Taxation Law Report: Taxation Consequences for ABC Sports Pty Ltd

This report delves into the taxation consequences for ABC Sports Pty Ltd and its employee, John, analyzing various aspects of Australian taxation law. The report examines the tax implications of a termination payment received by the company, considering whether it constitutes taxable income or a capital receipt. It also assesses the deductibility of John's travel expenses for market research and the non-deductibility of the company's relocation expenses. Furthermore, the report explores the tax treatment of John's salary, superannuation contributions, and the fringe benefits associated with the company paying his son's school fees and providing him with a car. The report also covers the tax implications of John's yacht purchase, including capital gains tax and the non-deductibility of losses on personal assets. The analysis is supported by relevant case law and legislative provisions, providing a comprehensive understanding of the tax principles involved.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Issue:..........................................................................................................................................2
Laws:..........................................................................................................................................2
Application:................................................................................................................................2
Conclusion:................................................................................................................................9
Reference List:.........................................................................................................................10

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Issue:
The current issue surrounding the case will be ascertaining the taxation consequences
for ABC Sports Pty Ltd and his employee John. The issue surrounding the case will be
addressing the transactions occurred by the taxpayer during the accounting year and would
understand whether same will be held taxable or a deduction for the same can be claimed.
Laws:
a. “Scott v Commissioner of Taxation (1935)”
b. “Californian Oil Products Ltd v Federal Commissioner of Taxation (1934)”
c. “Federal Commissioner of Taxation v Wiener (1978)”
d. “Higgs v Oliver”
e. “J & G Knowles v Federal Commissioner of Taxation (2000)”
f. “Sun Newspaper Ltd v Federal Commissioner of Taxation (1938)”
g. “Toyama Pty Ltd v Landmark Building Developments Pty Ltd”
h. “Marana Holdings Pty Ltd v Commissioner of Taxation (2004)”
Application:
Considering the definition of “subsection 6-5 (2) of the ITAA 1997” any amount
earned by the taxpayer constitute income based on the ordinary meaning given the amount
that is derived by the taxpayer is either from the direct or indirect sources during the year of
income (Schenk 2017). A sum that is obtained by the taxpayer relating to the cessation of
deal or of an agreement through the progression of trade is generally held as revenue given
the sum that is substituted would have been held as income. If the cessation of an agreement
results in significant effect on the structure of trade or leads to a extensive loss of business
then the compensation sum is held as capital receipt.

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Denoting from the circumstances of the ABC Sports Pty Ltd it is understood that the
company received a termination payment from one of suppliers that accounted 40% of the
business of the ABC Sports Pty Ltd. Evidences obtained from the situation of ABC Sports
Pty Ltd explains that the company soon found a new supplier and there was hardly any
noteworthy influence on the profitability of the business. The cessation of an agreement has
not resulted in noteworthy effect on profits of the company although the sales were slightly
on the lower side.
An important factor to denote is that the agreement between the supplier and the ABC
Sports Pty Ltd does not comprised of whole business. Referring to the judgement in
“Californian Oil Products Ltd v Federal Commissioner of Taxation (1934)” the taxpayer
obtained a contract with the oil company to sale petroleum goods (Samansky and Smith
2017). However, based on mutual consent the contract between the taxpayer and the supplier
was ended and the supplier compensated the taxpayer with lump sum that was to be paid in
instalments. The amount that was obtained by the taxpayer was not calculated by referring to
the earnings that was lost indeed the court verdict stated that compensation amount received
was capital. Denoting the judgement of the court of law in the existing state of affairs of ABC
Sports Pty Ltd, the compensatory sum that was received is regarded as the recoupment of loss
based on “section 20-20 (2)” (Bankman et al. 2017). Conclusively, in accordance with the
ordinary concept of “section 6-5 of the ITAA 1997”, the compensation sum of $200,000 will
be included in the taxable income of the taxpayer.
Referring to “section 8-1 of the ITAA 1997” a person can from their taxable income
claim deductions for expenditure that is occurred in deriving the taxable income only to the
degree that the outgoings are incurred in deriving the assessable earnings of the taxpayer
(McDaniel 2017). An individual taxpayer is permitted for allowable deductions given the
outgoings or losses incurred is in the direction of earning taxable earnings. Denoting from the

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current circumstances of John, he reported an expenses on travelling to conduct a market
research for ABC Sports Pty Ltd. The expenses of travelling reported by John is occurred in
assessing the market and the in due course of his employment. It can be stated that the
travelling expenses of John carries adequate association amid either of the positive limbs.
Referring to “section 25-100 of the ITAA 1997” an entitlement for deductions is
allowed to a taxpayer given the cost of travelling is occurred amid two work places and none
of this is home for the taxpayer (Oishi, Kushlev and Schimmack 2018). The judgement in
“Federal Commissioner of Taxation v Wiener (1978)” held that the taxpayer would be
allowed for deductions relating to the cost that is incurred in travelling between two work
places. John travelling cost is occurred during his employment and a deductions is allowed
under “section 8-1 of the ITAA 1997”.
In the later part of the case study ABC Sports Pty Ltd occurs a cost relating to
relocating some of his stores. A sum of $125,000 was occurred for moving the stores to
Brisbane. It is understood that under “section 8-1 of the ITAA 1997” deductions is only
allowed for outgoings or losses that is incurred in producing the taxable earnings however
deductions a taxpayer is prohibited from claiming deductions that are capital or private
expenditure (Schenk 2017). Expenses associated to alteration or extension of the present
facilities of the taxpayer, these payments are regarded as capital expenditure because it is
associated with the profit making venture of the taxpayer.
Denoting the judgement in “Sun Newspaper Ltd v Federal Commissioner of Taxation
(1938)” a deduction was disallowed for the cost of moving the plant and equipment to the
new premises (Murphy and Higgins 2016). This is because the expense were capital and
allied with the profit making venture of the taxpayer. In the situation of ABC Sports Pty Ltd

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expenses relating to the relocation of some of its stores to Brisbane is non-deductible capital
expenditure and no deductions will be allowed under section 8-1 of the ITAA 1997.
As defined under “section 6-1 of the ITAA 1997” income that is earned from the
personal exertion such as income from salaries, wages, fees, commissions or proceeds from
business carried on is included in the taxable income of the taxpayer. Furthermore, “section
6-5 of the ITAA 1997” explains that a large portion of the revenue that is derived by the
taxpayer is regarded as ordinary income (Schmalbeck, Zelenak and Lawsky 2015). The court
of law in “Scott v Commissioner of Taxation (1935)” clarified that the revenue should be
held in accordance with the ordinary meaning and usage to the mankind. John earned a salary
and a superannuation contribution from his employer ABC Sports Pty Ltd (Burke 2016). The
receipt of salary income and the superannuation contribution is held as income based on
ordinary concept under “section 6-5 of the ITAA 1997”.
As per “Section 136 (1) of the FBTAA 1986” the definition of benefit constitutes any
form of right or amenities that given to the employee by the employer relating to course of
employment (Hudson, Lind and Yamamoto 2016). Similarly, ABC Sports Pty Ltd paid the
school fees of John son’s that amounted to $20,000. As per the Australian taxation office an
employer is subjected to fringe benefit taxation relating the benefit given to the employee
during the employment course. According to “Section 65 (a) (ii) of the FBTAA 1986” the
employer qualifies for the reduced taxation if the benefit is based on the full time education
of the employee’s child.
According to the judgement in “J & G Knowles v Federal Commissioner of Taxation
(2000)” it was stated that the expression “in respect of” barely has any static significance
(Simmons et al. 2017). The court in its verdict stated that there must be a satisfactory factual
relation amongst the benefit provided and service. The expenses for John son’s school fees

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paid by the ABC Sports Pty Ltd was in respect of full time education and has adequate
material association. The ABC Sports Pty Ltd, the expenses is in full time work of John and
ABC Sports Pty Ltd is liable for reduced taxation under “section 65 of the FBTAA 1986”.
As specified under “section 7 (1) of the FBTAA 1986” the car fringe benefit results
when the employer provides an employee with the car for his private use. According to
“Section 136 of the FBTAA 1986” the private usage represents the usage of car by the
employee that is not in the sequence of employment (McNulty and McCouch 2015). Any
private use made by the employee is disregarded from assessable income while the business
use of the car constitute fringe benefit that is in respect of work. As evident John was
provided with the car by ABC Sports Pty Ltd which results in fringe benefit based on
“section 7 (1) of the FBTAA 1986”.
According to “section 58 Y (2) of the FBTAA 1986” an exemption is provided from
the fringe benefit when an expense relating to membership or subscription fees is paid by the
employer (Barkoczy 2014). Understandably in the condition of John, a membership fees was
waged by his company ABC Sports Pty Ltd. Consequently, the membership fees paid by
ABC Sports Pty will be held as exempt benefit under “section 58 Y (2) of the FBTAA 1986”
According to “subdivision 108-C” the use of a personal asset institutes a non-
collectable utilization of asset. These are primarily held for individual amusement and named
as boat, fittings or other house hold products. Under “section 108-20 (2)” this is also
containing the option for acquiring the asset which was used for personal enjoyment or
usages (Brokelind 2014). The basic cost for that asset does not contain the cost of association
for the owner, and this is named as interest. “Section 118-10 (3)” elaborates that any version
of capital gain is overlooked whenever an individual uses an asset for personal reasons and
acquires $10,000 or less amount. Therefore, this is clear that the person who using the asset

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for personal usages they need to keep all the details from purchase to basic daily uses as they
are acquiring more than or $10,000 from that asset (Coleman and Sadiq 2013). According to
this evident from the current scenario of John, he procured a Yacht at a cost of $500,000 and
incurs an installation cost of $600,000. He also kept one horse which was used for
entertainment purposes during the equestrienne. John even sold that horse for $30,000 which
was his capital gain.
As stated in “section 110-25” the basic price of the asset involves the capital outlay
which is made for increasing or preserving the worth of that particular asset. The expense of
$600,000 for fitting a new mast in yacht would be considered from the part of the basic cost
involved for the asset (Eliot 2016). The expenses involved by John are for improving the
valuation of asset. He frequently used the yacht for competing which caused “CGT event
D1” occurred under “section (104-35) (1)” for john. Henceforth, the sale of Yacht
established a CGT event for involving the individual utilization of asset that was disposed as
the set and also that held as single CGT asset. This asset has given around $10,000 threshold
during this period.
Section 108-20 (1) highlights that at the moment of vending the private usage of the
asset relating to loss the taxpayer is not eligible for any tax offset for the loss in contradiction
of the capital gains. According to the circumstance of “Higgs v Oliver” the taxpayer made
capital gains from the deal of “CGT event D1” (Grange et al. 2014). The law court detained
that the “CGT event D1” cannot be regarded as discount capital gain under “section 115-25
(3)”.
From the apparent existing condition of John he bought a boat in 2008 for $12,000 but
this was utilized for entertaining purpose. In the later years, the boat was sold by him at
$8,000 which involved a loss of $4,000. Mentioning to “section 108-20 (1)” John is not

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permitted to set-off the loss involved within the deal. These losses are to be ignored in this
case.
“Subdivision 108-B” states that the collectable assets are held in reserve mainly for
individual usages or enjoyments (James 2014). According to the evident from this case, John
had an antique table which he bought for $12,000 in 2006 but presented to his mother. At this
time the market worth for this table was around $18,000. Henceforth, this should not involve
any CGT event as no CGT event happened.
The “taxation ruling of GSTR 2012/15” states about the goods and service tax penalty
of the housing properties. This particular ruling considers the use of “subdivision 40-B and
Subdivision 40-C of the new tax system under the GST 1999” that relates the supplies to the
housing properties (Kenny 2013). Rendering to “section 40-65 of the GST Act 1999”, this
highlights that the sales of the housing properties does cannot be considered GST as the
housing property is used completely for the housing accommodations.
Apparent from the state of affairs of John, he bought the house for an amount of
$300,000 and devoted stay at the asset. Nevertheless, in the year of 2014 the land-dwelling
was rezoned for the housing reason. The choice of selling the possessions was undertaken by
John himself. Originally he decided to split the land but later he changed his mind and sold
asset to a property developer at $3,000,000.
On selling the asset the deliberations must be made if the sale of the possessions
would lay open to GST or not. This sale of housing possessions is highlighted as input taxed
and did not accounted for GST as the property was totally used for housing purpose.
“Section 40-65 of the GST Act 1999” highlights that the sale of the actual property is
taken as a consideration for input tax nevertheless only up to some limit as the property is
considered as the housing accommodation. The high court in “Toyama Pty Ltd v Landmark

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Building Developments Pty Ltd” the court of law held that the word predominantly should be
used for housing accommodations and this highlights that the buyer was ready to use this
property for personal usages (Krever 2013). “Section 195-1 of the GST Act 1999” outlines
residential properties as the set of land that is considered for housing accommodations.
The law court in “Marana Holdings Pty Ltd v Commissioner of Taxation (2004) ALR
190” held that the sell-out of strata title housing asset which was created from motel was
under GST (James 2014). The law court highlighted that the word “residential premises” is
pursuant to “section 40-75 of the GST Act”. This involves also the input tax credit. Likewise,
the case of the sale of the house by John to the property developer will be held as the input
taxed supply under “section 40-65 of the GST Act 1999”.
“Section 26-5 of the ITAA 1997” states that an separate taxpayer is not eligible for
claiming any deductions related to the consequences those are imposed on the considerations
of breach of Australian law. This comprises of trade penalties for breaking the laws. As
apparent in the current condition of ABC Sports Pty Ltd the fines incurred for breaching the
trade practice act which constitutes fines as they breached the Australian laws. In pursuant to
“section 26-5 of the ITAA 1997” ABC Sports Pty Ltd would not be eligible for claiming the
deductions in this regard.
Conclusion:
The case study can be concluded by stating that ABC Sports Pty Ltd will be
considered taxable for the compensation receipts from the cessation of agreement. The
company would not be permitted to entitlement for permissible deductions involving the
relocation cost since the expenses were capital in nature. A reduced tax liability will be
payable by ABC Sports Pty Ltd relating to the fringe benefit provided to John. Conversely
John will be held taxable for the salary income and superannuation contribution as they

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constitute income individual exertion. While the sale of residential house amounts to input
tax.

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Reference List:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation.
Wolters Kluwer Law & Business.
Barkoczy, S. 2014. Foundations of taxation law.
Brokelind, C. 2014. Principles of law: function, status and impact in EU tax law. Amsterdam:
IBFD.
Burke, K., 2016. Federal income taxation of partners and partnerships in a nutshell. West
Academic.
Coleman, C. and Sadiq, K. 2013. Principles of taxation law.
Eliot, G. 2016. The mill on the Floss. New York: Open Road Integrated Media.
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. principles of business taxation.
Hudson, D., Lind, S. and Yamamoto, K., 2016. Black Letter Outline on Federal Income
Taxation. West Academic.
James, M. 2014. Taxation of small businesses.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
McDaniel, P., 2017. Federal Income Taxation. Foundation Press.
McNulty, J. and McCouch, G., 2015. Federal estate and gift taxation in a nutshell. West
Academic.
Murphy, K.E. and Higgins, M., 2016. Concepts in Federal Taxation 2017. Cengage Learning.

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Oishi, S., Kushlev, K. and Schimmack, U., 2018. Progressive taxation, income inequality,
and happiness. American Psychologist, 73(2), p.157.
Samansky, A.J. and Smith, J.C., 2017. Federal Taxation of Real Estate. Law Journal Press.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schmalbeck, R., Zelenak, L. and Lawsky, S.B., 2015. Federal Income Taxation. Wolters
Kluwer Law & Business.
Simmons, D.L., McMahon, M.J., Borden, B.T. and Ventry, D.J., 2017. Federal Income
Taxation. Foundation Press.