HA3042 Taxation Law T2 2018: Analysis of Taxation Law Principles

This assignment presents a case study analyzing various scenarios under Australian taxation law. It begins by examining the tax implications of lottery winnings, clarifying that lump-sum winnings are generally not considered taxable income unless held within financial institutions. The study then assesses the taxability of a pharmacy operating under the Pharmaceutical Benefits Scheme (PBS), detailing how sales and expenses are allocated for taxable income calculation. Furthermore, it delves into the landmark Duke of Westminster case, discussing its relevance to tax avoidance and how the Ramsay Principle has superseded it. Finally, the assignment addresses a case involving joint property ownership, focusing on the distribution of rental income and losses between tenants, referencing Taxation Ruling TR 93/32 for guidance. Desklib provides students access to similar solved assignments and past papers.

HA3042 Taxation Law
T2 2018 Individual Assignment

Table of Contents
Question 1..................................................................................................................................3
Question 2..................................................................................................................................4
Question 3..................................................................................................................................6
Question 4..................................................................................................................................7
References................................................................................................................................10

QUESTION 1
In this case, a lottery has been sponsored by SET for Life which is particularly a Lotteries
Commission; the same sponsored lottery has been given away when any of the people scratch
totals of three panels of the set for life would be winning $5000 for all year for 20 years.
Furthermore, in case the person dies, the due amount will be payable to the estate of the
deceased (Australian Taxation Office, 2018).
If an individual wins anything from lottery or draw sponsored by the credit union, banking
institutions, building society or any other investors, then the individual is required to release
on their tax return the value of any derived prizes. Prizes might be inclusive of low-interest,
free of interest loans, cash, car or holidays. The best aspect is that within Australia, lottery
winnings are not imposed on individual income tax. On the other hand, one is not required to
make prize declaration won in common lottery like raffles, or lotto draws (Australian
Taxation Office, 2018). If an individual gains monetary benefits from a lottery winning, then
it will be subjected to tax as per the head Income. Further, the income will be imposed to tax
at 30% flat rate, this after cess add will be amounted to 30.9%.
It is not considered if or if not the winner’s income is under tax or not, the distributor of the
prize is responsible for making tax deduction during payment. Furthermore, the benefit
gained from fundamental exemption as well as the income tax slab rate is non-applicable to
this concerned income. Further, the whole derived amount will be taxable at the 30.9% flat
rate (Braithwaite, 2017).
Lottery winning or other types of prizes are often assets for the intent of Part IIIA. On the
other hand, it is provided by subsection 160ZB(2) that a capital gain should not be considered
to have accrued to the person paying tax by the rationale of that they have gained such form
of winnings. However, subsection 160ZB (3) states that a taxpayer is not required to incur a
capital loss, because of any conducted act or transaction entered by the taxpayer in the
manner of doing participation in a lottery or any prizes. Raffle prizes are out of consideration
under the subsections 160ZB(2) and 160ZB(3).
On the basis of cited provisions, it can be articulated that the lottery winning is out of
consideration in terms of annual payment income. According to the provisions related to the
taxation law of Australia, income shall not be declared till the time it is held by the banking
institution or any other financial institution, due to the reason of lottery prizes which are won
in Australia are stated as free of tax in lump sums amount. Related to this, same provision are
applicable in the New Zealand, in which the receivable amount from lottery winning is not
taxable as their major gaining source is lottery wins. Thus, the total amount of receivable of

$50000 is not considered as an element of the yearly income of the taxpayer as these are not
covered under earnings (Nichita, 2015). However, when a deceased’s estate is imposed to
the winnings in the situation of winner’s death, then the tax on capital gain appeals, but also
the same income will not be entitled as annual payment income.
QUESTION 2
By considering the cited vase scenario, Corner Pharmacy is providing chemists with services;
the corporation held no tender of credit sales; on the other hand, the payment is acceptable by
main credit cards. The business sells off the shelf and by taking the similar proprietor fills
conditions into account for cash and for the payments paid as per the Pharmaceutical Benefits
Scheme [PBS]. The inherent issue in the case is the tax of the Corner Pharmacy according to
the taxability provisions under the Australian taxation office alongside Pharmaceutical
Benefits Scheme.
The Pharmaceutical Benefits Scheme (PBS) is said to be a program run by the Australian
Government that is engaged in offering subsidised prescription drugs to Australian residents
and to some of the foreigners under the Reciprocal Health Care Agreement. The PBS scheme
of Australian Government offers relevant, time-based and reasonable accessibility to a broad
variety of medicines to all the individual living in Australia (Australian Government, 2018).
The claim of items related to PBS/RPBS viable and correct prescription data to be considered
into the PDS (Parker, 2018). Further, this assures supportive payment from the side of the
department, as well as it guarantees that accurate information is entered for the all the
involved persons who are a prescriber, patient and pharmacy. To this note, Pharmacists is
required to make sure that there is accuracy in dispensing, stating the intentions of the
prescriber while adhering with the Commonwealth legislation and State or Territory laws.
Table 1: Statement showing taxable income of Corner Pharmacy
Particular Amount
Sales from ordinary business (WN 1) $450,000.00
Less: Cost of goods sold (WN 2) ($313,636.00)
Less: Salaries expenses(WN 3) ($60,000.00)
Less: Rent expenses(WN 3) ($50,000.00)
Add: Billing under Pharmaceutical Benefits Scheme(WN 4) $200,000.00
Assessable Income $226,364.00
Less : Non-Taxable Income ($200,000.00)

Taxable Income $226,364.00
Working notes
1 Formula Calculations Amount
Total sales Cash Sales + Bill under PBS
scheme+ Credit card
reimbursement
=$300,000+
$200,000
$160,000
=$660,000.00
Sales under Benefits
Scheme
$200,000.00
Other income Total sales - Sales under
Benefits Scheme
=$610,000-
$200,000
=$460,000.00
2
Cost of goods sold = Opening stock + Purchases –
Closing stock
$150,000.00
+
$500,000.00
-$200,000.00
=$450,000.00
Apportionment of cost
of goods sold
Cost of medicines sold
for ordinary business
COGS* Sales of ordinary
business / total sales
=450,000*$4
60,000/$660,
000
=$313,636.00
Working note 3 and 4
Wages, as well as rental expenditures, are allowable expenditures aiming at the taxable
income calculation. Henceforth, the same will be allocated as per the sales category under the
Pharmaceutical Benefits Scheme category and the sales held as per the regular business
course (Woellner and et al., 2016).
Provided solution is on the basis of the potential assumptions:
 All the rules prescribed by the Pharmaceutical Benefits Scheme has been followed by
the Corner Pharmacy
 Governmental aspects provided have not been considered for the private intent.

 If the expense is conducted on a combined basis, then the similar trend will be
allocated taking the sales value as a base.
 Accurate records, as well as documents, are to be managed by the corporation for the
certificate to make sales as per the Pharmaceutical Benefits Scheme
QUESTION 3
The case of Duke Westminster is often referred to as a case in tax avoidance. Further, the full
name of the case is Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. The
Duke of Westminster had appointed a gardener and compensated him for his post-tax income,
which was significant. In order to decrease the tax, Duke stops paying the wages to the
gardener and in its place drew up an agreement, in which he agrees to pay an equal amount of
wages at the end of every specific period. Tax laws of time enable Duke to proclaim the
expense like a deduction, therefore decreasing his chargeable income and his liability towards
tax and surtax.
The rule specified in the case law
The case of The Duke Westminster specifies that tax avoidance will be accepted only if it
follows the establish statue law. In accordance to the case, the general principle of the
arrangement of covalent act reduces the liability of Duke when it is pertinent and can
proclaim for the yearly compensation for one year.
Analysis
Moreover, every person has the rights to organize his activities in such a manner, the tax
according to proper Acts is less than it otherwise would be (Alldridge, 2015.). In case he
succeeds in doing so then, ungrateful the Commissioners of Inland Revenue or his tax-payers
associates might be of his ingenuity, he could not be obliged to give an increased tax. This
principle, in essence of tax evasion stalemate and, could be stated the principle of
Westminster. As, after being knowledgeable by the decision, allowing the organizations and
entities to build financial arrangements in order to decrease the liability of tax to the extent
that these formations are in accordance with law was inappropriate. Thus, it can be observed

that the decision of Duke Westminster is superseded by the current Ramsay Principle, made
by the famous WT Ramsay v. IRC decision the House of Lords.
The relevance of principal in present scenario:
Moreover, in present time judges considers not to make these issues as a formal rule, since
they will make the discussion about the ratio scope in the prior case while not considering
being bound by its precise wording. Though his ruling was attractive for other people also
who are looking for to evade tax legally through making difficult structures, it has been
deteriorating by subsequent cases wherein the courts have considered complete effects
(Bloom, 2015.). The same can be understood by considering an example of Ramsay Principle
where if a transaction has predetermined artificial steps that serves no commercial objective
except to save tax, the proper approach was to tax the consequences of operation as a whole.
As per assertions of QC (2016), the House of Lords rejected to disregard the form of the
transaction over the substance and while doing some specified the cardinal principle that
every person has the right if he could organize the activities in order that tax connecting
under the appropriate Acts is less than it otherwise would be.
In IRC v. WT Ramsay Ltd (1981), the House of Lord's concern against a series of
transactions which are predetermined, included into which steps that has no commercial
objective excluding evasion of tax. In addition to this, it was examined that actual strategic
planning had not been in subsequent rulings. In case the executive succeeds in doing the
same, he will not be penalized under the taxation laws. It became inappropriate later on when
courts decide to implement the Ramsay Principle for taxing such remedial actions of the
taxpayer.
It can be concluded from the above case law that tax evasion will be permitted only when it
has been done according to the law. The same implies that if any organisation executes or
adopts any device is absolutely responsible for the tax profit reduction then the same won’t
be permissible. Further, courts and committee should notice and judge the economic
jurisprudence of the extensive and changed nation to hold concerning the planning of taxes,
i.e. anticipated of a tax deduction.
QUESTION 4
The present case is about Joseph an accountant and his wife, Jane. They borrowed the money
and purchased a leasing property as a joint tenant. The terms of agreement specify that in the

case of profit Joseph is entitled to 20% income and his wife is entitled to 80% income from
the rental property. Further, if the property incurs a loss than in that case the 100% loss will
be compensated by the Joseph only. There is a loss of $40000 in the present year. Moreover,
the case is concerned about ascertainment of taxation of profit and loss on the property which
is specified. Along with this, it will also assess the manner in which capital gain or loss
should be recorded in case if the property is sold by joint tenants. Ultimately, the problem of
the present case is that who will be entitled to pay the tax.
Provision of Rule TR 93/32
Australian Taxation provision of rental property TR 93/32 ruling specifies the base on which
the distribution of net profit or loss obtained from rental property between co-owners will be
recognized for income tax purpose (Taxation Ruling TR 93/32, 2017). Further, it only
scrutinizes the taxation position of co-owners whose affairs do not result in exercising of a
business.
Ruling
 Co-ownership of a leasing property could be defined as a partnership for the income
tax purposes, but in reality it is not a partnership at general law until the ownership
amounts to exercising of business.
 If co-ownership is for income tax purpose only, the profit or loss obtained from the
leasing property is derived from the co-owned property and not from the distribution
of partnership incomes or losses.
 The reason behind same is that co-owners of leasing property are not considered as
partners at general law, a partnership contract either oral or in writing, will not
influence the distribution of profit or loss relating to the property.
 Hence, the distribution of income or loss from the leasing property should be done in
accordance to legal interest of the owners apart from those very limited conditions
where there is adequate evidence to establish that the fair interest is diverse from the
legal title.
Ownership expresses an entitlement to apply the maximum legally permitted rights over what
is possessed (Co-ownership Rental Property, 2017). Furthers, co-owners of leasing property will
embrace the property as a joint tenant or as tenants in common. Moreover, these tenancies are
a categorization of co-owners interest. The meaning of partnership is much wider for income
tax purpose than it is a general law. Further, the subsection 6(1) of the Income Tax

Assessment Act 1936 describes the partnership as the union of people exercising business or
in receipt of income mutually but does not comprise a company. Whether a partnership exists
at general law is of significance for the taxation purposes, the Act takes the income of tax as
it finds it, i.e. subject to the general law in all its factors.
After considering all facts and figures of the present case, it is concluded that Joseph and Jane
were co-owners rather than partners and that their which loss was derived from the co-owned
property and not from the sharing of partnership gains and losses. Since there was no
partnership at general law and hence no sharing of profit or losses they had to distribute loss
in the fraction to their interest in the property. Further, as joint tenants, they owned property
in equivalent shares and sharing of profit and losses from that property in the equal
proportion. Thus, the 50% of the loss will be allocable to Joseph for income tax purpose. In
addition to this, if the property is sold by joint tenants than in that case also the same
provisions will be applied, and Joseph could proclaim 50% of the capital gain loss.

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