Revenue Law: Tax System Principles, Australia and Myer Emporium Case

This report delves into the core principles of a good tax system, emphasizing equity, productivity, elasticity, convenience, and social advantage. It then provides a detailed examination of the Australian tax system, highlighting its high tax rates, the Goods and Services Tax (GST), and the tiered income tax structure. The report discusses the significance of the Myer Emporium Ltd (1987) 163 CLR case in shaping the understanding of income and its distinction from capital. Furthermore, it proposes the codification of the principles established in the Myer Emporium case to clarify the definition of income and to ensure fair taxation, particularly concerning business income, retirement benefits, and transfer payments. The report also references Sec 15-15 ITAA97 and its implications for assessing extraordinary income based on the intention of transactions and the treatment of future income streams. The report concludes with a comprehensive bibliography of relevant sources including books, articles, reports and cases.

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Revenue Law
Subject: Civil Law
(Name)
(University)
(Date)

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Revenue Law
Features of a good tax system
There are six principles of a good tax system whose aim is to increase the benefit and facilitate
the use of the money collected in the form of tax. If this happens then the tax system must be
contributing to the economic development of a country. A good tax system should meet the
principle of equity in which it has to be kept minimum and be just to all. About this, the rich
should bear the burden more compared to the poor so that those who have are paying while those
who do not have are not compelled to pay what they do not have. Those who are equal in terms
of income should be treated similarly by the system. When it comes to being taxed.1
The system should have the principle of productivity in a manner that yields satisfactory returns
to the government allowing it to meet public expenditure. It should also not lead to adverse
effects on the productivity of a country2. This means that the tax system has to encourage
productivity.
The tax system has to be elastic in a manner that when the income of a country increases, the tax
should also increase. It should reserve part of the collected money to be used during an
emergency. The tax system should also be convenient for the taxpayer when it comes to paying
for the tax. It should be designed in a manner that no one can evade paying for the tax. Lastly,
the system has to be geared towards a maximum social advantage and remain balanced in all
perspectives.
Australian Tax System
A quick look at the taxation systems across the world reveals that Australia has the highest tax
across the globe. All residents and citizens of Australia have to pay tax on all forms of income
which they earn whether they are abroad or not. The Australian residents have to pay tax for any
form of income whether it comes from abroad or not but one gets a tax credit if the income they
1 Sumathy, M., and K. P. Vipin. "Digital payment systems: Perception and concerns among urban
consumers." IJAR 3.6 (2017): 1118-1122.
2 Mahar, Frederick, Jonathan Longridge, and Jing Lin He. "The economic impact of a corporate tax rate cut in
Australia." Taxation in Australia 51.3 (2016): 141.

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are getting has already been taxed in the UK, On one's arrival in Australia its mandatory for one
to apply for a Tax File Number without which one cannot open a bank account, secure
employment, and file an income or a tax return.
A Goods and Service Tax (GST) has to be paid by anyone who starts a business after registering
for it if their expected gross income surpasses $ 50 000 per year. Currently, GST is charged at 10
percent. The taxation system in Australia is grounded on a tiered edifice when a person pays
more tax when their income goes higher. A tax-free threshold has been established at $ 6000.
The highest charged tax goes up to 47% of one's total earning and apart from this one has to pay
1.5% as a Medicare levy which is compulsory. A hidden Medicare surcharge of 1% also applies
to those whose total taxable income exceeds fifty thousand dollars for an individual and one
hundred dollars for a married couple. This happens to those who lack a private Medicare cover.3
A response to the question of whether an individual can save when it comes to taxation is yes.
This can be achieved by opting for an appropriate taxation structure. Some of the common
structures from which a person can choose from include a sole trader option, company option,
trust option and a partnership option in which every structure comes with its pros and cons. At
maximum, 30% tax is paid under company structure when the maximum tax at an individual
stands at 47%.4
The Myer Emporium Ltd (1987) 163 CLR and its function
The Myer Emporium Ltd (1987) 163 CLR5 has played a crucial role in reshaping the way courts
look at an income. It further proposes that there should be a formality when looking at income in
that the commercial substance should be considered. There should be a distinction between
income and capital in a given case scenario. This gave the tax jurisprudence a new look and what
3 Mahar, Frederick, Jonathan Longridge, and Jing Lin He. "The economic impact of a corporate tax rate cut
in Australia." Taxation in Australia 51.3 (2016): 141.
4 Wenzel, Michael. Principles of procedural fairness in reminder letters: A field experiment. Centre for Tax System
Integrity (CTSI), Research School of Social Sciences, The Australian National University, 2019.
5 Martin, Fiona, and Ann O'Connell. "Crowdfunding: What Are the Tax Issues." J. Austl. Tax'n 20 (2018): 16

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was taken as a controversy, later on, reshaped the way income was looked at before. Income can
be identified as a flow after it has been detached from the capital.
The Myer Emporium Ltd (1987) 163 CLR has greatly changed the way income should be looked
at and therefore it should be made part of the law. For instance, a distinction that an income
should not be treated wholesomely with capital but rather it should be separated from capital first
attracted controversy but it ended up correcting what had been erred. If this is to be codified as
the law then it will become appropriate since in the first place the existing law does not define
what befits to be called income6. This codification will be added which will provide an
appropriate explanation and definition of income to an individual or a company which is in
business7.
At the same time, this will be in tandem with the characteristics of a good tax system in which
the system has to adhere to the principle of productivity. Take for instance, if a company or an
individual received something which comes in, in the form of compensation or when the tax to
be paid is calculated based on the gross sales then it means that capital is also being taxed. The
company ends up paying large amounts in the form of tax hence making it more difficult for
them to do business and keep on taking part in productivity8. The inaction of this into law
through codification will make the residents and citizens of Australia more productive.
If The Myer Emporium Ltd (1987) 163 CLR is codified then it will change some things in the
Australian tax system especially when it comes to determining the amount of tax which an
individual has to pay. A determination of a percentage of tax to be paid basing on the gross sales
will change and this will now be determined based on the net sales. The net sales which are
profit to an individual or a company are the real income that a company gets. This change in the
Australian tax system will relieve the taxpayers from the burden of having to struggle to shoulder
large amounts of taxes that are imposed on them.9
Apart from those who are in business, the elderly who are supposed to enjoy their retirement
benefits will not be taxed. It should be noted, the retirement benefits should not be treated as an
6 FC of T v Montgomery (1999)198 CLR 639
7 Punjab Co-operative Bank Ltd v IT Commr, Lahore {1940} AC 1055
8 Short Bros Ltd v IR Comm (1927) 12 TC 955
9 Martin, Fiona, and Ann O'Connell. "Crowdfunding: What Are the Tax Issues." J. Austl. Tax'n 20 (2018): 16.

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income because it is part of a person’s saving. Before the person saved, they had been taxed.
When the government goes ahead to tax this type of income, they are double taxing it and
reducing the value of life which can be led by the elderly10. There are moments when the elderly
and dependents receive transfer payments. The transfer payments come from an individual who
has already been taxed. If these types of payments are taxed again then it implies that the tax will
be paid twice.11 From these two situations, the tax is not minimal and it is making people’s life
more difficult to bear.12 It is the codification that will change the entire situation and make it
more bearable. If this is not done, then it will continue impacting negatively on people’s lives.
Furthermore, Sec 15-15 ITAA97, the first strand FC of T v in which an extraordinary income has
to be assessed will take care of other forms of income which are taxed when they can be spared
from taxation. The assessment should be based on the intention of the transaction which resulted
in the income13. If by any chance it was aimed at making profit then it should be taxed but if this
was not the intention then it should not be taxed14. This should be looked at in line with transfer
payments and other forms of payment which are made to the elderly and other people who get
extraordinary payments.
The second strand in which a person converts a stream of income which should have been
received in the future then it should be treated in a manner in which the stream it replaces would
have been treated. This makes it possible for an individual to pay tax in a fair manner such that at
the end of the day the Federal Government of Australia is fair to them15. If this income is not
taxed then there are chances that the federal government might lose its income.
Bibliography
Books/Articles/Reports
10 Lees & Leech Pty Ltd v FC of T (1997) 73 FCR 136
11 Burton, Mark. "Interpreting the Australian Income Tax Definition of Ordinary Income: Ritual Incantation Or
Analysis, When Examined through the Lens of Early Twentieth Century Linguistic Philosophy." JTR 16 (2018): 2.
12 Income Tax Assessment Act 1997
13 Davies, Rachel, and Miranda Stewart. "The Gatekeeper Court: For the Revenue or the Taxpayer?." U of
Melbourne Legal Studies Research Paper 828 (2019).
14 Westfield Ltd v FC of T (1991) 28 FCR 333 FC of T v Cooling (1990) 22 FCR 42
15 Henry Jones (IXL) Ltd v FC of T (1991) 31 FCR 64

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Martin, Fiona, and Ann O'Connell. "Crowdfunding: What Are the Tax Issues." J. Austl. Tax'n 20
(2018): 16.
Davies, Rachel, and Miranda Stewart. "The Gatekeeper Court: For the Revenue or the
Taxpayer?." U of Melbourne Legal Studies Research Paper 828 (2019).
Burton, Mark. "Interpreting the Australian Income Tax Definition of Ordinary Income: Ritual
Incantation Or Analysis, When Examined through the Lens of Early Twentieth Century
Linguistic Philosophy." JTR 16 (2018): 2.
Sumathy, M., and K. P. Vipin. "Digital payment systems: Perception and concerns among urban
consumers." IJAR 3.6 (2017): 1118-1122.
Mahar, Frederick, Jonathan Longridge, and Jing Lin He. "The economic impact of a corporate
tax rate cut in Australia." Taxation in Australia 51.3 (2016): 141.
Wenzel, Michael. Principles of procedural fairness in reminder letters: A field experiment.
Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The
Australian National University, 2019.
Cases
FC of T v Montgomery (1999)198 CLR 639
Henry Jones (IXL) Ltd v FC of T (1991) 31 FCR 64
Lees & Leech Pty Ltd v FC of T (1997) 73 FCR 136
Punjab Co-operative Bank Ltd v IT Commr, Lahore {1940} AC 1055
Short Bros Ltd v IR Comm (1927) 12 TC 955
Westfield Ltd v FC of T (1991) 28 FCR 333 FC of T v Cooling (1990) 22 FCR 42
Others
Income Tax Assessment Act 1997