LAWS 20060 - Australian Taxation Law: Analysis and Case Studies

This assignment delves into various aspects of Australian taxation law, analyzing key concepts and their application. It addresses scenarios involving assessable income, insurance payments, tax return deductions, private expenses, and entertainment expenditures, referencing relevant sections of the ITAA 1997 and case law. Furthermore, it examines the determination of Australian residency for income tax purposes and the implications of capital gains tax on main residences, including eligibility for exemptions. The analysis incorporates taxation rulings and court decisions to provide a comprehensive understanding of the legal principles governing these areas of Australian taxation.

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

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to A:..............................................................................................................................2
Answer to B:..............................................................................................................................3
Answer to C:..............................................................................................................................4
Answer to D:..............................................................................................................................4
Answer to E:...............................................................................................................................5
Answer to question 2:.................................................................................................................6
Answer to question 3:.................................................................................................................7
Answer to question 4:...............................................................................................................10
Reference List:.........................................................................................................................13

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Answer to question 1:
Answer to A:
In compliance with the “Section 6-5 and 6-10 (3) of the ITAA 1997” an individual
taxpayer is believed to have obtained an amount that is dealt based on their behalf or upon
their direction. Evidently “Subsection 6-2 (2) of the ITAA 1997” provides an explanation
that a person will is held accountable for taxation for their income based on their derivation
either from the direct sources or through indirect sources in an income year1. An explanation
has been provided under “taxation ruling of TR 2002/14” that there are circumstances where
receipt of lump sum is treated as the prepaid rent.
As explained under “taxation ruling of TR 2002/14” an individual receiving lump
sum amount of prepaid rent in advance such amount is considered for taxation given the
objective of the parties signifies that the lump sum payment in advance is for the use of the
property for the fixed time period2. Taking into the account the current situation a lump sum
amount of $15,000 was received by the landlord from a new tenant.
The federal court held in “Frezier v Commissioner of Stamp Duties (NSW)” that
prepaid lump sum received by a person is treated as rent3. According to the commissioner
prepaid lump sum has the character of come home for the taxpayer therefore, such amount is
1 Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
3 Scholes, Myron S. Taxes and business strategy. Prentice Hall, 2015.

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considered for assessment purpose in the year when such income is received. In the present
circumstances the receipt of lump sum is held as taxable income and the income would be
considered for assessment under the ordinary concept of the section 6-5 of the ITAA 1997.
Answer to B:
The Australian taxation office provides that insurance payment is completely
considered as the private item which should be excluded from tax return. But the Australian
taxation office describes that insurance payment received for things that are used to generate
income should be included in the taxable income4. For example, a person received a lump
sum amount as the cover for assets then the taxpayer would be obligatorily required to assign
such amount among the assets for taxation purpose. In the present situation of Cheryl, she
owned a warehouse which was lost on account of fire and the insurance company paid Cheryl
a sum of $500,000 as the recompense for loss.
Citing the verdict of federal court in “Allied Mills Industries Pty Ltd v FCT (1989)”
the federal commissioner held that nature of compensation receipts is dependent based on the
amount received5. Compensation is usually referred as the capital item unless in
circumstances where the substitution principles replaces for what is lost. More importantly
compensation received for lost employment is held as income because it constitute a
substitute for what is lost. In the present situation of Cheryl compensation payment obtained
from the insurance payment represent a capital receipt because the warehouse that is lost by
4 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
5 Fleurbaey, Marc, and François Maniquet. "Optimal income taxation theory and principles of
fairness." Journal of Economic Literature (2017).

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fire is held as capital item. Citing the judgement of commissioner views the compensation
receipt constitute capital receipt and is excluded from the taxable income.
Answer to C:
As stated by Australian Taxation Office deduction is allowed to individuals for
administering their tax returns. It also explains that an individual can claim specific
deductions relating to cost occurred in preparing and lodging tax return. Section 8-1 of the
ITAA explains that a person can claim expenses that are occurred in generating assessable
income. Taking into the account the present situation of Boris he incurred expenses on
preparing and lodging tax return6. With reference to the ATO guiding principle, Boris is
allowed to claim a specific deduction for preparing and lodging tax return.
Specifically, the ATO explains that a taxpayer may raise an objection relating to
deductions about tax affairs. Cost incurred in raising such objection is allowable under
specific deductions. For Boris cost occurred in bringing an objection shall be allowable for
specific deductions under section 8-1 of the ITAA 1997.
Answer to D:
Expenses that are occurred by the taxpayer for their private or person purpose is not
allowed for deductions under “section 8-1 (2) (b) of the ITAA 1997” as these expenses are
not incurred in the course of generating assessable income7. Such private expenses neither
6 McCluskey, William J., and Riël CD Franzsen. Land value taxation: An applied analysis.
Routledge, 2017.
7 Bankman, Joseph, et al. Federal Income Taxation. Wolters Kluwer Law & Business, 2017.

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satisfies the positive limbs nor is it deductible under the negative limbs. As evident James
occurred expenses of $2,000 for lunch in café hospital.
Citing the judgement of the federal court decision in “Lunney v FCT” it is vital to
consider the character of expenses which is inadequate for expenses as the necessary
prerequisite in generating the taxable income8. The commissioner in “Fullerton v FCT” did
not allowed the taxpayer from claiming allowable deductions relating to expenses incurred
moving from one city to another as the expenses entirely held for private purpose. The
current situation of James signifies that the cost of lunch is entirely a private expenditure and
same will not allowed for deductions under the positive limbs of “section 8-1 of the ITAA
1997”.
Answer to E:
According to “section 32-10 of the ITAA 1997” the purpose of considering food and
drinks consumed is considered as the entertainment expenditure irrespective of whether such
expenses is in the course of business discussion or business transactions that happens at that
time9. In the present situation of Frances he started a new business and invited guest at the
restaurant in order to provide food and drink for an expense of $5000. As evident the
outgoings of food and drinks is well within the meaning of the “paragraph 32-10 (1) of the
ITAA 1997”. Hence, Frances in such circumstances would be allowed to claim an allowable
deduction as these expenses satisfies the meaning of business expenses.
8 McDaniel, Paul. Federal Income Taxation. Foundation Press, 2017.
9 Murphy, Kevin E., and Mark Higgins. Concepts in Federal Taxation 2017. Cengage
Learning, 2016.

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Answer to question 2:
The present situation of Usman is associated with the determination of the whether he
would be held as the Australian resident for income tax purpose in 2016-17. As laid down in
“taxation ruling of 98/17” the explanation of the ordinary concept of the term resident within
the meaning of the resident in “subsection 6 (1) of the ITAA 1936”10. The “taxation ruling
of 98/17” is generally applied on large number of persons that comes to Australia namely the
academics students, migrants, visitors on holidays or workers coming to Australia based on
planned work agreements11. The federal court in “Miller v Federal Commissioner of
Taxation (1946)” explained that status of residency for a person constitutes the matter of fact
and held as the primary eligibility in ascertaining the tax liability. The “taxation ruling of
98/17” further explains an individual objective or intention of coming to Australia.
Denoting from the circumstance of Usman he had the French passport through his
stay in Australia from 2012 to 2016 which allowed to work and stay in Australia. As per the
“taxation ruling of 98/17” a person span of physical existence illustrates the behaviour of
endurance, repetitive or custom as the matter of fact12. The court of law stated its viewpoint in
“Joachim v FCT (2002)” that the span of six months is held as a significant time at the time
of concluding whether the behaviour of a person demonstrates a period of continuity of living
in Australia.
10 Sadiq, Kerrie et al, Principles Of Taxation Law 2014
11 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
12 Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.

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The commissioner states its judgement that physical existence together with the intent
of living in Australian overlap on numerous occasions. Once a person has created a dwelling
a specific place although voluntarily this does not signify that the person ceases to be a
resident of Australia merely due to the absence of that person physically. According to
“taxation ruling of 98/17” whether an individual has maintained a continuousness with the
place together with the objective coming back to that place and concept that the place
continuous to remain home13. Ideally in case of Usman he has been residing in Australia
beginning from 2012 till 2016-17. The existence of Usman demonstrates the period of
continuity as his behaviour reflects a considerable amount of time has elapsed in Australia.
Similarly, a person’s visits Australia with the intention of residing here for a period of
six months and later prolongs the stay for greater than six months’ period would be regarded
as the resident of Australia from the period they entered Australia. Evidently, in the situation
of Usman his presence in Australia demonstrated an existence of habit and characteristics of
routine from the time he arrived in Australia until 2016-17. Usman for the assessment year
2016-17 shall be held as an Australian resident in agreement with “subsection 6 (1) of the
ITAA 1936” and would be liable for taxation.
Answer to question 3:
The present situation of Norman is surrounded with the depiction of the consequences
of capital gains tax relating to the acquisition of main residence together with the depiction
whether Norman would be allowed for main residence exemption.
13 Slemrod, Joel, and Jon Bakija. Taxing ourselves: a citizen's guide to the debate over taxes.
MIt Press, 2017.

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According to “Section 118-192 of the ITAA 1997” there is a special rule that helps in
working out the consequences of capital gains and losses relating to the house that is used for
main residence to derive income14. Whereas “Subdivision 118 B” permits a person to obtain
a partial exemption for their main residence given any part of the dwelling is used for
generating assessable income during their course of ownership.
An individual taxpayer is allowed to claim for the main residence exemption as this
enables in lowering the burden of capital gains tax or losses15. Generally, a pre-CGT asset
that is acquired before 20th September would be subjected to main residential exemption from
the capital gains tax. Nevertheless, there are certain other capital gains which is not subjected
to capital gains tax is enumerated below;
a. Motor vehicles
b. Main residence
c. Collectibles purchased for less than 500
d. A CGT asset purchased completely to produce exempted income or non-assessable
income or non-exempted income.
e. An individual receiving valour awards
For a taxpayer to be eligible for main residence exemption it is obligatory to have a
main residence. Nevertheless, on discovering that the taxpayer has more than two residences
then it becomes necessary to determine the main house that is used for dwelling together with
14 McNulty, John, and Grayson McCouch. Federal estate and gift taxation in a nutshell. West
Academic, 2015.
15 ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.

9TAXATION LAW
the exemption eligibility16. To meet the eligibility of claiming a main residence exemption for
the taxpayer it is held as the subject of fact and question. As understood in the present
situation of Norman who is by profession a hair dresser bought a main residence worth
$700,000 and incurs costs of $70,000 on stamp duty. The taxpayer made further improvement
to the dwelling of $100,000 to make property appropriate.
Denoting from the above defined fact it is vital to establish that the extent of
occupancy whether the dwelling qualifies for the exemption and lowered instances of capital
gains tax. The commissioner of taxation stated that there is no such direct course given in the
legislation relating to the main residence exemption. Nevertheless, as per “section 118-150”
a dwelling is held eligible for main residence exemption given the property is purchased and
then refurbished or reconditioned before occupying the property to give few indications17.
Considering the present circumstances of Norman, he evidently occurs an expense of
$100,000 prior to making the house appropriate for business of hairdressing. Referring to the
view of Australian Taxation Office a taxpayer shall be subjected to main residence exemption
from the capital gains tax. As an alternative an individual taxpayer would be allowed to claim
a partial main residence exemption if any portion of the property is used for producing
income. Denoting from the situation of Norman from the available six rooms he employed
two rooms for the business of hairdressing. Hence, in compliance with “Subdivision 118 B”
16 Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business
taxpayers stay with their practitioners? Trust, competence and aggressive
advice." International Small Business Journal 34.3 (2016): 329-344.
17 Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).

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Norman shall be entitled to claim a partial main residence exemption from capital gains tax
as Normal used a portion of his main residence to generating income from the business of
hairdressing.
Answer to question 4:
According to the taxation ruling of “taxation ruling of 92/2” that expenses that are
occurred in carrying out the research and development is held as permissible deductions with
respect to“subsection 73 (A) of the ITAA 1997”. The business and taxpayer are able to attain
excellence from their research and development activities18. The present situation of Avon is
related to the determination of whether the company would be entitled to claiming an
allowable deduction for Research and Development for the year 2016-17. Evidently the
taxpayer Avon Pty Ltd in the present circumstances formed an agreement of one year that
worth $500,000 with the approved research and development institute to carrying out the
scientific research and development.
With regard to the state of Avon advice can be provided by complying with section
73A of Income Tax Assessment Act, 1936 that the company is eligible to claim an allowable
deduction from the assessable income relating to the expenses of undertaking scientific
research and development19. It is worth mentioning that section 73A of Income Tax
Assessment Act, 1936 allows an organization to be eligible for bringing the claim of research
and development expenses given the expenses is occurred in causing the taxable income.
18 Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
19 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.

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Alternatively, if an organization is noticed to be incurring expenditure on scientific research
and development that is in the course of generating taxable the organization in such case is
barred from claiming deductions. Additionally, subsection 1 of the section 73A of the ITAA
1936 explains the eligibility criteria of claiming for the scientific research and development
expenses given the expenses are incurred from the scientifically approved research
institutes20.
Preceding from the above explanation an understanding can be gained that expenses
incurred by Avon Pty Ltd as the payment to Central Queensland University an approved
scientific research institute is presumed to associated with the business enhancement
activities. Hence, Avon Pty Ltd shall be entitled to claiming allowable deductions from the
taxable income relating to research and development expenses occurred.
Moreover, “section 73A of ITAA, 1936 of the “taxation ruling of TR 92/2” a
business is given an additional tax incentive when the expenses that are occurred for
scientific research from the authorized institute. However, section 73A of ITAA, 1936 of the
“taxation ruling of TR 92/2” lay down to claim tax incentive the business should meet the
obligatory deductions criteria.
Evidently in the circumstances of Avon Pty Ltd, the expenses on research and
development is occurred from the scientifically approved research institute that is meets the
criteria for section 73A of ITAA, 1936 of the “taxation ruling of TR 92/2”21. Moreover,
20 Symes, Christopher F. Statutory priorities in corporate insolvency law: an analysis of
preferred creditor status. Routledge, 2016.
21 Graetz, Michael J., and Alvin C. Warren. "Integration of corporate and shareholder taxes."
(2016).

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Avon Pty Ltd would also avail the benefits of tax incentive from the taxable earnings as the
expense of $500,000 is associated to operating efficiency and are related with scientific
research and development.

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Reference List:
Bankman, Joseph, et al. Federal Income Taxation. Wolters Kluwer Law & Business, 2017.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).
Fleurbaey, Marc, and François Maniquet. "Optimal income taxation theory and principles of
fairness." Journal of Economic Literature (2017).
Graetz, Michael J., and Alvin C. Warren. "Integration of corporate and shareholder taxes."
(2016).
McCluskey, William J., and Riël CD Franzsen. Land value taxation: An applied analysis.
Routledge, 2017.
McDaniel, Paul. Federal Income Taxation. Foundation Press, 2017.
McNulty, John, and Grayson McCouch. Federal estate and gift taxation in a nutshell. West
Academic, 2015.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
Murphy, Kevin E., and Mark Higgins. Concepts in Federal Taxation 2017. Cengage
Learning, 2016.

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ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.
Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
Scholes, Myron S. Taxes and business strategy. Prentice Hall, 2015.
Slemrod, Joel, and Jon Bakija. Taxing ourselves: a citizen's guide to the debate over taxes.
MIt Press, 2017.
Symes, Christopher F. Statutory priorities in corporate insolvency law: an analysis of
preferred creditor status. Routledge, 2016.
Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business taxpayers
stay with their practitioners? Trust, competence and aggressive advice." International Small
Business Journal 34.3 (2016): 329-344.

15TAXATION LAW