Elite Education Institute: Taxation Law Assignment - Carla's Case

This assignment analyzes the taxation implications of Carla's business activities, a New Zealander who spends most of her time working in Australia. The assignment examines her income from a sole trader law firm, consultancy work, and investments, including the application of personal service income rules, capital gains tax (CGT), and fringe benefits tax (FBT). The analysis considers her residency status, relevant sections of the Income Tax Assessment Act (ITAA) 1997 and 1936, and case law such as Levene v IRC, Brent v FCT, and Ronpibon Tin No Liability v FCT. The paper also addresses Division 7A dividends and the tax treatment of loans to shareholders, as well as the characterization of income from various sources. The solution considers Carla's personal and business expenses, the tax implications of her employer providing phone, laptop, and car, and her sale of shares. The assignment provides a comprehensive overview of the relevant tax principles applied to Carla's financial situation.

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 A:................................................................................................................2
Answer to question B:................................................................................................................6
References:.................................................................................................................................8

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Answer to question A:
The main provision of the
“sec 6-5 (2)” explains that if a person is viewed as the
dweller of Australia then their chargeable earnings would take consider the ordinary proceeds
that they have derived from every sources. The judgement in
“Levene v IRC” considered the
aspects such as the period of physical presence in Australia considers s person as an
Australian inhabitant1. While
“sec 6-5 (3), ITAA 1997” clarifies that if an individual is a
foreign resident then their taxable earnings would include the ordinary earnings which is
earned either directly or indirectly from all the Australian bases. Under the
“sec 84-5, ITAA
1997” a personal service income is regarded as those income that a person has earned mainly
as the reward for an individual’s effort or particular skills. It usually includes only the
individuals. A person can get the personal service income from the personal service entity.
Nevertheless, the income would be considered taxable to that person based on the marginal
tax rate.
Carla is found to be living in Australia and spends greater than 80% of her time in
Australia. Referring to
“Levene v IRC” Carla will be viewed as the Australian occupant
based on
“sec 6-5 (2)” because she has been constantly living in Australia for a considerable
time period2. She further reports the receipts of $80,000 from her own law firm and also pays
expenses towards her vicinity of $20,000. The income that is earned by Carla is viewed as
personal service entity or a personal service entity under
“sec 84-5, ITAA 1997”. The
amount of $80,000 will be assessable receipts and will be assessable as ordinary proceeds
under
“sec 6-5, ITAA 1997”.
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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Any receipts that is earned by the taxpayer from occupation and from rendering any
personal services will be considered assessable for tax purpose to the recipient or may
amount to fringe benefit for the employer. A nexus is generally satisfied when the receipts
that originates from the personal service of the taxpayer amounts to an ordinary earnings. As
noted in
“Dean v FCT (1997)” the retaining disbursement which was paid to the employee
as remuneration was treated as chargeable earnings within ordinary conceptions3. Where a
taxpayer receives payment for entering in the contract then it is considered as earnings made
from individual exertion. The commissioner in
“Brent v FCT (1971)” held that payments
that is received from entering in the contract of rendering services is held as chargeable
individual exertion income.
While
“sec 8-1, ITAA 1997” clarifies that an expenditure or the outgoings is
permissible for tax deduction till the extent that it meets either any one of the positive limbs
or it fails to meet one of the negative limbs given under
“sec 8-1”. Usually expenses must be
apportion that holds dual purposes. The pronouncement in
“Ronpibon Tin No Liability v
FCT (1949)” held that it becomes important that there should be apportionment of expenses
that are incurred for dual purpose.
The explanation that has been made in the
“sec 6-25 (2)” elucidates that on noticing
that the sum is equally the ordinary as well as the statutory earnings then the rules associated
to the statutory proceeds prevails4. On the other hand, the employer in such a condition is
3 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
4 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.

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held for tax under
“sec 23L, ITAA 1936” for fringe benefit arrangements and may fall within
the ambit of paying tax on the worth of benefits given.
The case study contributes that Carla is also working as the consultant with the law
firm in Australia named LFX. She entered in the contract of providing services to LFX and
act on their behalf. The contract entered into by Carla and receiving a payment in exchange
should characterised as personal exertion income. Referring to
“Brent v FCT (1971)”
payments for entering in the contract will be chargeable based on ordinary conceptions of
“sec 6-5, ITAA 97”. While LFX is found to be paying the expenses incurred by Carla5.
The company also provides laptop and phone for making both the private and
business use. It further pays the flight tickets for Carla. With respect to the
“sec.23L, ITAA
1936” the employer here LFX will be considered accountable for the FBT based on the worth
of the benefits given. On the other hand, Carla will treated as non-assessable for the benefits
received in respect of her employment with LFX. It was also found that Carla makes use of
the phone for both the private and business purpose. Referring to
“Ronpibon Tin No
Liability v FCT (1949)”, Carla would only be allowed to get deduction for the work related
purpose of the phone calls under
“sec 8-1, ITAA 1997” while her private purpose expenses
will be non-deductible under the negative limbs6.
A “CGT event A1” arises under
“sec 104-10” when the CGT asset is disposed by a
person to another entity. Dealing in shares are treated as simple acquisition and disposal. A
5 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
6 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.

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“CGT event A1” associated to shares come about when there is a alteration in ownership7. As
evident, Carla is found to be selling her shares in PTY Ltd. The shares were bought by Carla
for a sum of $200 for each shares which was later sold for $1000 per share in the month of
September 2018. The sale of shares led to “CGT event A1” under
“sec 104-10 1997”. Upon
selling the shares a capital gains has been made by Carla. Therefore, the gains will be
considered chargeable as statutory proceeds under
“sec 102-5 (1), ITA Act 1997”.
As stated by the ATO, loans that are made by the private corporation to the
stakeholders or their associate may be considered as the Division 7A dividend. Usually a
“loan” within the meaning of
“Division 7A” comprises of the provision of credit or any
other type of financial accommodation and other type of transactions that forms the substance
of loan of money8. Accordingly a sum of $100,000 was loaned to Carla by way of interest
free and GST-free loans. The loans made to Carla by PTY LTD will be considered as
“Division 7A” dividend for Carla. The loan was made by the entity to Carla as the
shareholder of the company and loans would amount to dividend under
“Division 7A” .
Receipts that relates to performance of the services or the provision stated under a
contract may be characterized as payment for the receiver. The receipts must also holds the
adequate nexus with the earning activity and amount. The decision
“Hayes v FCT (1956)”
held that the amount may be characterised as the employment incidence, reward for the
product9.
“Section 136 (1)” says that fringe benefit usually includes any kind of right,
personal property, privilege, service or facility given to the employee during their
7 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
8 Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
9 Main, Jim. "Taxation: Buying or selling: beware the sting of GST." LSJ: Law Society of
NSW Journal 55 (2019): 73.

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employment course by the employer. The liability of paying the FBT usually falls on the
employer. “Division 2” deals with the car fringe benefit under. Under
“sec.7” car fringe
benefit occurs when the employer gives the car to member of staff and also available for
personal use.
Carla reports receipts from her part-time employment with the governmental law
reform organization. She received a sum of $65,000 during the year. Denoting to
“Hayes v
FCT (1956)” the annual salary of $65,000 is an individual exertion income of Carla and will
be chargeable under
“sec 6-5, ITAA 1997” as ordinary income10. While she is provided with
laptop and phone but Carla does not uses it for private purpose and hence no fringe benefit
arises for the LRO in this regard. Later it is found that Carla makes use of the company car
for private purpose as well. Therefore, under
“sec 7” it is a car fringe benefit for LRO and the
company will be considered liable for tax.
Answer to question B:
The legal relationship between the state and the individual invokes the legal system of
the state as their personal law. A domicile based on the choice of a person is reflected when
the taxpayer portrays the intention of fixing the permanent residence in a new state11. In the
most famous event of
“FCT v Applegate (1979)” the taxpayer was shifted to Vila for
establishing the office of Sydney law firm12. The taxpayer stayed there for around two years
and returned once his wife had a baby. Later the taxpayer eventually returned after he became
10 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
11 Lam, Dung. "What you need to know about managing Australian and foreign tax residency
status." Equity 32.9 (2018): 10.

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ill. The court stated that permanent implies more than simply temporary or transitory but it is
less then everlasting.
The factual situation of Carla is relatable with that of
“Applegate” as she is found to
be present in in Australia for more than 80% of the income year. It can be stated that Carla’s
domicile of choice is in Australia as she spends majority of her time here in Australia.
Despite being Carla a New Zealander her residency status should be assessed objectively
each year. Within the
“section 6(1) ITAA 1936” Carla can be considered as the Australian
occupant since her choice of domicile is in Australia.
12 Jones, Daryl. "Complexity of tax residency attracts review." Taxation in Australia 53.6
(2018): 296.

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References:
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
Jones, Daryl. "Complexity of tax residency attracts review." Taxation in Australia 53.6
(2018): 296.
Lam, Dung. "What you need to know about managing Australian and foreign tax residency
status." Equity 32.9 (2018): 10.
Main, Jim. "Taxation: Buying or selling: beware the sting of GST." LSJ: Law Society of NSW
Journal 55 (2019): 73.
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.
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).