LAWS20060 Taxation Law of Australia Assignment Solutions - Answers

This document presents a comprehensive solution to a Taxation Law assignment, addressing key concepts in Australian taxation. The assignment covers topics such as depreciation, tax offsets, taxable income rates, capital gains tax (CGT) exemptions, CGT events, income tax formulas, tax deductions for legal outgoings, average and marginal tax rates, and consumption tax. It also includes answers to questions related to allowable deductions for interest on loans, apportionment of losses, child care expenditure, losses from theft, and preliminary expenses. Furthermore, the assignment explores CGT events F2 and B1, the main residence exemption, capital gains and losses, and the taxability of prize winnings and allowances received by employees. The solution provides detailed explanations, legal citations, and relevant case law to support the answers.

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:.................................................................................................................2
Answer A:..............................................................................................................................2
Answer B:...............................................................................................................................2
Answer to C:..........................................................................................................................2
Answer to D:..........................................................................................................................2
Answer to F:...........................................................................................................................3
Answer to G:..........................................................................................................................3
Answer to H:..........................................................................................................................4
Answer to I:............................................................................................................................4
Answer to question 2:.................................................................................................................4
Answer to A:..........................................................................................................................4
Answer to B:..........................................................................................................................5
Answer to C:..........................................................................................................................5
Answer to D:..........................................................................................................................6
Answer to E:...........................................................................................................................6
Answer to question 3:.................................................................................................................7
Answer to A:..........................................................................................................................7
Answer to B:..........................................................................................................................7
Answer to C:..........................................................................................................................7
Answer to D:..........................................................................................................................8

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Answer to question 4:.................................................................................................................9
Answer to A:..........................................................................................................................9
Answer to B:..........................................................................................................................9
Answer to C:........................................................................................................................10
Answer to D:........................................................................................................................10
Answer to E:.........................................................................................................................11
Answer to question 5:...............................................................................................................11
Issues:...................................................................................................................................11
Laws:....................................................................................................................................11
Applications:........................................................................................................................12
Conclusion:..........................................................................................................................13
References:...............................................................................................................................14

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Answer to question 1:
Answer A:
As defined under taxation ruling of TR 2018/4 an explanation has been given relating
to methods used by taxation commissioner to determine the effective assets life for the
depreciation purpose under “section 40-100 of the ITAA 1997”.
Answer B:
Details regarding the tax offsets has been provided under the “Division 13 of the ITAA
1997”1.
Answer to C:
The top rate of tax that are applicable to the Australian resident is provided below;
Taxable Income Bracket Tax (AUD$)
AUD $180,001 & over $54,097 plus 45c for each $1 over $180,000
Answer to D:
A taxpayer is provided with exemptions where the capital gains or losses are reduced,
deferred or disregarded. Under the legislative provision of “section 118-10(1) of the ITAA
1997” assets such as collectibles that are bought for a cost of $500 or less is exempted from
CGT2.
Answer to E:
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

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“CGT event B1 section 104-15 of the ITAA 1997” is associated with the use and
enjoyment before the title passes. CGT event B1 takes place if an individual enters into the
agreement with the another entity where the right for use and enjoyment of the CGT assets
that an individual owns passes it to the other entity3. The CGT event B1 states that the title in
the assets might pass to another entity at or prior to the conclusion of the contract.
Answer to F:
The formula that is explained under the section 4-10(3) of the ITAA 1997 is as follows;
Income tax = (Taxable Income x Rate) – Tax offsets
Answer to G:
The court in “FC of T v Day 2008 ATC 20-064” stated that legal outgoings that was
incurred by the taxpayer was for generating the chargeable earnings and simultaneously met
the conditions given under “paragraph 8-1(1)(a) of the ITAA 1997”. The case holds
significance relating to the tax deduction of legal outgoings of a public servant that incurred
charges for defending the conduct taking place out of daily activities. A deduction for legal
expenditure was allowed to the taxpayer under the legislative provision of “section 8-1,
ITAA 1997” occurred by him in the income year 2002 for defending the disciplinary actions
which was imposed against the taxpayer by the employer.
Answer to H:
The average rate of tax assesses the burden of taxation while the marginal rate of tax
assesses the effect of tax on the incentives save, invest, earn or spend. The average rate of tax
3 Martin, Fiona, and Margaret Connor. "Using Blended Learning to Aid Law and Business
Students' Understanding of Taxation Law Problems." J. Australasian Tax Tchrs. Ass'n 12
(2017): 53.

5TAXATION LAW
represents the overall sum of tax divided by the total income. The marginal rate of tax
represents the incremental tax that is paid on increased income.
Answer to I:
A consumption tax is regarded as the expenditure tax that is imposed on the purchase
of goods and services. Consumption tax can be further referred as the system of taxation
where people are levied taxes on the basis of how much they consume instead of the amount
they add to the economy.
Answer to question 2:
Answer to A:
As stated by the Australian Taxation Office a taxpayer is allowed to claim deduction
for expenses occurred for interest on loan while producing the assessable income. Under
“section 8-1, ITAA 1997” the interest on loan that is incurred for the purpose of business is
considered as allowable deduction4.
Interest on loan was occurred by Brent for paying the wages of employees. Referring
to “Amalgamated Zinc Ltd v FC of T (1935)” the interest on loan was occurred by Brent in
gaining or generating the taxable earnings. Under the positive limbs of “section 8-1, ITAA
1997” an allowable deduction will be allowed to Brent for the interest on loan.
Answer to B:
In some of the situations losses or outgoings is required to be apportioned or it is
partially deductible. The court in “Ronpibon Tin NL v FC of T (1949)” required the
commissioner to determine the portion of expenses that were incurred in producing the
4 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.

6TAXATION LAW
assessable income5. Where an expenses is occurred for both private and work purpose, a
taxpayer is allowed to claim deduction only for work purpose.
Julie occurred a mobile phone expenses of $500 out of which 60% of the calls were
related to work purpose. Referring to “Ronpibon Tin NL v FC of T (1949)” Julie will be
allowed to claim deduction up to 60% of the total phone expenses under “section 8-1, ITAA
1997” while the rest 40% constitute private expenses and not allowed for deduction under the
negative limbs of “section 8-1(2)”.
Answer to C:
Child care expenditure are non-allowable deduction under the “section 8-1, ITAA
1997”. As held “Lodge v FC of T (1972)” the taxpayer was not permitted deduction for the
child care expenses while attending for work because the outgoings were not incidental or
relevant in producing the taxable income6.
The baby sitter expenses occurred by Sally for looking after her child is non-
deductible expenses because it is private or domestic in nature. The expenses neither meets
the positive limb nor does it satisfy the criteria of negative limb under “section 8-1 (2)(b) of
the ITAA 1997”.
Answer to D:
“Section 8-1, ITAA 1997” is applicable to both the losses and outgoings incurred by
the taxpayer. The court in “Charles Moore & Co (WA) Pty Ltd v FC of T (1956)” allowed
5 Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
6 Morgan, Annette, C. Mortimer, and D. Pinto. "A practical introduction to Australian
taxation law 2018." (2018).

7TAXATION LAW
the taxpayer deduction for the loss arising from the theft of day’s earnings at the time of
going bank7.
Under the positive limbs of “section 8-1, ITAA 1997” Jerry can claim deduction for
goods which his long term employee stole. The loss is associated and incurred while carrying
out the business and while generating chargeable earnings.
Answer to E:
Outgoings or losses that are preliminary to the beginning of revenue generating acts
are treated as did not occurred during the course of such activity and are not permitted for
general deductions under “section 8-1, ITAA 1997”. As held in “Maddalena v FCT (1971)”
outgoings occurred in getting new job were not during the course of producing taxable
income since the outgoings occurred at a point very soon and hence non-deductible under
“section 8-1”8.
The outgoings occurred in contesting the local government election were preliminary
to the beginning of revenue producing acts since it is not occurred in the due course gaining
or producing assessable income and hence non-deductible under legislative provision of
“section 8-1, ITAA 1997”.
Answer to question 3:
Answer to A:
A “CGT event F2” is applicable where an individual taxpayer renews, extends or
grants the long term lease. It is applied on the owner of the underlying land or the taxpayer is
7 Bankman, Joseph, et al. Federal Income Taxation. Aspen Casebook, 2018.
8 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J. Australasian Tax
Tchrs. Ass'n 13 (2018): 307

8TAXATION LAW
granted with the sub-lease9. As evident Andy being the owner of land grants a lease of five-
year term to Brian at a premium of $5,000. This resulted in “CGT event F2”. As a result,
Andy could not obtain the 50% CGT discount since it is not applicable to CGT event F2.
Answer to B:
According to the ATO a “CGT event B1” happens where the use of land is mainly
acquired by the new owner. From the actual point of view, the use and enjoyment of land
takes place when the ownership of the land is acquired by the new owner and date on which
the new holder is permitted to profits and rents10. In exchange of $40,000 Farm Ltd was
provided with the option of purchasing the 100-acre farm for a sum of $800,000. A CGT
event B1 happen for John. As a result, 50% CGT discount can is applicable to the above
transaction for John.
Answer to C:
As stated by the Australian Taxation Office, if a taxpayer’s dwelling is not the main
residence for the full period of ownership and used for generating income then in such a
situation a partial main residence exemption is allowed to the taxpayer11. A property was
bought by Jamie and Olivia and rented it for two years. After the property was occupied, it
was let out for generating income and also used as main residence before selling it out in
9 Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law.
Cambridge University Press, 2015.
10 Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.
11 Bentley, Duncan. "Does A Capital Gains Tax Work? The Australian Experience Eleven
Years On." Journal of Malaysian and Comparative Law 23 (2019): 13-36.

9TAXATION LAW
2018. A partial main residence exemption would be provided to Jamie and Olivia following
the disposal of the property. Therefore, 50% CGT discount method can be used Jamie and
Olivia to ascertain the net amount of capital gains tax.
Answer to D:
The sale of BHP shares resulted in capital gains of $6,660 while the sale of
Wesfarmers shares led to a capital loss of $15,550. A capital loss is not allowed for deduction
from the taxable income but is allowed for off-set against the capital gains during the year it
is incurred or future years to ascertain the net capital gain. As a result, Chris can offset the
capital gains from BHP shares against the capital loss made from Wesfarmers shares.
Therefore, the remaining amount of $8,840 can be carried forward in the future years.

10TAXATION LAW
Answer to question 4:
Answer to A:
A taxpayer is not held for assessment from simple prize winnings. But winnings from
prizes are treated as assessable income if there is adequate relation with the income deriving
acts of the taxpayer. The taxpayer in “FCT v Kelly (1985)” held that award received by
footballer from Channel 7 for the fairest and the best player was treated as ordinary income
because it was associated to the taxpayer use of skill and employment12.
Receiving the prize money of $2,000 by the taxpayer for being the best advertisement
of the year constitutes an ordinary income under “section 6-5, ITAA 1997”. The amount is
taxable because it is related to the income producing activities and incidental to taxpayer’s
work.
Answer to B:
As stated in “section 6-1 of the ITAA 1936” personal exertion income includes the
earnings, wages, remunerations, allowances, gratuities etc. received by the employee for the
services rendered or proceeds from carrying on the business activities13.
The employee here received the amount of $500 from the employer relating to the
expenses that is occurred while travelling from Sydney to workplace. The amount will be
treated as income because it constitutes an allowance that is received in respect of
employment by working as an employee.
12 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation
Law Select 2019: Legislation And Commentary. Oxford University Press, 2019.
13 Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. 2018.

11TAXATION LAW
Answer to C:
A gain which is regarded as the simple gift does not possess the character of income.
The court in “FCT v Scott (1966)” held that receipt of 10,000 pounds as the gift from the
longstanding wife of client out of the estate of husband was not regarded as the income14. An
iphone worth $1,000 received by the taxpayer from the client is a gift and does not has the
character of income.
Answer to D:
As per the “paragraph 118-37 (1) (b) of the ITAA 1997” an individual is required to
disregard the receipts for capital gains purpose where the amount is related to compensation
or damages for personal injuries, wrong or illness15.
The taxpayer here received a sum of $10,000 in the form of damages for personal
injury from car accident. The compensation amount does not amount to income and it is a tax
free sum.
Answer to E:
Any form of taxable earnings that is derived or anticipated to be derived for the future
years as a reason of being made presently entitled to income for the upcoming year is
regarded as too remote to establish a link with the current income year. Shares were
purchased by the taxpayer for a sum of $5 while in the current year the shares were trading
greater than the market value of $7.50. The increase in value cannot be treated as income
14 De Silva, A., et al. "Current issues with trusts and the tax system." (2018).
15 Gashenko, Irina V., Yuliya S. Zima, and Armenak V. Davidyan. "Principles and Methods
of Taxation." Optimization of the Taxation System: Preconditions, Tendencies and
Perspectives. Springer, Cham, 2019. 33-39.

12TAXATION LAW
because the taxpayer is yet to derive income and it is occurred point too soon to be held as
ordinary income under the legislative provision of “section 6-5, ITAA 1997”16.
Answer to question 5:
Issues:
Is the academic migrant arriving in Australia will be treated as resident of Australia
under the definition of “section 6 (1), ITAA 1936”?
Laws:
As defined in “section 6-1 of the ITAA 1997” a person is treated as the Australian
resident that are residing in Australia and also includes those that are having their home in
Australia except when the commissioner of taxation is content that the taxpayer’s actual place
of residence is outside Australia17. There are four test that provides an explanation where a
person is treated as the resident of Australia. This includes, Ordinary concepts test, resides
test, 183 day’s test and superannuation test. If a person meets any one test of residency, then
he or she will be treated as resident of Australia.
Under the resides test a person will be treated Australian dweller if they are residing
in Australia actually for a considerable period of time, regardless of nationality, citizenship or
the location of their permanent home. While under the Domicile Test a person is treated as
the Australian occupant if they have the Australian domicile unless they can prove that they
have a permanent place of abode out of Australia. As held in “Applegate v FCT (1979)”
16 Sheffrin, Steven M. "The Domain of Desert Principles for Taxation." Erasmus Journal for
Philosophy and Economics11.2 (2018): 220-244.
17 Lee, Natalie. Revenue law: principles and practice. Bloomsbury Publishing, 2015.

13TAXATION LAW
taxpayer had the domicile outside the Australia18. The law court held that permanent does not
signifies everlasting and the objectively is assessed each year.
Under the 183 day’s test a person is treated as the resident of Australia if one has been
residing in Australia for more than six months in the relevant income year unless it can be
stated that their ordinary place of residence out of Australia and the taxpayer has not intended
to take the residency status of Australia19.
Applications:
Nisu arrives in Australia on 30th December 2018 for academic purpose. Nisu here
actually arrived with the purpose of taking up the residency for a period of three years.
However, Nisu was forced to return Nepal due to unforeseen circumstances. Under the
ordinary concept test Nisu cannot be considered as Australian resident because he has not
been residing here actually for a considerable period of time. While under the Domicile Test
Nisu does not has any permanent place of abode in Australia and hence cannot be treated as
Australian resident.
While under the 183 day’s test Nisu will be treated as the Australian resident because
she has been in Australia for six months of the relevant income year. Additionally, until the
time she lived in Australia portrayed the behaviour of continuity or habit of stay. The time
period of six months is considerable time to be held as Australian resident for Nisu.
Therefore, under the definition of “section 6 (1) of the ITAA 1997” Nisu is an Australian
resident20.
18 Richelle, Isabelle, Wolfgang Schön, and Edoardo Traversa, eds. State Aid Law and
Business Taxation. Vol. 6. Springer, 2016.
19 Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018
20 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.

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Conclusion:
As Nisu has satisfied the criteria of 183 day’s test and was present in Australia for six
months of the present income year, therefore, she is an Australian resident under “section 6
(1), ITAA 1936”.

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References:
Bankman, Joseph, et al. Federal Income Taxation. Aspen Casebook, 2018.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Bentley, Duncan. "Does A Capital Gains Tax Work? The Australian Experience Eleven
Years On." Journal of Malaysian and Comparative Law 23 (2019): 13-36.
Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law.
Cambridge University Press, 2015.
De Silva, A., et al. "Current issues with trusts and the tax system." (2018).
Gashenko, Irina V., Yuliya S. Zima, and Armenak V. Davidyan. "Principles and Methods of
Taxation." Optimization of the Taxation System: Preconditions, Tendencies and Perspectives.
Springer, Cham, 2019. 33-39.
Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. 2018.
Lee, Natalie. Revenue law: principles and practice. Bloomsbury Publishing, 2015.
Martin, Fiona, and Margaret Connor. "Using Blended Learning to Aid Law and Business
Students' Understanding of Taxation Law Problems." J. Australasian Tax Tchrs. Ass'n 12
(2017): 53.
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.

16TAXATION LAW
Morgan, Annette, C. Mortimer, and D. Pinto. "A practical introduction to Australian taxation
law 2018." (2018).
Richelle, Isabelle, Wolfgang Schön, and Edoardo Traversa, eds. State Aid Law and Business
Taxation. Vol. 6. Springer, 2016.
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.
Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.
Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
Sheffrin, Steven M. "The Domain of Desert Principles for Taxation." Erasmus Journal for
Philosophy and Economics11.2 (2018): 220-244.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).