Taxation Law (CLAW 6026) Assignment: Analysis of Tax Issues

This document presents a comprehensive solution to a taxation law assignment. Part A addresses several key issues, including whether profits from land sales are taxable as capital gains, the taxability of frequent flyer points, and capital gains from the sale of a sculpture. The analysis incorporates relevant legislation, such as the ITAA 1997 and the ITAA 1936, along with case law such as Westfield v FCT (1991) and Payne v FCT (1996), to provide a detailed application of the law to the facts and reach conclusions on each issue. Part B examines whether Durango Co. is considered an Australian resident company under section 6(1) of the ITAA 1936, considering the company's incorporation, central management, and control. The analysis references case law, such as Malayan Shipping Company Ltd v FCT (1946), to determine the company's residency status and the tax implications of its income. The assignment includes proper referencing and citation of all legal authorities.

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
Part A:........................................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................3
Answer to Part B:.......................................................................................................................4
Issues:.....................................................................................................................................4
Laws:......................................................................................................................................4
Application:............................................................................................................................5
Conclusion:............................................................................................................................5
References:.................................................................................................................................6

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Part A:
Issues:
a. Whether the profit made from sale of land will be considered taxable as capital gains
under “sec 6-5 1997”?
b. Whether the frequent flyer point earned by an employer will be considered taxable
income?
c. Whether the capital gains made from sculpture will be considered taxable under “sec
102-5 ITAA 1997”?
Rule:
Under “sec 6-5 ITAA 1997” ordinary income refers to income that is earned from
every sources. Where the receipts involves one-off in nature and not undertaken as the
existing business operations. In “Westfield v FCT (1991)” profit made from sale of land that
was actually bought for subdividing and selling it was held as non-taxable ordinary income.
Gains that are non-convertible into cash from rendering any personal service are not
held as income. The value of plane tickets are generally considered as taxable income. As
noted in “Payne v FCT (1996)” Qantas gave free tickets to taxpayer not because of the
employment of taxpayer but the taxpayer was entitled to it under the Qantas own scheme
(Sadiq, 2019). Therefore, under “sec 15-2 ITAA 1997” it is not a taxable income since it has
no employment connection with Qantas.
Under “sec 108-10 ITAA 1997” collectables include assets such as sculptures. Under
“sec 108-10 (1)” capital loss from collectible is allowed for offset against the capital gains
from other collectables.

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Application:
Heavyn purchased the land actually with the intention of developing the land however
on being opposed by neighbours he had to sell the land. Referring to “Westfield v FCT
(1991)” the profits which is made selling the land will be not considered taxable as ordinary
income under “sec 6-5 ITAA 1997”.
The plane tickets that is received by Heavyn is non-convertible into cash for rendering
personal services. Referring to “Payne v FCT (1996)” the plane tickets received by Heavyn
under frequent flyer program do not hold any employment relation with Qantas so it is not a
taxable income.
Finally Heavy sold sculpture for a sales value of $8000 that was purchased by her for
a cost of $10,000. Under “sec 108-10 ITAA 1997” the sculpture is a collectable. The sale of
sculpture has resulted in capital loss and can be offset under “sec 108-10 (1)”.
Computation of Capital Gains Tax
In the books of Heavyn
For the year ended 30th June 2020
Particulars Amount ($)
Net capital gain/loss on disposal of Sculpture:
Proceeds 8000
Cost base 10000
Add: Transportation cost 1000
Total Cost Base 11000
Gross capital gain/loss (proceeds less cost base) -3000
Less: Undiscounted Capital Gains 5000
Net Capital Gains 2000
50% CGT discount 1000
Taxable Capital Gains 1000

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Conclusion:
Conclusively, the sale of land and sculpture is a taxable capital gains under sec “sec
102-5 ITAA 1997” while the airline tickets will be considered as taxable income.
Answer to Part B:
Issues:
Whether Durango Co will be considered as the “Australian Resident Company”
under “sec 6 (1) ITAA 1936”.
Laws:
As given in “sec 6 (1) ITAA 1936” an “Australian Resident Company” is one that is
either incorporated in Australia or an overseas registered company that is carrying on the
business in Australia and either has its central management as well as control in Australia or
voting control in Australia. The definition establishes three tests that are as follows;
a. Statutory test: A company is an Australian resident if the company is formed in
Australia.
b. Place of Business Test: If the company is not formed in Australia, then a company is
conducting business and has its central management as well as control in Australia is
regarded as tax resident of Australia (Krever, 2016).
c. Voting Power Test: If the company is not formed in Australia then it is carrying the
business that has the voting power is controlled by the shareholders in Australia that is
a tax resident of Australia.
As noticed in “Malayan Shipping Company Ltd v FCT (1946)” the company was
formed in Singapore. The controlling shareholders and one of the three directors was
considered as Australian resident and owned all but two shares. The Law court noticed that
the directors had full control over the company. Since the company management and control

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was located in Australia, then it should be conducting business in Australia where the
decisions were being formed by most of the director and therefore it is an Australian resident.
Application:
Durango Co. was incorporated in Kenya therefore the company cannot be considered
as Australian resident under the Statutory Test. The board of Durango Co undertakes all the
decision regarding the investment of shares however Heavyn who is an Australian resident
attends the board meeting through a video link and makes the recommendations relating to
the long-term investment strategies. Referring to “Malayan Shipping Company Ltd v FCT
(1946)” Durango Co will be considered as Australian resident company under “sec 6 (1)
ITAA 1936” it’s central and management is control is in Australia. All the income that will
be made by Durango Co will be considered taxable in Australia since it is carrying on the
business in Australia.
Conclusion:
Durango Co is an Australian resident company under “sec 6 (1) ITAA 1936” because
the company has its central management and control in Australia.

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References:
Krever, R. (2016). Australian Taxation Law Cases 2016. Thomson Reuters (Prous Science).
Sadiq, K. (2019). Australian Taxation Law Cases 2019. Thomson Reuters.
Taylor, J., Walpole, M., Burton, M., Ciro, T., & Murray, I. (2017). Understanding Taxation
Law 2018. LexisNexis Butterworths.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.