company tax and despite
these common business taxes, the government of Australia also charges a separate tax on
the income of individuals, so this entire study provide a complete picture of the Australian
taxation system.

References
 Burkhauser, R.V., Hahn, M.H., and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic
Inequality, 13(2), pp.181-205.
 Hauptman, L., Horvat, M. and Korez-Vide, R., 2014. Improving tax administration's
services as a factor of tax compliance: The case of tax audit. Lex localis, 12(3),
pp.481-501.
 Lignier, P. and Evans, C., 2012, August. The rise and rise of tax compliance costs for
the small business sector in Australia. In Australian Tax Forum (Vol. 27, No. 3, pp.
615-672).
 McHugh, M., Pell, A. and Street, B., 2013. Reforming the foster care system in
Australia. UNSW Social Policy Research Centre, Sydney, pp.37-8.
 Ruf, M. and Weichenrieder, A.J., 2012. The taxation of passive foreign investment:
lessons from German experience. Canadian Journal of Economics/Revue canadienne
d'économique, 45(4), pp.1504-1528.