Detailed Report: Australian Taxation Law, Cases, and Code of Conduct

This report offers a comprehensive analysis of Australian taxation law, covering key aspects of the system. It begins with an introduction to taxation law and its relevance, followed by an examination of the sections that confer taxation power in the Australian taxation system, including the roles of the parliament, the ATO, and the courts in developing taxation law. The report then explores double taxation agreements and their implications for both residents and non-residents, using examples to illustrate the concepts. Further, it delves into capital gains tax, providing calculations for net capital gains or losses, and includes an analysis of scenarios involving property ownership and assessable income. The report also addresses the deductibility of interest on loans and concludes with a discussion on the code of conduct for tax agents, sourcing relevant articles from the Australian Financial Review to support its findings. The report aims to provide a thorough understanding of the subject matter, offering insights into various facets of Australian taxation law.

TAXATION LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
A) Section that confer taxation power in Australian taxation system.........................................1
B) Role of court, parliament and ATO in developing taxation law............................................1
QUESTION 2...................................................................................................................................2
QUESTION 3...................................................................................................................................2
A) Property has been owned by Indianna since 1 November 1976............................................3
B) Property has been owned by Indianna since 1 November 1986............................................3
Assessable income receiving.......................................................................................................3
Question 4........................................................................................................................................4
Whether interest on loan can be claimed as a deduction or not..................................................4
QUESTION 5 ..................................................................................................................................4
Calculation of net capital gain or loss ........................................................................................4
Question 6 .......................................................................................................................................5
Sourcing two articles from Australian Financial review.............................................................5
Question 7 .......................................................................................................................................6
Code of conduct of tax agents.....................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................8

INTRODUCTION
Taxation law refers to different statutory, common rules and regulations related with the taxation
of a country. The Report will describe the rules, regulations of Australian taxation law. The
Report will also explain the importance of courts and ATO in proper development and
implementation of laws related with taxation of Australia. It will also describe the code of cnduct
to be followed by tax agents.
QUESTION 1
A) Section that confer taxation power in Australian taxation system
 Section 51 (2) confer taxation power in Australian taxation system. This section clearly
explains that parliament have power to make laws or it shall be subject to constitution. It
can enact laws of taxation but it should not create discrimination between states. It states
that commonwealth must impose taxes uniformly (Woellner and et.al., 2016).
 Section 90: this section looks upon imposing customs and excise duties. This section
ensures achieving federation objective by developing uniform trade relations with other
countries.
 Section 53: Senate cannot make changes in legislation or cannot amend any bill that deals
with taxation. Hence, this section restricts power of senate.
 Section 114: This section states that it is essential to take consent of others before laying
tax on state property or commonwealth property.
 Section 55: This section declare that legislation related to imposing tax will be operative
and rest other provisions will be inoperative (Eslake, 2015).
B) Role of court, parliament and ATO in developing taxation law
Role of parliament
The theory of segregation of power ensure minimising or avoiding maltreatment of power
and protecting citizen’s freedom. Parliament has power to make law under Australian
Constitution system. There are three main elements of parliament: queen, general and two
houses. Proposed law is presented in front of both houses of parliament and accordingly any law
gets executed practically. Parliament is responsible for making tax polices. It always implements
regulations after discussion with Australian treasury.
Role of ATO
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Executive branch is responsible for implementing any law which is passed and approved in
parliament. ATO implements purposive approach in which it ensures that passed legislation is
accessible and friendly enough. ATO can influence law design and it can take decision for
legislative changes in order to provide benefit to tax payers. Collection of revenue is done by
ATO on behalf of government of Australia (Martin and Xiang, 2015). ATO is responsible for
administration of tax and its superannuation which are passed by parliament. ATO has to play
the role of administrator which helps in implementing tax law in country in systematic manner.
Furthermore, it gives advices to taxpayers and make them aware with their rights and
obligations.
Role of court
Court or judiciary plays the role of interpreter, it has duty to interpret all the requirements
and essentials of enacted law. Court plays the role of dispute resolutely authority as any kind of
legal disputers related to tax law are resolved by court.
QUESTION 2
Double taxation agreement states that person needs not to pay twice tax on same income if
individual earn income from two or more countries. This agreement clarifies that which country
has right to get tax over an individual income. Australian resident has to pay tax of income
generated by person through worldwide resources whereas non Australian resident has to pay tax
on income which is generated from Australian resources. In order to minimise the issue of
paying double tax government has made Double taxation agreement (DTA) (Chomik and
Piggott, 2016).
A non-resident manufacturer which belongs to US, drive profit from sales to Australian
customers. Sales representative has been instrumental in obtaining orders from Australian
consumers. In this case profit from the Australian sales by US manufacturers is taxable in
Australia.
Tax treaties can be defined as formal bilateral agreement between various countries.
Australia has made tax treaties with many nations or more than 40 regions. Tax treaties provide
facility to the source country or give taxing rights. If the person is generating any kind of income
from selected sources, then individual is liable to pay tax to Australian government. Hence, US
manufacturer will have to pay taxes on lower rate in that foreign country (Bentley, 2019).
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Furthermore, individual or is eligible for tax refund or credit because of amount paid to
government.
Sales representative id from Australia who is working here out of service office. Sales
representative make connection with Australian customers and pick their orders. Hence income
of person will be attributable to PE, as in this case entire business is run by Australian dependent
agent. Hence it is essential for US company to pay tax to Australia as it is generating income
from Australian sources.
QUESTION 3
PART 1
A) Property has been owned by Indianna since 1 November 1976
If the person is Australian resistant and individual owned a property, then it would be
considered as pre capital Gain asset. That means if the asset is disposed off or individual has
faced any loss then property will not be considered as CGT. If any substantial changes occur in
pre capital gain assert such as major addition in the inventory, then exemption is withdrawal. If
property is acquired before 19985 then that assets will not be considered as capital asset and no
CGT will be charged on such assets (Woellner and et.al., 2016).
As Indianna may have some income which is statutory income as per CGT legislation.
On the bases of that regulation realisation occurred on capital asset. Section 104-10 explains that
A1 is applicable if there is disposal of CGT assets of taxpayer. As per given situation land is
purchased on 1986 hence Indianna can chose 50% discount method.
B) Property has been owned by Indianna since 1 November 1986
Australian law system state that if a person is having land and that property is producing
some income then individual is responsible for paying tax. Exposure Draft legislation states that
taxpayer has right to claim for cost of holding the land or any other property which is generating
assessable income (Martin and Xiang, 2015). Person will have to pay the tax for the year in
which she sells that property. If property is acquired on or after 1999 then capital gain or loss
will calculated by 50% off on overall income generated by individual taxpayer by selling the
property. If the property is acquired before 1999 then it will be calculated by indexation
method.
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Here intention of Indianna is to generate profit hence individual has commercial benefit.
In such condition this transaction is considered as business taxpayer has made this transaction for
commercial benefit.
PART 2
Assessable income receiving
 In first scenario Indianna has sold 80 undeveloped blocks to property developer in the
financial year, by selling that property she has received some amount. If she has received
amount more than purchase cost, then CGT will be charged by using indexation method.
If she would use the land for domestic purpose then she would get exemption from CGT,
but right now she would be liable to pay tax.
 In the second scenario Indianna has received the income hence, she would be liable to
pay tax (Chomik and Piggott, 2016).
 In the third scenario 65% of income or net proceeds has been given by her to
development authorities for the development purpose. Year in which she has received the
amount will be considered for tax payment and balance of sale proceed will continue in
the next year and tax for remaining amount will be paid next year. As in this case,
Indianna has paid 65% fees to developer and she came into joint venture arrangement
with developer. In this situation she has received mere realisation of assets that means
only received fixed amount hence she will not derived any assessable income by selling
her land.
Question 4
Whether interest on loan can be claimed as a deduction or not.
According to the Australian taxation law, if a person purchases a vacant land with the
intention of using it for personal use of the land then the asset will be treated as a capital asset for
the buyer. If, the buyer has acquired the land with the purpose of conducting business then it will
not be treated as a capital asset for the buyer. If the buyer earns income after selling such land in
that case, the sale price will be considered as an income and GST will be imposed(Eslake,
2015).
As per the rules of Taxation law of Australia, if a person has purchased any land with the
intention of constructing a building to give it on rent in such a case, buyer is eligible for claiming
the deduction of interest on loan at the time when person has took the loan. And if, the person
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has taken loan for using it for private purpose in such a case, interest on loan taken for
purchasing the land cannot be claim as a deduction. This case is similar with the case of steele
In the given case, Amity has acquire the vacant land for the purpose of conducting
accommodation business. Amity has not purchase the vacant land with the purpose of
constructing the building to provide on rent therefore, Amity cannot claim the interest paid on
loan for purchasing vacant land as a deduction.
QUESTION 5
Calculation of net capital gain or loss
The general provision of Taxation law of Australia is that when a resident of country
sells any capital asset on the price which is higher or lower than the cost of acquisition of asset,
then it is said to have made any capital gain or loss. If any gain is generated then, it is added in
the assessable income of the taxpayer which perhaps significantly increased the amount of tax
that is to be paid. Any resident of Australia is liable to pay CGT for all the assets held by it in
any part of the world.
CALCULATION OF NET CAPITAL GAIN OR LOSS
Land acquired by Maurice on 20 February 1989 for $ 140000
*( Indexation method will be applied here because the land was purchased before 1999)
Indexed value of cost of acquisition = 140000*112.6/51.7
= $ 304912.95
Sale of Home 325000
*Profit on sale of house ( 325000-30491.95) = 20087
Shares in FUL NIL
*( The value is nil because it was purchased before the year 1985 and as per the provision of tax
law, such asset will be considered as capital asset of taxpayer , therefore, no CGT will be
charged on such income)
Furniture sold 2500
*( 50% of the income is taken into as the asset was purchased after the year 1999)
Market value of vacant block on 2018 475000
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Sale of vacant land (465000)
*Loss on sale of vacant land 10000
* Expenses can not be claimed as deduction because it is allowed only on the rental property of
the taxpayer
Thus, the total capital gain ( 20087+2500- 10000) = 12587
*( As per the provisions of tax law of Australia, if in place of capital gain, it would have been
only loss, then such loss shall be carry forward to next assessing year indefinitely but it cannot be
set off against the normal income of the tax payer).
465000- 210000 = 255000
Less: Loss
5000= 250000 * 50% = 125000
Question 6
Sourcing two articles from Australian Financial review.
Australian Financial review is a type of daily newspaper that provides news related with finance
and business in Australia. The editor of newspaper is Michael Stutchbury.
1) Labor sights to catch multinational companies with avoidance of multinational tax.
Relevant facts-
Labor was giving importance to the reduction of tax by multinational companies like
McDonald's, Google etc. through payment of large amount of royalty. Recently, multinational
companies like Facebook and Google has reported billions of sales amount but, shown
approximately ten millions of taxation amount. Companies that are having approximately $ 1
billion or more turnover cannot claim deduction, deduction will also not allowed if company has
paid royalty to another company which is situated in a country where tax rate is less than 24%
(Facebook, Nike in Labor's sighs. 2019).
Explanation-
According to the labor of multinational companies like Facebook etc. companies are paying huge
amount of royalties to their subsidiaries so that, they can avoid the tax payment. Companies that
wants to claim deduction have to prove that royalty was not paid with the intention of avoiding
tax.
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Connection-
ATO has announced a rule of paying now and prove later. In this company that has paid royalty
to another company in which tac rate is less than 24% cannot claim deduction until ATO is
satisfied.
2) Cut in company tax rate will take more than a decade.
Relevant facts-
According to Mr. Frydenberg, coalition does not have any plan for reducing the rate of tax for
the companies in long term. Coalition has left their plan of educing the tax rate in year 2026-27
up to 25% (Cut in company tax rate will take more than a decade. 2019).
Explanation-
Due to the reduction in tax rate the revenue of Government will not be exceed by 23.9% until
year 2029-30. Therefore, Government will not provide any reduction in tax rate to the
companies.
Connection-
Coalition Government cannot be trusted because if, the party won in the elections then, it can
change the rate of tax for the companies. As per Mr. Frydenberg, the policy will result in
reduction in various investments by 26%.
Question 7
Code of conduct of tax agents.
Tax Agent Services Act was developed and introduced in year 2009. The Act is applicable for
BAS and tax agents. As per this Act, tax advisers must have required knowledge, education etc.
 Tax agents help all the parties that are involved in the taxation system of Australia by
providing proper guidance to their clients. They also helps the Government in collecting
revenue.
 They help their clients in complying all the regulations related with taxation system of the
country. Tax agents also help to promote the compliance of rules and regulations related
with taxation(Woellner, 2016).
 Tax agents act in a lawful manner that helps in promoting the interest of the clients.
 They helps to ensure that, all the conflicts between Government and clients will be
resolved in an effective manner.
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 Tax agents plays an important role in depositing the money to the Government which is
collected by them from their clients.
 They maintains the highest level of de diligence while dealing with the clients in respect
of matters related with taxation.
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CONCLUSION
The above Report has described various sections in Australian taxation law, about double
taxation agreement etc. Further, the Report has explain whether deduction of interest on loan can
be claim by buyer or not, facts, explanation etc of two articles from Australian financial review
and code of conduct of tax agents etc.
REFERENCES
Woellner, R. and et.al., 2016. Australian Taxation Law 2016. OUP Catalogue.
Eslake, S., 2015, September. Reforming the Australian taxation system: a principled approach.
In address to the Australian Financial Review's Tax Forum Summit (Vol. 22).
Martin, B. and Xiang, N., 2015. The Australian retirement income system: Structure, effects and
future. Work, Aging and Retirement. 1(2). pp.133-143.
Chomik, R. and Piggott, J., 2016. The Australian retirement income system: comparisons with
and lessons for the United States. Reimagining Pensions: The Next 40 Years. pp.274.
Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience Eleven Years
On. Journal of Malaysian and Comparative Law. 23. pp.13-36.
Online-
Facebook, Nike in Labor's sighs. 2019. [Online] Available Through :
<https://www.afr.com/news/policy/tax/facebook-ikea-nike-targeted-in-labor-s-latest-tax-
crackdown-20190506-p51kgg>
Cut in company tax rate will take more than a decade. 2019. [Online] Available Through :
<https://www.afr.com/news/company-tax-cuts-consigned-to-the-never-never-20190506-p51kdr>
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