Taxation Law Assignment: Comprehensive Analysis of Australian Tax Law

This taxation law assignment provides a detailed analysis of the Australian tax system, covering various aspects such as the legislative powers of the Commonwealth, the roles of key institutions like the Australian Taxation Office (ATO) and the High Court, and the application of double taxation agreements. The assignment delves into the taxation of business income, capital gains, and post-cessation of business expenses, with practical examples and case studies. It examines the implications of capital gains tax on different scenarios involving property subdivision and sales. Furthermore, the assignment includes an analysis of relevant articles concerning ATO measures for addressing tax avoidance and inequities, highlighting the interplay of tax policies, legislation, and practical application. The document also explores the treatment of CGT, personal use assets, and related expenses. This assignment provides a comprehensive overview of Australian taxation law, offering valuable insights into its complexities and applications.

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:.................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to B:..........................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Part 1:.....................................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................4
Answer to part 2:........................................................................................................................4
Answer to question 4:.................................................................................................................5
Answer to question 5:.................................................................................................................6
Answer to question 6:.................................................................................................................7
Article 1: ATO measures of removing “inequitable” inquiry:...................................................7
Article 1: ATO considers measures for closing gap on multinational Tax Avoidance:........8
Answer to question 7:.................................................................................................................9
References:...............................................................................................................................10

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Answer to question 1:
Answer to A:
Australian is viewed as the federation and its legislative power is widespread between
the commonwealth and states. Referring to “Section 51 (ii)” the commonwealth power are
given under this section. This “Section 51 (ii)” provides commonwealth with the permission
of making laws in respect to tax but does not requires making discrimination among the states
or any parts of states (Miller & Oats, 2016). The commonwealth board has the power of
imposing tax which must be considered as substance to the commencement of “Section 51”
that explains the right of making power and are subject to constitutions. The exclusive power
of applying tax on customs and excise duties by Commonwealth is given under “section 90”.
Answer to B:
The progress of tax policy rests with Australian government and the treasury minister
is responsible for its application. The Australian taxation office plays the vital role in the
formation of tax policy and legislation process that reflects the interdependence of laws,
policy and managerial aspects of tax system (Gamage & Livingston, 2018). The primary role
of ATO is to administer tax and laws relating to superannuation which the parliament passes.
To execute this, the administrative arrangement of applying taxation law is developed by the
ATO which also includes educating and advising the taxpayers relating to their duties and
rights.
The High Court of Australia plays an important role of interpreting and applying the
tax in Australia to determine the cases that have specific federal significances along with
challenges of constitutional validity of law and hearing the appeals of territory courts, federal
and state courts. The parliament consists of lower and upper houses and the parliamentary

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bills must be passed through parliament (Butler, 2019). The lower house introduces the bills
of taxation to parliament and those bills is processed to upper house so that it can be passed.
Answer to question 2:
As per the Double Taxation Agreement amid Australia and US, the profits made by
one contracting states would be levied taxes only in that state only unless the company
carrying out the business in different contracting nations through permanent establishment. If
an enterprise performs the business as mentioned above, the profits made by business would
attract tax liability only in other state up to the extent that is attributable to permanent
establishment (Schön, 2016). As per “section 6-5, ITAA 1997”, an Australian tax resident
should pay taxes on income made from all the sources however, “section 6-10, ITAA 1997”
requires a non-resident to pay tax only on the income sourced from Australia.
A company is viewed as Australian resident company if the company is performing
business in Australia having its central management and control in Australia. Generally,
income from business is held taxable where the transactions are carried out. The taxation
commissioner in “C of T (NSW) v Hillsdon Watts Ltd (1937)” explained that income from
business originates where the business is actually carried on (Picciotto, 2015). Conversely, it
represents those place where the contract is carried out and regarded as the only applicable
factor in ascertaining the source. Referring to Double Taxation Agreement profits made from
the Australian sourced sales by the US manufacturer will be taxable in Australia for the US
based manufacturer since the profits are sourced in Australia.

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Answer to question 3:
Part 1:
Answer to A:
Capital gains is usually implemented on the assets that are bought or events that are
taking place after the 20th September 1985. Accordingly, the term Pre-CGT and Post-CGT
asset is usually implemented on the assets that are bought or events that are taking place prior
to or after the date. If Indiana undertakes the decision of sub-dividing the property in 80 lots
and then sell off the sub-divided lots, then any capital gains made thereon will be treated
assessable profit making undertaking (Mumford, 2017). However, if the land is bought before
the introduction of CGT event then the land will be exempted from the capital gains tax
because it is regarded as the pre-CGT asset and any gains made from the disposal of land will
not be attract capital gains tax.
Answer to B:
If in the alternative situation Indiana purchases the land on 1st November 1986 and
disposes the subdivided undeveloped lot to property developer, then in such situation the
probable revenue provision should be applied. It is assumed that land should not be
considered as trading stock and the profits derived from the sales will be included as taxable
income under “section 6-5, ITAA 1997”.
In an alternative option if Indiana undertakes the decision of holding auction for 80
lots of land in the form of separate packages to the highest bidder then the subdivided block
of land will be considered as trading stock. The profits that would be made from disposal of
80 lots would attract tax liability under “section 6-5, ITAA 1997”.
In the final option if Indiana does not take the decision of subdividing the land and
rather decides to sale the land completely to the property developer company then the sale of

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land would be treated as the capital asset that will be subjected to capital gains tax (Yang &
Metallo, 2018). The profits would be considered taxable as the ordinary income and will also
be the subject of GST as well.
Answer to part 2:
Option A:
Given the projected subdivision by Indiana goes beyond the mere realisation of
capital asset then it would be considered as profit making undertaking and it will be treated as
carrying the business of land development. Selling of subdivided 80 block of land will result
in treating the land as capital asset rather than the capital asset and the profits would be
considered taxable under the ordinary meaning of “section 6-5, ITAA 1997”.
Option B:
If Indiana undertakes the identical activity by holding the action of 80 lots of land,
then the land being the capital asset would be regarded as carrying the business of land
development. The subdivided 80 blocks of land will be considered as the trading stock
starting from the date when the business commenced. Indiana is assumed to have disposed
the 80 lots based on the market value (Picciotto, 2019). The taxpayer in the current situation
would be regarded taxable because the taxpayer has undertaken commercial approach to
dispose the land with the intention of making profit. The income derived would be considered
taxable under the ordinary concepts of “section 6-5, ITAA 1997”.
Option C:
If Indiana undertook the decision of subdividing the land and selling it to the property
development company, then any profits made thereon is taxable as ordinary income.

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Answer to question 4:
Post cessation of business expenses is held as allowable deduction provided the event
of loss or expenses is occurred during business operations which was earlier performed by the
taxpayer for producing taxable income. The federal court in “FCT v Placer Pacific
Management Pty Ltd (1995)” explained that the taxpayer is permitted to obtain tax deduction
for outgoings occurred in settlement of dispute with customer for the faulty supply of
conveyor belt (Graetz & Warren, 2016). The expenditure was regarded as outgoing that was
occurred by taxpayer in producing the assessable income from business. The taxation
commissioner held the expense deductible because it was regarded as business arrangement
which was entered by taxpayer and the customer.
In the current case of Amity, an allowable deduction can be claimed by her for
interest on loan under “section 8-1, ITAA 1997” as the outgoing was occurred for loan
agreement and also for producing taxable income.
Answer to question 5:
Capital gains tax is implemented on assets that is purchased on or after the 20th
September 1985. A CGT event A1 takes place under “section 104-10 (1)) of the ITAA 1997”
when the asset is sold (Butler, 2019). The main residence of taxpayer is exempted from CGT.
However, to get exemption, there must be dwelling on the property. Maurice bought a home
for $140,000 and was sold on 1st March 325,000. Maurice did not used the home to generate
income and she can claim full main residence exemption.
She also bought FUL shares for $15,000 in 1984 that was eventually disposed for
$19,000 on 15th March. The shares purchased by Maurice should be viewed as pre-CGT asset
that is exempted from CGT. Personal use asset under “section 108-20 (2), ITAA 1997”
implies asset that are kept by the taxpayer for private usage and enjoyment (Morgan et al.,

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2018). Whereas, “section 118-10 (3), ITAA 1997” explains that capital gains or loss must be
ignored when the cost base of personal use asset is less than $10,000. Maurice also purchased
the furniture at a cost of $9,500 for 20th May that was disposed on 1st May for 2018 for
$5,000. Consequently, the capital loss that is derived from the disposal of furniture must be
ignored by Maurice because the cost of assets is less than $10,000.
According to ATO if a person purchases the vacant block of land either for the private
or personal purpose or for investment purpose then it is generally treated as capital asset
which will attract capital gains tax following the sale of land. The vacant land was bought on
$100,000 on 20th June 1997 however was disposed for $465,000 on 15th May 2018. The
disposal of land led to CGT event A1 under “section 104-10(1)), ITAA 1997”. The expenses
on interest is included within element 3 of cost base of non-capital ownership cost to
ascertain the net amount of capital gains. Below are the net capital gains of Maurice;
Answer to question 6:
Article 1: ATO measures of removing “inequitable” inquiry:
Facts:

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Labour has proposed removing the refundable franking credit for individuals and self-
managed super funds which the parliamentary found inequitable and highly flawed (Afr.com,
2019). The committee has taken into the account the situation of removal of refundable
franking credits for individuals and the SMSF. The commissioner considers the policy
inequitable and highly flawed.
Concise explanation of taxation concepts:
The committee has recommended the removal of refundable franking credit may
unfairly create an effect on the modest incomes that are already retired and those that are not
likely be able to return to workforce in order to cover the lost income. The report however
recommends that such kind of policy reformation may only be treated as the portion of
equitable package for the purpose of wholesale tax reformation.
Explanation of connection between concepts and indicators of good tax policy:
The members of labour in Parliament has stated its criticism following the inquiry and
have reported that the entire exercise is a waste of taxpayer’s money (Afr.com, 2019). The
article clearly explains that the policy is not fair to those earn moderate income.
Article 1: ATO considers measures for closing gap on multinational Tax Avoidance:
Facts:
A special tax avoidance taskforce is run by the ATO and has recovered greater than
$8 billion from the foreign-owned multinational companies. The new estimation suggests that
greater than 95 per cent of largest companies are new meeting their entire liabilities in
Australia (Afr.com, 2019). The article suggest that taxpayers presently paid around 29% of
all the company tax while 42% of tax is obtained from top 100 companies.
Concise explanation of taxation concepts:

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As per the article the tax gap that was released in last year represents the trend that the
gap is reducing (Afr.com, 2019). There is a significant improvement in tax gap as around
1500 largest companies pay approximately $44 billion as tax revenue each year in Australia.
Explanation of connection between concepts and indicators of good tax policy:
The article explains that the present compliance may be greater in Australia’s
corporate companies, together with new multinational tax avoidance laws, country-by-
country tax reporting and anti-hybrid laws and have also updated the rules relating to transfer
pricing.
Answer to question 7:
The role of tax advisor comprises of assuring the clients to adhere with the necessary
laws of tax which are as follows;
a. The tax practitioner assists the clients in managing their taxation affairs by allowing
them to assure that their clients are able to understand their duties and rights.
b. The advisors play a vital role in leveraging point for customers in the form of vital
intermediary for tax and superannuation system.
c. The tax agents play the vital role in encouraging compliance amid the clients through
improved risks and compliance strategies for better information and exchange of ideas
with clients.

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References:
ATO closing the gap on multinational tax avoidance. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/ato-closing-the-gap-on-multinational-tax-
avoidance-20190318-p51577
Butler, D. (2019). Who can provide taxation advice?. Taxation in Australia, 53(7), 381.
Butler, D. (2019). Who can provide taxation advice?. Taxation in Australia, 53(7), 381.
Chapter 7: Tax practitioners and advisors | Inspector-General of Taxation. (2019). Retrieved
from http://igt.gov.au/publications/reports-of-reviews/use-of-compliance-risk-
assessment-tools/chapter-7-tax-practitioners-and-advisors/#P2035_307929
Franking credit removal 'inequitable': inquiry. (2019). Retrieved from
https://www.afr.com/personal-finance/tax/franking-credit-removal-inequitable-and-
deeply-flawed-inquiry-20190404-p51az9
Freudenberg, B., Chardon, T., Brimble, M., & Isle, M. B. (2017). Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, 21.
Gamage, D., & Livingston, M. A. (2018). Taxation: Law, Planning.
Graetz, M. J., & Warren, A. C. (2016). Integration of corporate and shareholder
taxes. National Tax Journal, Forthcoming, 16-36.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Mumford, A. (2017). Taxing culture: towards a theory of tax collection law. Routledge.

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Picciotto, S. (2015). Indeterminacy, complexity, technocracy and the reform of international
corporate taxation. Social & Legal Studies, 24(2), 165-184.
Picciotto, S. (2019). Constructing compliance: Game-playing, tax law and the State.
Schön, W. (2016). Destination-Based Income Taxation and WTO Law: A Note.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.
Yang, J., & Metallo, V. (2018). The Emerging International Taxation
Problems. International Journal of Financial Studies, 6(1), 6.