Taxation Law Assignment - Individual, LAWS20060, Term 1, 2019

This document presents a comprehensive solution to a Taxation Law assignment, likely for an Australian university course (LAWS20060). The assignment addresses several key aspects of taxation law, including depreciation, tax offsets, assessable income calculations, and the definition of collectibles. It further explores CGT events, income tax calculations, and the deductibility of expenses under section 8-1 of the ITAA 1997. The solution analyzes various scenarios, such as interest expenses, work-related versus private expenses, and the treatment of losses. It also delves into CGT events F2 and B1, the main residence exemption, and capital gains tax calculations. The assignment utilizes relevant case law, tax rulings, and legislative provisions to support its arguments and conclusions.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................3
Answer A:..............................................................................................................................3
Answer B:...............................................................................................................................3
Answer C:...............................................................................................................................3
Answer D:..............................................................................................................................3
Answer E:...............................................................................................................................4
Answer F:...............................................................................................................................4
Answer to G:..........................................................................................................................4
Answer H:..............................................................................................................................5
Answer I:................................................................................................................................5
Answer to question 2:.................................................................................................................6
Answer A:..............................................................................................................................6
Answer B:...............................................................................................................................6
Answer C:...............................................................................................................................7
Answer D:..............................................................................................................................7
Answer E:...............................................................................................................................8
Answer to question 3:.................................................................................................................9
Answer A:..............................................................................................................................9
Answer B:...............................................................................................................................9
Answer to C:........................................................................................................................10

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Answer D:............................................................................................................................10
Answer to question 4:...............................................................................................................11
Answer to A:........................................................................................................................11
Answer to B:........................................................................................................................11
Answer to C:........................................................................................................................12
Answer to D:........................................................................................................................12
Answer to E:.........................................................................................................................13
Answer to question 5:...............................................................................................................13
Issue:....................................................................................................................................13
Laws:....................................................................................................................................13
Application:..........................................................................................................................14
Conclusion:..........................................................................................................................15
References:...............................................................................................................................16

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Answer to question 1:
Answer A:
The ruling of TR 2018/4 is concerned with the methodology that is employed by the
taxation commissioner to make the effective determination of the useful life of depreciation
asset under the “section 40-100, ITAA 1997”. It is used to compute the decline in value of
the asset for taxation purpose.
Answer B:
An important explanation has been made under the “Division 13, ITAA 1997”. It
mainly deals with tax offsets that a taxpayer claims under this division.
Answer C:
The highest amount of tax that is applied on the Australian occupant is as follows;
Assessable Earnings Tax (in$)
$180,001 or more $54,097 + 45c for each $1 beyond $180,000
Answer D:
“Section 108-10 (2)” defines collectibles as anything that is kept mostly for personal
usage or the enjoyment. There are special rules that are applicable to collectible this includes
that acquiring collectible for less than $500 and making capital gains or loss thereon is
ignored under “section 118-10 (1), ITAA 1997”1.
1 Campbell, Sam. "Personal liability of a trustee to tax on trust income: Part 1." Taxation in
Australia 53.5 (2018): 263.

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Answer E:
An important explanation has been made in “section 104-15, ITAA 1997” regarding
the CGT event B1 where the usage as well as enjoyment of title before it is passed. The CGT
Event B1 only happens when a taxpayer forms a contract with another company where the
right for using and enjoying the title of the asset under the ownership of the taxpayer is
passed to another entity2. The CGT event explains that title of asset may be passed to another
entity before the contract comes to an end.
Answer F:
Under this “section 4-10 (3)” a person is required to pay the income tax every
financial year. This section explains that a person should work out the amount of income tax
that is payable by using the below formula;
Income tax = (Taxable Income x Rate) – Tax offsets
Answer to G:
Under the case of “FC of T v Day 2008 ATC 20-064” the public servant officer under
the “section 8-1, ITAA 1997” applied this provision of deduction for deducting the legal
outgoings the taxpayer occurred because of the numerous cases against the taxpayer was
levied by the employer which were associated to the disciplinary charges3. The cases that
were bought against the public servant was because of his own consequences and hence the
legal outgoings that were incurred was non-deductible.
2 Jones, Daryl. "Tax and accounting income-Worlds apart?." Taxation in Australia 52.1
(2017): 14.
3 Brydges, Neil, and Kelvin Yuen. "A matter of trusts: Trusts, income tax, CGT and foreign
residents." Taxation in Australia53.2 (2018): 80.

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Answer H:
Marginal Tax Rate Average Tax Rate
Marginal tax is defined as the tax which a
taxpayer would pay on their next dollar of
earnings4.
The average tax rate represents the total
amount of tax that is paid by a taxpayer
divided by their total income.
Marginal tax is useful in measuring the
effect of tax on incentives for earning,
saving, investment or expenditure.
This tax is useful in measuring the taxation
weight.
This tax is useful in assessing the extent up
to which the tax impact economic incentive
of households
The average tax is useful in measuring the
burden of tax in households.
Answer I:
Tax that is imposed on the consumption expenditure of the goods and services is
known as the consumption tax5. The base of tax for this type of tax is the sum of money that
is spend on the consumption. These type of tax is usually the indirect tax. It involves the
value-added tax or the sales tax. The consumption tax is generally structured in the form of
direct or personal tax.
4 Cooper, Graeme S. "The Curious Reform of Foreign Source Income." The Tax Specialist 22
(2018): 2-14.
5 King, Alexander. "Mid market focus: The new attribution tax regime for MITs: Part
2." Taxation in Australia 51.1 (2016): 12.

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Answer to question 2:
Answer A:
The deduction of expenditure that consists of the interest under the “section 8-1,
ITAA 1997” is largely reliant on meeting the words of this provision that is capable of
showing that an outgoing has been occurred by the taxpayer in gaining taxable income of
taxpayer and it is not private or domestic in nature6. The court in “FCT v Roberts and Smith
(1992)” held that interest expenses should have appropriate relation with operation or
activities that are directly related to gaining the taxable income of the taxpayer and not
private or capita in nature.
Brett occurred interest expenses on loan taken to pay the employee wages. Citing
“FCT v Roberts and Smith (1992)” the interest on loan has appropriate relation with
operation or activities that are directly related to gaining the taxable income of Brett.
Therefore, it is deductible under “section 8-1, ITAA 1997”.
Answer B:
The ATO states that while filing tax return, a taxpayer is permitted to obtain
deduction for some expenses that are directly associated to earning income7. If outgoing was
occurred for both work and private purpose, then only work purpose expenses are allowed for
6 Datt, Kalmen H., and Mark Keating. "The Commissioner’s obligation to make
compensating adjustments for income tax and GST in Australia and New
Zealand." Australian Tax Forum. Vol. 33. No. 3. 2018.
7 Kudrna, George. "Australia’s Retirement Income Policy: Means Testing and Taxation of
Pensions." CESifo DICE Report 14.1 (2016): 3-9.

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deductions. In “Ronpibon Tin NL v FC of T (1949)” the commissioner stated that the part of
expenses that were occurred in directly producing taxable income.
The mobile phone outgoing of $500 was occurred by Julie where 60% were related to
work-purpose while rest were for private purpose. Quoting “Ronpibon Tin NL v FC of T
(1949)” only work-purpose portion is deductible under “section 8-1, ITAA 1997”.
Answer C:
The expense that are private or domestic in nature is non-deductible. The high-court
in “Lodge v FC of T (1972)” held that child care outgoings were not relevant or not related in
producing the taxable earnings and not deductible under “section 8-1, ITAA 1997”8.
The baby sitter expenses paid by Sally is a private or domestic expenses. Quoting
“Lodge v FC of T (1972)” baby sitter expenses is not relevant in producing income and not
permitted for deduction under “section 8-1, ITAA 1997”.
Answer D:
Deduction for loss of financial resources of taxpayer is allowed under the “section 8-
1, ITAA 1997”. In “Charles Moore & Co (WA) Pty Ltd v FCT (1965)” deduction for theft of
money was allowed to taxpayer because it was a loss of financial resources9.
8 Yuan, Helena. "Mid market focus: The sharing economy and taxation." Taxation in
Australia 51.6 (2016): 293.
9 Burton, Mark. "A Review of Judicial References to the Dictum of Jordan CJ, Expressed in
Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes
of the Australian Income Tax." J. Austl. Tax'n 19 (2017): 50.

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Jerry here reported a loss of $20,000 that was stolen by the long term employee from the
business. Denoting “Charles Moore & Co (WA) Pty Ltd v FCT (1965)” the theft involves
the loss of financial resources for Jerry and it is deductible under “section 8-1, ITAA 1997”.
Answer E:
The general provision of “8-1, ITAA 1997” explains that outgoings that are
preliminary to beginning income or business activities is not regarded as in course of earning
income. In “Maddalena v FCT (1971)” no deduction was permitted under 1st positive limb
for expenses in getting contract with another club because it was occurred at a point very
soon10.
Expenses occurred in contesting the local government election and spending on the
big election party is non-deductible under general provision of “8-1, ITAA 1997”. This is
because the expenses were preliminary to income producing activities and occurred at a point
very soon11.
Answer to question 3:
Answer A:
A taxpayer is allowed to choose or apply the CGT event F2 when they grant, renew or
extend the long term lease. It can be implemented if the taxpayer is the owner of land or
provides any sub-lease. However, no CGT discount is applicable to CGT event F212.
10 Tran, Alfred. "Can taxable income be estimated from financial reports of listed companies
in Australia." Austl. Tax F. 30 (2015): 569.
11 Fisher, Donna. "Mid market focus: No joy regarding FBT on travel expenses for FIFO
arrangements." Taxation in Australia49.7 (2015): 377.

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Any owned the land and provides the grants of a lease to Brian at a premium rate of
$5,000. Any can choose the application of CGT event F2 when he granted the lease for five
years. However, no CGT discount is applicable for Andy.
Answer B:
As per the “CGT event B1” if the taxpayer forms an agreement with the another
entity where the right of using the CGT asset owned by the owner is passed to another
entity13. The title would be passed to another entity either at the end or before the end of
contract under “subsection 104-15 (1), ITAA 1997”.
On 11th January 2018, an option was granted by John to Farm Ltd so that it can
purchase the 100-acre farm for $800,000. As a result, the passing of title to Farm Ltd is a
CGT event B1 under “subsection 104-15 (1), ITAA 1997”. John can obtain CGT discount for
the capital gains made from the asset.
Answer to C:
Basic exemption is permitted to a capital gains or loss that arises from CGT event
where the CGT asset is dwelling and under “section 118-110 (1), ITAA 1997” taxpayer used
the dwelling as the main residence for the ownership period14. Partial main residence is
12 Pinto, Dale, and Michelle Evans. "Returning income taxation revenue to the states: back to
the future." (2018).
13 Long, Brendan, Jon Campbell, and Carolyn Kelshaw. "The justice lens on taxation policy
in Australia." St Mark's Review235 (2016): 94.
14 Peiros, Katerina, and Christine Smyth. "Successful succession: Tax treatment of executor's
commission." Taxation in Australia 51.7 (2017): 394.

10TAXATION LAW
applied on dwelling used for generating taxable income. Jamie and Olivia bought a house in
January 2006 and soon it was let out for 2 years. They re-occupied the house to use as main
residence before selling in 2018 to make a capital gain of $300,000. A partial main residence
is permitted to Jamie and Olivia because the house was used for income producing purpose.
As the 12-month ownership rule is satisfied a 50% CGT discount can be applied on capital
gains.
Answer D:
Particulars Amount (AUD$) Amount (AUD$)
Proceeds from the sale of BHP Shares (CGT Event A1 (section 104-10(1)) 18720
Element 1: Cost of Acquisition (section 110-25(1)) 5400
Taxable Capital gains 13320
Proceeds from the sale of Wesfarmers Shares (CGT Event A1 (section 104-
10(1)) 10500
Element 1: Cost of Acquisition (section 110-25(1)) 26000
Loss on Sale -15500
Net capital loss -2180
Calculation of Capital Gains Tax
In the Books of Chris
For the year ended 2019
Chris reported the capital gains from selling BHP shares while he also reported a
capital loss from selling the Wesfarmers shares. The asset was also not owned for 12 months’
period by Chris and no CGT discount will be applied in case of Chris. He should include the
net capital gains from BHP shares in his taxable income while the loss from Wesfarmers
shares can be carried forward to subsequent years.
Answer to question 4:
Answer to A:
Prizes and any type of chance winning is not treated as taxable income if it is a
windfall gain. Prize winnings will be taxable when an ordinary income is earned by using

11TAXATION LAW
skill that adequately outweighs windfall gain. In “Kelly v FCT (1985)” the prize money was
held income because it was derived by exercising degree of skill15.
The prize winning from best TV advertisement is assumed to be related to taxpayer
skill and professional. Citing “Kelly v FCT (1985)” the prize money is gained by taxpayer in
ordinary business course and will be taxable as ordinary income under “section 6-5, ITAA
1997”.
Answer to B:
The ATO states that reimbursements are regarded as payments which is made to the
worker for actual expenditure occurred already. In the current case the employee received a
reimbursement of $500 for the cost incurred in traveling for work purpose16. However, the
employee bought a return ticket on sale for only $120. Therefore, it can be interpreted by
stating that remaining amount constitute gain for the employee. The amount will be included
for assessment purpose in accordance with the ordinary concept of “section 6-5, ITAA
1997”.
Answer to C:
Receiving gifts for the personal qualities are not treated as income. As held in the
event of “Scott v FCT (1966)” the solicitor received the 10,000 pound as the gift from the
15 Edmonds, Mark, Christian Holle, and Wendy Hartanti. "Alternative assets insights: Super
funds-tax impediments to going global." Taxation in Australia 49.7 (2015): 413.
16 Butler, Daniel. "Superannuation: Transferring foreign super fund amounts to an Australian
resident." Taxation in Australia50.8 (2016): 481.