Individual Assignment on Taxation Law of Australia - LAWS20060

This document presents a comprehensive solution to a taxation law assignment, likely for a university course, covering several key aspects of Australian taxation law. The solution begins with an overview of relevant legislation, including the Small Business Entity definition, deductibility of gifts, and the top tax rate. It addresses questions on capital gains tax, including events and exemptions, and defines key terms such as 'assessable income' and 'statutory income.' The document further contrasts the Medicare Levy and Medicare Levy Surcharge, clarifying their objectives and applicability. It also explores the concepts of 'permanent place of abode' and 'usual place of abode,' highlighting their differences and implications for residential status. The solution then analyzes various expenses incurred by a trainee accountant, determining which are deductible. Finally, it addresses capital gain tax events, calculations of profits and losses from share sales, and the application of capital gains tax to a home used for business purposes. The document incorporates specific examples, calculations, and references to relevant legislation and case law to support its analysis. The assignment covers topics such as income tax, capital gains tax, deductions, and the distinction between different types of residence for tax purposes.

Taxation law of Australia

Table of Contents
Question 1........................................................................................................................................3
a)..................................................................................................................................................3
b)..................................................................................................................................................3
c)..................................................................................................................................................3
d)..................................................................................................................................................3
e)..................................................................................................................................................4
f)...................................................................................................................................................4
g)..................................................................................................................................................4
h)..................................................................................................................................................5
i)...................................................................................................................................................6
Question 2........................................................................................................................................7
Question 3........................................................................................................................................9
Question 4......................................................................................................................................14
a)................................................................................................................................................14
b)................................................................................................................................................15
c)................................................................................................................................................16
d)................................................................................................................................................17
Question 5......................................................................................................................................19
a)................................................................................................................................................19
b)................................................................................................................................................20
c)................................................................................................................................................20
d.................................................................................................................................................21
e)................................................................................................................................................22
Bibliography..................................................................................................................................24

QUESTION 1
a)
The Taxation Ruling 2019/1 covers the Small Business Entity as per the meaning defined in
Section 23 of the Income Tax Rates Act 1986 as relevant to the financial year 2015-16 and 2016-
17. Further, it also covers the company defined under Section 328-110 of the ITAA (Income Tax
Assessment Act) 19971.
b)
Subdivision 30-A of Division 30 of the Income Tax Assessment Act 1997 outlines the legislation
regarding the deductibility of gifts or contribution2.
c)
The top tax rate applicable to a resident taxpayer of Australian in the 2019-20 is 45%.
d)
Yes, Car or motorcycles are exempt from the capital gain tax as per the ITAA 1997. Here, car or
motorcycle means a vehicle designed to transfer weight not more than one ton and less than nine
persons3.
e)
Capital Gain Tax event C1 s 104-20 occurs at the time of loss or destruction of the capital gain
tax assets4.
1 ‘Taxation Ruling’ (Online, 7 August
2019)<https://www.ato.gov.au/law/view/document?DocID=TXR/TR20191/NAT/ATO/00001>
2 ‘Income Tax Assessment Act 1997’ (Online, 7 August
2019)<https://www.legislation.gov.au/Details/C2017C00336>
3 ‘CGT assets and exemptions’(Online, 7 August 2019)< https://www.ato.gov.au/general/capital-gains-tax/cgt-
assets-and-exemptions/#Exemptions1>
4 ‘Commonwealth Consolidated Acts’(Online, 7 August
2019)<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s104.20.html>

f)
Current Tax-free threshold for the resident individual of Australia is $18200.
g)
In the case of Hayes v FCT (1956) 96 CLR 47, the issue is related with the ordinary income of
the person and whether the gift of shares by the owner of the company to the worker is
considered as ordinary income due to the personal services by the accountants to the company
and owner. In such a case, commissioner contended that the receipt is considered as income
within the general concept of income or according to section 22(e) of the Income Tax Act.
However, In this case, the court held that in the assessable income of the applicant the amount
which represents the value of shares should not be included as it does not satisfy the meaning of
the assessable income5. There is no connection between the gift of shares by the company and
the employment of the applicant; thus, it is not included in the assessable income.
h)
Income Tax is a levy on the Taxable Income of the assessee. The Taxable Income of the person
is derived from the assessable income after claiming some deduction prescribed under the
Income Tax Act6. The Assessable Income is comprised of the ordinary income and statutory
income of the person. Ordinary income means the income generated by the person during the
financial year directly or indirectly, within or outside of Australia from all sources7. On the other
hand, statutory income means the income which is not considered as ordinary income, however
because of the specific ruling given under the Income Tax, it is considered as a part of the
5 ‘1953 Australian Tax Decisions’(Online, 7 August
2019)<https://iknow.cch.com.au/document/atagUio2675124sl703670841/hayes-v-federal-commissioner-of-
taxation-high-court-of-australia-23-may-1956>
6 Mark B., "Interpreting the Australian Income Tax Definition of Ordinary Income: Ritual Incantation Or Analysis,
When Examined through the Lens of Early Twentieth Century Linguistic Philosophy." eJTR 16 (2018): 2.
7 Katerina P., and Smyth C., "Successful succession: Tax treatment of executor's commission." Taxation in
Australia 51.7 (2017): 394.

assessable income of the assessee8. For instance, salary is considered as ordinary income and
capital gain is considered as statutory income. If any income can be classified as ordinary income
as well as statutory income, then the statutory ruling will overcome9.
i)
Difference between Medicare Levy and Medicare Levy Surcharge
Table 1 Difference between Medicare Levy and Medicare Levy Surcharge
Basis Medicare Levy Medicare Levy Surcharge
Rate Generally, along with the
Income Tax, Medicare Levy
is imposed at 2% on the
taxable income of the
assessee.
The rate of Medicare Levy
Surcharge is 1%, 1.25% or
1.5% on the taxable income
of the assessee.
Objective It assists in sustaining the
public health care system.
The objective of Medicare
Levy is the participation by
the people for the cost of
Medicare.
The main objective behind
the levy of Medicare
surcharge is to motivate the
people to take out private
health insurance. By this way,
the private health insurer has
to pay the cost of medical at
the time of requirement.
Liability Medicare Levy only if the
income of the person exceeds
$ 22398 for the year 2018-
1910.
The person is liable for the
Medicare Levy Surcharge if
he/she derived income more
than $ 90000 as an individual
or more than $ 180000 as a
8 Alexander K., "Mid market focus: The new attribution tax regime for MITs: Part 2." Taxation in Australia 51.1
(2016): 12.
9 Steve F., and Dibden A., "Gifted assets, valuation and ordinary income." Taxation in Australia 53.10 (2019): 560.

family. Along with this,
people do not have private
health insurance.
QUESTION 2
Permanent place of abode means a fixed place of residence of the taxpayer, and it does not
means everlasting. The word permanent is applied in the meaning of being opposite to
temporary. On the other hand, the usual place of abode generally applied when a person
physically present in the country. Further, a permanent place of abode generally includes the
house own by the spouse also. An establishment which is generally used by the person only for
vacations or some works and not appropriate for annual use, then it is referred to as the usual
place of residence. Difference between the permanent place of abode and usual place of abode is
given below –
Table 2 Difference between the permanent place of abode and usual place of abode
Basis Permanent place of abode Usual Place of Abode
Applicability It is applied during the
determination of the
residential status of the
person as per the Domicile
Test.
It is applied during the
determination of the
residential status of the
person as per 183 days Test.
Factors The intention of the person
and the actual time of stay
overseas, consisting of the
regularity of that stay makes
the impact on a permanent
It is generally used by the
person when he/she
physically present in that
country.
10 Medicare levy reduction for low-income earners’. (online, 7 August 2019).
<https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-reduction-for-low-income-
earners/>

place of abode.
Establishment It is required to be fixed. It is not required to be fixed.
Impact on residential status If the commissioner is
satisfied that the permanent
place of abode is outside
Australia, then a person is not
considered as resident of the
country even if their domicile
is in Australia.
If the commissioner satisfied
that usual place of abode is
outside Australia, then the
person is not considered as
resident of that country even
if he/she resides more than
half year in Australia.
Length of stay If the person stays more at a
particular place, then it is
considered as more
permanent in nature.
If the person stays for a short
term duration of time such as
for days or week, then it is
considered as usual in nature.
Establishment of house If the person has set up their
home in outside Australia,
then the permanent place of
abode is outside Australia.
If the person makes
temporary accommodation
with some resources, then it is
considered as the usual place
of abode.
Impact on family and
financial link
Permanent place of abode is
affected by family and
financial links.
There is no impact on family
and financial links on the
usual place of abode.
QUESTION 3
The below tables shows the explanation to which following payment made by trainee accountant
during the current tax year would be allowed as deduction or not –
Nature of Expense Amount of Deduction allowed or Reason

Expense not
HECS-HELP $850 Deduction not allowed By the Higher
Education Loan
Program, the
government of
Australia offers the
Loan to the student.
There are some
particular expenses
which cannot be
claimed by the
person. Repayment of
debts under the
HECS-HELP loan
scheme is not allowed
as deduction as per
the ITAA 1997.
Travel-work to
university
$110 Allowed as a
deduction.
Travel from the work
to university is
allowed as deduction.
It is assumed that
$110 does not include
the travel from home
to work or university
to home. It is the first
stage expense and
fully allowed as
deduction.
Books $200 Allowed as a
deduction.
If a person is work
and study and incurs
self-education

expenses, then he/she
can claim a tax
deduction of some
expenses. In the given
question, a person is
the trainee
accountant. It is
assumed that by this
course the
employment income
will increase and
therefore the expenses
incurred for the books
is allowed as
deduction.
Childcare during her
evening classes
$80 Not allowed as
deduction.
Any amount of
expenses incurred by
the person for
childcare during any
lecture or self-
education activity is
not allowed as
deduction11.
Repair to her fridge at
home
$250 Not allowed as
deduction.
Only repair cost
incurred for the assets
for self-education
purpose is allowed as
expense. Therefore,
11 Education and Study’(Online, 7 August 2019)<https://www.ato.gov.au/Individuals/Income-
and-deductions/In-detail/Education-and-study/#sdcat>

repair to the fridge at
home cannot be
claimed by the
person.
Black Trouser or shirt
required to be worn at
the office
$145 Allowed as a
deduction.
A person can claim
the amount incurred
on purchasing of
clothing if it is unique
and different uniform.
However, it must be
mandatory to wear a
uniform at the office.
In this case, it has
been assumed that
Black trouser and
shirt required to wear
in an office is
mandatory, and it is
not conventional
clothing; therefore,
trainee accountant can
make the claim of the
expenses. However, if
the total work-related
expenses more than $
300 and clothing
expenses more than $
150, then written
evidence is required
by the person for
deduction of the

expenses. In this case,
clothing expenses is $
145; therefore, no
written evidence is
required by the
trainee accountant.
Legal expenses
incurred in writing up
a new employment
contract with a new
employer
$300 Not allowed as
deduction.
Generally, the amount
incurred for the
operation of business
to generate the
assessable income is
allowed as deduction.
Therefore, the amount
incurred in
negotiating a new
employment contract
with the new
employer is not
allowed as deduction.
There is no clear
connection between
the expenses incurred
by the person while
producing assessable
income.