Taxation System in Australia: Case Studies and Analysis

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Taxation law
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Table of Contents
Answer 1.....................................................................................................................................................2
Answer2......................................................................................................................................................2
Answer3......................................................................................................................................................3
Part1........................................................................................................................................................3
Part2........................................................................................................................................................4
Answer4......................................................................................................................................................4
Answer5......................................................................................................................................................4
Answer6......................................................................................................................................................6
Answer7......................................................................................................................................................8
References.................................................................................................................................................10
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Answer 1
a) The constitution is considered to be code of conduct or rules prevailing in the country. Rules in
constitution are generally written down in the form of law. Laws forming the constitution in some
countries are ordinary law and those laws could be changed. In the case of Australia law could not
be changed. The Australian Taxation system is considered as the most complex system. It is made
of approx 125 taxes that comprise of mainly commonwealth taxes like capital gains the income
tax, Fringe benefits Tax etc. The Constitution of Australia gives authority to the commonwealth in
order to levy tax under Section 51(ii) and also to frame laws according to taxation. The powers
that are provided by the Australian constitution are
 Concurrent power which is also termed as income tax
 Exclusive powers also considered as customer and excise
 Residual Powers is considered to be consisting of stamp duty, land and payroll tax
The constitution of Australia contains various provisions provides protection to the public as well
as states from the Commonwealth.
b) There are three main primary parts of the Government in respective state that is executive,
legislature and judiciary. As per the theory of separation of powers, three powers and the
government functions in an independent democracy must be kept in separate. It should also be an
exercise from some separate organs. The judiciary interprets the laws; the legislature frames the
law while executive imposes the law. The role of ATO is to manage the revenue systems. The
main role is to look after the legislation.
Answer2
Different countries have different types of tax laws which are not similar to one another. If an
individual is a resident of one country and earns capital gains for any other country then it is
mandatory that the individual should pay tax on the same income in both countries. This process
of paying tax in both countries is known as the double taxation law. Here in this context, it is
described that a person who has a nonresident manufacturer based in the United State (US), he
derives the income by selling the products to the Australian Customers. And this manufacturer has
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also kept a sale representative who takes the order from the Australian customer. The sale
representative who is in Australia has a serviced office. The Australian residence is generally been
taxed on their worldwide incomes which they earn from any kind of sources. The temporary
residence of Australia those who have set up their business will be taxed only on their Australian
sourced income. It will be taxable what the individuals earn from Australia. In order to know the
tax situation the individual need to first work out in the matter that the individual is a foreign
resident or an Resident of Australia for tax purpose. The payable tax system may differ to your
residency status in Australia. An individual can be an Australian resident for the tax purposes even
the individual is a permanent citizen of Australia or a non-Australian citizen. In order to avoid the
rule of the Double taxation system of income by the different jurisdiction, Australia has developed
into a double taxation avoidance agreement (DTA) with a number of other countries. Under this
agreement, it is described that which both countries will agree on which taxes will be paid to
which country. Examp0le in case of any kinds of royalties the DTA with the United State will be
at the rate of 5% whereas Australia will tax on normal rates that are 30% for companies.
Answer3
According to the case study, Indiana is a resident individual taxpayer and she owns about 22
hectares of land. She wants to dispose of the land and she considers three scenarios.
Part1
a) According to the case study if the property has been owned by Indiana since 1 November 1976
then it will not be considered for CGT consequences. According to the Australian Tax office
(ATO), the CGT assets which are acquired before 20 Sep. 1985 are referred to as the pre-CGT
assets. Furthermore, the pre-CGT assets are in most of the cases exempted from capital gain tax
(CGT). Hence, preservation of the pre- CGT assets is mandatory to be very important factors for
the taxpayers in Australia in order to design effective planning for tax.
b) However, in case the specified land of Indiana has been owned by her Since 1 Nov. 1986 then it
will be considered for CGT as from 1985 the new CGT has been introduced in Australia (Ato,
2018)
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Part2
In the final year when the land will be actually disposed of by Indiana will derive assessable
income for the first two scenarios when Indiana will earn by selling the land. In the last scenario,
she will not derive any assessable income from the land selling as it will not be considered as an
ordinary income for Indiana(Ato, 2018)
Answer4
Yes, she can claim for that if she has the supporting documents and provisions for that business
which she has started. Amity should have all the records of her income. She should follow golden
rules such as the money must have been spent on the business and not on the private expenses.
Then the records must be kept as being mentioned above. She should also keep in mind that before
claiming for business expenses she should only claim for the portion that is being used in the
business not that she used for the mix of business and personal usage. The deduction is, mainly
claimed on the two parameters such as the operating expenses and the capital expenses. It is being
18 months so she can easily claim (Ato, 2018).
Answer5
Net Capital Gain or loss calculation for Maurice for the respective asset:
For Home
Capital Gains Tax
Sale price $325,000
Purchase price $140,000
Capital gain/loss $185,000
Analysis:
CGT Old Regime CGT New Regime
Indexed capital gain/loss $153,781
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Tax payable under old regime (marginal tax rate x indexation factor x capital gain)
$61,964 Tax payable under new regime (marginal tax rate x half capital gain)
$32,243
For FUL Share
Sale price $19,000
Purchase price $15,000
Capital gain/loss $4,000
For Furniture
Sale price $0
Purchase price $0
Capital gain/loss -$4,500
The Maurice in case of furniture is considered to have earned a capital loss before adjusting for
inflation (eChoice, 2019).
For Block of Vacant Land
Purchase price: 475000
Sale price: 465000
Net gain: Purchase price - Sales = $10000
Ownership costs: $110000
Capital Gain = Net gain – ownership costs
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Capital Gain = $10000 -$110000
Capital Gain: $100000
Answer6
a) In this article ‘Shorten promises bigger surpluses, tax crackdown ‘the leader of labor Bill
Shorten had promised to provide a huge budget surplus than the other. He has provided with a new
on tax avoidance at the time of launching of the campaign of labor. He also said that at the time
when the budget was in proper surplus labor must look at the income taxes. From now it will not
be supporting the three-stage income tax plan. In the chosen article it has also been provided that
at the time of debate with Scott Morrison to that of Mr. Shorten there was no winner at all.
Altogether there were 109 voters 41 % had chosen Mr. Morrison while 43 % has chosen Mr.
Shorten. In the article, it is given that Mr. Shorten has said that Facebook has earned near about
$600 million and had paid tax just $12 million in a market like Australia. Moreover, it has also
been described by Mr. Shorten that policy of labor will be soon released and in it, the amount of
revenue that was about to raise will also be mentioned. The report or policy will also provide how
much amount will be incurred. It has also been mentioned by him that the surplus will be bigger.
Moreover, in this article, Mr. Shorten has rejected the government description of "retiree tax".
According to Mr. Shorten retiree tax is not a tax. At one time the debate became heated and Mr.
Shorten was moreover unapologetic. In the article, it is also noticeable clearly that Australia
required a change. As per him, the economy is not at all working for the interest of working
people. Mr. Morrison has also said that labors are not at all accepting the coalition legislation. In
return, Mr. Shorten has answered that the government had rejected the labor amendments
moreover the laws are also not tough. In this article, it has been described the flatter tax system
which is considered to be the better tax system or fairer tax system. In this flatter tax system, it is
described that it is best because in this tax system it is assigned of only one or single tax rate for
all the individual taxpayers of the country. In this tax system, none of the individuals will have to
pay more or less than anyone else. This flat tax system is considered to be fair because of the
rational approach to the tax system. The flatter tax helps in promoting the consistency, growth,
simplification by removing the disincentives to the work. Treasurer Josh Frydenberg has boasted
in his federal budget, and this can lead the cost to be offset by increasing the incentives which
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have created for the individual taxpayers in order to report taxable income and earn more income.
This slightly can affect the budget in the bottom line. The tax cut may not be considered to be a
great political optics. The individual who is earning more is observed a great change in their
behavior that that individual who earn less. The Australian reliance on the tax agents is very high
by world standards. The failure to boost up productivity through reducing the inefficient taxes and
distortive taxes with flatter income tax rates have contributed to wage growth which has caused
immense frustrations. Hungary and Bulgaria have adopted 10 % flat income taxes in the year 2012
and 2008. By including the flat tax system the Hong-Kong has miracle economic standards
(Coorey, 2019).
b) Treasurer Josh Frydenberg has boasted in his federal budget which maintains a firmly
progressive system for the individual despite its reforms. He has planned to lower down the 32.5
percentage of the marginal rate to 30 percent. He has also abolished the bracket of 37 percent who
earns the in between the $ 125,000 and $200,000, only by 2024-25.in 2009 the UK has raised the
very small tax rate by moving their top rates to 50 percent from 45percent. In this article, a budget
surplus of the labor should be provided. Moreover, labor should observe at the income taxes.
About multinational tax, crackdown was also mentioned in the articles. Facebook had paid tax
only about $12 million tax whereby their income was $600 million. The budget surplus will be
bigger than before. At last, it was said that the taxpayer must pay $300 million to exempt the
emission of trade-exposed industries (Marar, 2019).
c) The main principle of good tax policy deals with the concept that the taxpayers should know for
what reason they are paying the taxes and at what rate the taxes are being paid. So according to
these articles the one that mitigate the concept of good tax policies as in one article that is with the
name “why a flatter tax system would be a fairer tax system” deals with the concept of flatter tax
system which describes the consistency, simplification of the system that will help in removing the
disincentives to the work. The other one stated that a person named Bill Shorten a labor leader
promised something but has not mitigated it regarding the taxpaying thing.
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Answer7
Code of professional conduct usually regulates the professional and personal conducts of all the
registered tax agents and Bas agents and also of tax advisors. The code's principles are set out
under the below-mentioned parameters such as the
 Honesty and integrity
 Independence
 Confidentiality
 Competence
 Other responsibilities
 Recommendations for complying with the code.
The role of tax agents in building compliance are being mentioned below: All around Australia,
the taxpayers are being helped by the tax advisors for the correct approach of taxpaying. The tax
advisors have gained a loyal ground among the Australian citizens. Around 74% of Australian
people use a tax agent to prepare their tax returns. This case is continuing from 1985 to
1986(Chapman, 2016).
Source: Alm, et al., 2012
All this trust has developed as the tax advisors are
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 Very impartial and independent in giving advice.
 Governance and the accountability system is keeping the ATO honest
 Expertise’s are easily available in the locality.
Although there are some threats in this regard that is technology disruption and the changing ways
of doing the business properly (Tpb, 2015).
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References
Ato (2018). CGT assets and exemptions. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/ [Accessed 3 May
2019].
Ato (2018). Legal Database. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/law/view/document?docid=TXR/TR9535/NAT/ATO/00001 [Accessed 3
May 2019].
Ato(2018). Deductions. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/business/income-and-deductions-for-business/deductions/ [Accessed 3
May 2019].
Chapman, M. (2016). The role of tax agents in building voluntary compliance. [online]
Business.unsw.edu.au. Available at:
https://www.business.unsw.edu.au/About-Site/Schools-Site/Taxation-Business-Law-Site/
Documents/The_Role_of_Tax_Agents.pdf [Accessed 3 May 2019].
Coorey, P. (2019). Shorten promises bigger surpluses, tax crackdown. [online] Australian
Financial Review. Available at: https://www.afr.com/news/shorten-promises-bigger-surpluses-tax-
crackdown-20190503-p51jy9 [Accessed 3 May 2019].
choice (2019). What is Capital Gains Tax? How is it Calculated?. [online] eChoice.
Available at: https://www.echoice.com.au/guides/capital-gains-tax-calculated/
[Accessed 3 May 2019].
Marar, S. (2019). Why a flatter tax system would be a fairer tax system. [online] Australian
Financial Review. Available at: https://www.afr.com/news/policy/tax/why-a-flatter-tax-system-
would-be-a-fairer-tax-system-20190408-p51c09 [Accessed 3 May 2019].
Tpb (2015). Tax Agents Comply with the Code of Professional Conduct | TPB. [online]
Tpb.gov.au. Available at: https://www.tpb.gov.au/comply-code-professional-conduct-tax-agents
[Accessed 3 May 2019].
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