LAWS20060 Taxation Law: Comprehensive Analysis of Tax Principles

This assignment solution delves into various aspects of Australian Taxation Law, addressing questions related to tax rulings, deductibility of gifts, marginal tax rates, CGT assets, and the differences between ordinary and statutory income, as well as Medicare Levy and Medicare Levy Surcharge. It further explores the interpretation of 'usual place of abode' versus 'permanent place of abode' in determining residency for tax purposes, referencing relevant case law. The assignment also analyzes the deductibility of specific expenses, such as HECS-HELP payments, travel costs, books, childcare, home repairs, clothing, and legal fees, based on the Income Tax Assessment Act 1997 (ITAA 1997) and relevant court decisions. The analysis provides a comprehensive overview of the legal principles and their practical application in various scenarios.

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:.................................................................................................................3
Answer A:..............................................................................................................................3
Answer B:...............................................................................................................................3
Answer C:...............................................................................................................................3
Answer D:..............................................................................................................................3
Answer E:...............................................................................................................................4
Answer F:...............................................................................................................................4
Answer G:..............................................................................................................................4
Answer H:..............................................................................................................................4
Answer I:................................................................................................................................5
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................7
Answer to question 4:...............................................................................................................10
Answer to A:........................................................................................................................10
Answer to B:........................................................................................................................10
Answer to C:........................................................................................................................10
Answer to D:........................................................................................................................11
Answer to question 5:...............................................................................................................11
Answer A:............................................................................................................................11
Answer B:.............................................................................................................................11

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Answer to C:........................................................................................................................12
Answer to D:........................................................................................................................12
Answer to E:.........................................................................................................................13
References:...............................................................................................................................14

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Answer to question 1:
Answer A:
The taxation ruling of TR 2019/1 lay down the views of commissioner on when the
company conducts a business inside the sense of small business entity within the section 23,
“Income Tax Rates Act 1986” as the application in the income years of 2015-16 and 2016-17
or inside the “section 328-110, ITAA 1997”.
Answer B:
“Division 30, ITAA 1997” summaries the legislation relating to deductibility of gifts
or contributions.
Answer C:
The top marginal rate of tax for the residents in Australia is 45% for the income year
ended 2019-20.
Taxable Income Tax on Taxable Income
From 0 to $18,200 Nil
From $18,201 to $37,000 19c for each $1 over 18,200
From $37,001 to $90,000 $3,572 + 32.5c for each over $1 over 37,000
From $90,001 to $180,000 $20,797 + 37c for each $1 over $90,000
From $180,001 and over $54,097 + 45c for each $1 over $180,000
Answer D:
Car or motorcycle is not considered as exempted CGT asset. Instead it is observed as
personal use asset under “section 108-20 of the ITAA 1997”.

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Answer E:
According to “section 104-20 of the ITAA 1997” a CGT event C1 HAPPENS when a
CGT asset that is owned by a taxpayer is destroyed or lost (Brauner & Stewart, 2015). This
event is applicable to a part of CGT asset when the taxpayer gets no payment when the loss is
discovered or damage happens.
Answer F:
The present tax-free threshold limit for the resident individual stands $18,200 for the
income year ended 2019-20.
Answer G:
In “Hayes v FCT (1956)”, Heyes earned some income from one of his friend for
services (Deutsch, 2018). The taxpayer and client were good friends. The taxation
commissioner claimed that the money that was derived by Hayes was considered as income
under the ordinary meaning. The taxpayer also contended that the money received was a gift.
As per the taxation commissioner, the court that the money received amounted to voluntary
gift payment and hence it was not considered as the ordinary taxable income.
Answer H:
The difference between ordinary income and statutory income are as follows;
Ordinary Income Statutory Income
 Ordinary income is generally
characterised as income apart from
the long-term capital gains.
 Ordinary income under “section 6-
5, ITAA 1997” comprises of income
derived from wages, salaries, bonus,
 Statutory income is considered prior
to the application of ordinary income
as the money that must be assessed
under the most specific provision of
“section 6-25 (2)”.
 Statutory income generally

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commissions and other forms of
compensation or income from
business or partnership (Kenny,
2013).
comprises of net capital gains,
dividends, franking credits
associated to franked dividends or
excess of trading stock in the year.
Answer I:
The difference between Medicare Levy and Medicare Levy Surcharge are as follows;
Medicare Levy Medicare Levy Surcharge
 The Medicare Levy is regarded as
one of the basic manner where
majority of the working Australians
contribute towards the cost of
Medicare (Kenny et al., 2108).
 If an individual earns higher than
$27,069 in the recent tax year then
he or she will be liable to pay the
Medicare Levy at a rate of 2% of
their taxable income.
 Medicare levy surcharge is the
federal government tax which helps
in paying for the public health
system.
 The Medicare Levy Surcharge is
paid by the single individuals that
earn more than $90,000 in a year or
by couples or families that have the
combined earnings of $180,000 a
year.
Answer to question 2:
The word usual place of abode must not be assumed as the identical meaning as the
word “permanent place of abode”. The word usual and abode must be interpreted based on
their regular and normal senses. The query of “usual place of abode” is based on question of

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fact. Usually the word is considered as the customary abode or it is usually used when a
person is actually existent in the state. An individual’s place of abode should be fixed but
should display the qualities of the place of dwelling or the residence to live in contrast with
an overnight, weekly or monthly lodging of a traveller (Krever, 2014). It connotes a lasting
association with the certain place of dwelling than those of an individual that who has
normally been the inhabitant or who has their “usual place of abode” in Australia.
If an individual that has the usual place of abode in Australia and does not has the
fixed or usual place of abode overseas but more from state to another or shifts on a
continuous basis within the country or has any link with the certain place in foreign, then it
would be only temporary or transitory and he or she would not be viewed to have adopted
another residence of choice or the permanent place of abode out of Australia.
On the other hand, the word “permanent place of abode” represents that an individual
has their residence in Australia. As per the “subparagraph (a)(i)” the definition of “resident”
needs the tax officer to be content that the person’s permanent place of abode is not out of
Australia. The word “place of abode” implies that a person has the residence where an
individual resides with their family and sleeps at night (Morgan, Mortimer & Pinto, 2013).
The court in “Levene v IRC (1928)” held that an individual’s “place of abode” represents a
person’s place of dwelling or the physical environments in which a person lives.
According to court in the leading case of “FCT v Applegate (1979)” held that the
taxpayer whose residence was in Australia, was directed by his company to set up an office
branch in Vila, New Hebrides (Nethercott, 2018). The law court of Australia stated that the
taxpayer had the permanent place of abode outside Australia and hence he was treated as
non-resident in the income year. While in another case of “FCT v Jenkins (1982)” it
involved the bank officer that was relocated to New Hebrides for 3 years and returned

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following 18 months due to ill-health. The Supreme Court of Queensland held that taxpayer
had the “permanent place of abode” out of Australia throughout the period he was foreign
even though he did not have any kind of physical time to live in New Hebrides. As evident
from the Applegate and Jenkins that an individual’s “permanent place of abode” cannot be
determined by applying any kind of speedy rules.
As evident from the above stated discussion an individual must be content that if their
usual place of abode is out of Australia, while the first statutory test (domicile) requires an
individual to be contented that their permanent place of abode is out of Australia.
Answer to question 3:
HECS-HELP: $850:
As per the ATO an individual is permitted to claim deduction for the specific
spending associated to the self-education if the education is relevant in earning the taxable
income. Self-education expenses represent the costs an individual occurs to undertake course
at the school, college, university or other identified place of education (Sadiq, 2018). If an
individual work and studies and occurs the self-education expenditure, then they may be able
to claim tax deduction. If the taxpayers meet the eligibility requirements then expenses such
as Fee-HELP, VET Student Loan that are paid under the HECS-HELP are does not
comprises of the expenditure that is paid under the HECS-HELP. Therefore, the expenses of
$850 for HECS-HELP would not be permitted as allowable deduction.
Travel – work to university $110:
As per the legislative response of “section 25-100 ITAA 1997” deduction is permitted
to taxpayer for the cost of travel amid the workplaces. Travel must be straightaway related
amid the two places of work where the revenue creating activities are being carried on with
none of the place being the home of taxpayer (Sadiq & Coleman, 2013). Similarly, in “FCT

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v Weiner (1978)” the taxation commissioner permitted the taxpayer with the deduction for
travel amid the schools since the employment of taxpayer was inherently itinerant in nature.
Similarly, the travel from work to university is an permissible deduction under “section 8-1,
ITAA 1997” since the travel involved between two work place where income generating
actions were carried out.
Books $200:
Self-education expenses is regularly allowable for deduction where it is occurred in
upholding or increasing the skills of taxpayer in the profession in which they are at present
engaged, particularly where the expenses are occured by the taxpayer with the prospect of
improving greater earnings. Similarly, in “FCT v Finn (1961)” the architect was permitted
deduction for overseas travelling to study one year in architecture since the expenses were
incurred in career advancement and higher pay (Sadiq et al., 2018). The expense of $200 on
book will be permitted as deduction under “section 8-1, ITAA 1997” to accountant since it is
assumed that the expenses were incurred in improving the future income producing
prospects.
Childcare during her evening classes $80:
Expenditure of “private or domestic in nature” might not be treated deductible since it
does not satisfy either the positive limbs or it is not permitted for income tax deduction under
second limb of “section 8-1 (2)(b), ITAA 1997”. The court in “Lodge v FCT (1972)” held
that no deduction was permitted to clerk for childcare expenditure to attend work since the
expenditure was neither relevant nor incidental in the derivation of assessable income (Taylor
et al., 2018). Similarly, in case of the accountant the childcare expenses to attend her evening
classes will not be permitted as deduction under second limb of “section 8-1 (2)(b), ITAA

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1997” as the expenditures are neither pertinent nor related in the derivation of assessable
earnings.
Repair to her fridge at home $250:
Under the negative limbs of “section 8-1 (2)(b), ITAA 1997” no deduction relating to
private or domestic outlays are permitted. As held in “FCT v Fullerton (1991)” expenses
occurred by taxpayer in shifting with his household to a new home in alternative city due to
job relocation was not allowed for deduction as the expenses were linked to domestic or
family arrangement (Woellner, 2013). Similarly, expenses related to repairs to fridge is a
domestic expenses and no deduction is permitted under the negative limbs of “section 8-1 (2)
(b), ITAA 1997”.
Black trousers and shirt required to be worn at office $145:
Under the “section 8-1, ITAA 1997” cost of purchasing the ordinary items of outfit
such as suit is generally not allowed as deduction. Accordingly, in “Mansfield v FCT
(1996)” expenses on ordinary objects of clothing would not be considered as income tax
deduction, irrespective that such kind of expenses is necessary to make sure that a suitable
appearance should be maintained in work or occupation (Woellner et al., 2018). The
expenditure occurred on black trouser and shirt to be work at office is a not deductible under
“section 8-1, ITAA 1997” because it is an ordinary article of apparel.
Legal expenses occurred in writing up a new employment with a new employer $300:
Expenses that are preliminary to income producing activities are not treated as
occurred while producing income and not permissible as deduction under general provision
of 8-1. In “Maddalena v FCT (1971)” expenditure occurred to get new work is not in the

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course of producing taxable earnings. Similarly, the legal expenses occurred in writing up
new employment to new employer is non-deductible under section of 8-1 since it happened at
a point too soon.
Answer to question 4:
Answer to A:
A CGT event F1 happens when a lease is granted to an individual or if they extend or
renew the lease that the taxpayer has earlier owned it. Under the CGT event F1 CGT discount
is not applicable (Woellner et al., 2018). A CGT event F1 occurred when John granted the
lease of land at a premium of $7000 to David for seven years. However, John will not be
entitled to any CGT discount in this case.
Answer to B:
Computation of Net Capital gains
For the year ended 2018-19
Particulars Amount ($) Amount ($)
Sale of IOOF Shares
Sales Proceeds 6700
Less: Cost of Acquisition 5500
Net Capital Gains 1200
Sale of Greencross Shares
Sales Proceeds 14160
Less: Cost of Acquisition 20040
Net Capital loss -5880
Total Net Loss -4680
Answer to C:
As per the ATO an individual’s main residence is usually excluded from CGT.
Nevertheless, a taxpayer is not given full main residence if they use any part of property for
making income such as renting it out or carrying out any kind of business. This includes the
portion of area of house which is set aside for generating income and time period till the

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house was used for generating income. As evident Li has used her home’s 20% of the floor
area for running her physiotherapy business. The following portion of capital gains is taxable
Capital gain x Percentage of floor area = Assessable portion
= $700,000 – $400,000 = $300,000 (net capital gain)
= 300,000 x 20% = $60,000
As Li has held the asset for more than 12 months, she can use the CGT discount
method to calculate her capital gains. Additionally, the rule of “home first used to produce
income” is relevant in case of Li because she used the home to generate income from the date
she purchased it.
Answer to D:
When the CGT event takes place to a CGT asset and no capital gains are made by the
taxpayer, then in such circumstances the taxpayer is required to work out whether they have
made any capital loss. It is noteworthy to denote that a taxpayer can use the capital loss to
lower the capital gains while the taxpayers are not permitted to use it for reducing other
income.
The cost base on the other hand represents the capital gains tax assets which is usually
the cost of assets when they purchase it together with the other costs that are related with
purchasing, holding and selling the asset.
Answer to question 5:
Answer A:
As per “section 6-5, ITAA 1997” an item of income character is obtained when it has
come home to the taxpayer. The existence of illegality, immorality or any kind of other factor

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does not prevent its deviation (Woellner et al., 2018). Similarly, the income earned from the
illegal means will be considered as the assessable income since the income is earned.
Answer B:
The bank interest of $500 that is earned represent a periodic receipt or income stream
which is observed as an taxable earnings under the ordinary concept of “section 6-5, ITAA
1997”. Whereas, the rent receipt is an income from property and hence it is treated taxable
under the ordinary sense of “section 6-5, ITAA 1997”. A gain that is a simple windfall gain
does not hold the character of income. The sum of $10,000 won from crown casino is a
windfall gain and hence non-taxable.
Computation of Assessable Income
For the year ended 2018/19
Particulars Amount ($) Amount ($)
Assessable Income
Bank Interest 500
Rent Received 2000
Total Assessable Income 2500
Answer to C:
As per “section 6, ITAA 1936” income from personal exertion contains of salaries,
wages, allowances, gratuities etc. received by an employee in respect of employment will be
considered as an income inside the ordinary sense of “section 6-5, ITAA 1997”. Similarly,
the sum of $500 received by an employee is an income from personal exertion and hence
assessable under “section 6-5, ITAA 1997”.
Answer to D:
Computation of Medicare Liability
For the year ended 2018-19
Particulars Amount ($)
Taxable Income 20000
Medicare Levy Nil

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Taxable Income 24900
Medicare Levy 250.2
Taxable Income 100000
Medicare Levy 2000
Answer to E:
Computation of Gross Tax Payable
For the year ended 2018-19
Particular Amount ($)
Taxable Income 25000
Gross Tax Payable 1292
Taxable Income 40000
Gross Tax Payable 4547
Taxable Income 95000
Gross Tax Payable 22647

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Kenny, P., Blissenden, M., & Villios, S. (2018). Australian Tax 2018.
Krever, R. (2014). Australian taxation law cases 2014.
Main, J. (2019). Taxation: Buying or selling: beware the sting of GST. LSJ: Law Society of
NSW Journal, (55), 73.
Morgan, A., Mortimer, C., & Pinto, D. (2013). A practical introduction to Australian
taxation law. North Ryde [N.S.W.]: CCH Australia.
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Co./Thomson Reuters.
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(2018). Principles of taxation law 2018.
Taylor, C., Walpole, M., Burton, M., Ciro, T., & Murray, I. (2018). Understanding taxation
law 2018.

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Woellner, R. (2013). Australian taxation law select 2013. North Ryde, N.S.W.: CCH
Australia.
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Melbourne: OUPANZ.
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