Taxation Law: Analysis of Income, Tax Avoidance, and Partnership Laws

This assignment delves into various aspects of taxation law, addressing key issues related to income determination, tax avoidance, and partnership structures. It begins by analyzing whether an annual payment qualifies as genuine income for tax purposes, referencing relevant case law such as Myer v FC of T and Dixon v FC of T. The assignment then explores the Duke of Westminster principle concerning tax avoidance, examining its application and limitations in the context of Australian anti-avoidance rules. Finally, it addresses the determination of partnership status for income tax purposes, particularly concerning the distribution of net rental property income and losses, drawing upon TR 93/32 and the McDonald's case to illustrate the legal principles involved. The solution concludes that while a relationship may be considered a partnership for income tax purposes, the net profits and losses from rental property must be shared in proportion to ownership interest.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................5
Answer to question 4:.................................................................................................................7
References:...............................................................................................................................11

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Answer to question 1:
Issue:
Is the annual payment a real gain for the taxpayer that is received periodically by the
taxpayer or annually?
Laws:
If the receipts are not the genuine gain it cannot be classified as the ordinary income
(D'Ascenzo 2015).
In “Myer v FC of T (1987)” held that it is not necessary that the income should be
received in this manner (McGregor-Lowndes 2016). In “Dixon v FC of T (1952)” the law
court held that the periodical payments made were to make up for the lost earnings that
resulted in the character of the income under ordinary concepts (Hashimzade and Epifantseva
2017).
The prerequisites of the ordinary income states that a receipts cannot be viewed as the
ordinary income till it is cash or actually a gain for the taxpayer (Martin and Connor 2017).
On meeting the two requisites the gains will be classified as the ordinary income given it has
portrayed the character of regular or periodical receipts or has the regular flow concept.
In “Blake v FCT (1984)” held that payments that is received by the taxpayer
regularly or periodically is more likely regarded as the ordinary income than the gains paid in
lump sum (Peiros and Smyth 2017).
Application:
The central issue obtained from the case provides that winners of “Set for Life” are
given a sum of $50,000 by the lottery commission every year for 20 years. In “FC of T v
Cooke and Sherden (1980)” the annual payment should be characterised as the ordinary

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income (Shaw 2017). Further reference can be made to the case of “Myer v FC of T (1987)”
to classify the annual payment as the income depending upon the quality of the receipts that
is received in the hands of the recipient.
The annual payment of $50,000 is a genuine gain for the taxpayer. Referring to
“Dixon v FC of T (1952)” the sum of $50,000 fulfils prerequisites of the ordinary income
under the ordinary concepts of “section 6-5, ITAA 1997” because it shows the satisfactory
characteristics of regular or periodical receipts and satisfies the flow concept (Chung 2017).
Therefore, the amount will be treated as the income.
Conclusion:
The quality of the annual payment satisfies the perquisites of ordinary income and
constitute gain for the recipient. The payment is received periodically each year following the
payment of first instalment and hence it is an income under ordinary meaning.

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Answer to question 2:
Answer to question 3:
IRC v Duke of Westminster (1936)
The principle of the Duke of Westminster has been over the years the underlying
principles in avoiding the tax (Sharma 2016). Most of the companies have regularly used the
number of ways for avoiding the tax and when schemes does not work the commissioner
does not simply spare the taxpayer (Stiglitz and Rosengard 2015). This is because the
taxpayer is allowed to structure their matters of taxation in an attempt of reducing the tax
liability and when the taxpayer arranges the affairs of taxation to attract minimum tax liability
the taxpayers in such a situation are ready to bear the repercussions.
As understood in the case of “Duke of Westminster v IRC”, the house of lords has
affirmed the taxpayer that they are entitled to structure their affairs of taxation in a manner

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that enables them to take the advantage of the numerous options that is offered by the
legislation in order to attain the minimum possible liability (Kemme, Parikh and Steigner
2017). The principle established in the case was that the law should be relatively certain to
provide confirmation to the principles surrounding the rule of law (Kasper et al. 2017).
Currently Australia has adopted anti-avoidance rules to address the challenges related
to the tax avoidance (Pakpahan and Butler 2018). Currently the provision of anti-avoidance
has been successful in diminishing the practices of tax avoidance by imposing further
penalties for unpermitted tax avoidance. The current Australian government has backed the
corrective actions by imposing penalties as the disincentive to prohibit the unpermitted anti-
avoidance practices.
Answer to question 4:
Issue:
The central issue that surrounds the case is determination of the partnership for
distribution of net rental property income and loss for the income tax purpose.
Rule:
The owners of the rental property are the not the partners for general law purpose as
explained in the TR 93/32. The owners of the property are only the partners for the tax levy
purpose. Any kind of partnership agreement of sharing profits and loss is not effective be it
in writing or oral (Duncan et al. 2018).
Regarding the distribution of rental property net income and loss situation of
McDonald’s case be considered (Yuan 2016). As per the defendants argument the husband
shared 25% income but the wife used to get the most of the income and her share included 75

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of the investment property profits. The whole amount of the net loss should be shouldered by
Mr McDonald.
The commissioner contended that there was not any partnership based on the general
law (Long, Campbell and Kelshaw 2016). The losses incurred in subletting the premises must
be shared equally with the consequences that the respondents were entitled to share the loss
equally.
Application:
Joseph and Jane created the agreement of sharing the profit and loss where Joseph
will be entitled to sharing 20% profits from the property while Jane will be taking 80% of the
property. Their partnership agreement required to Joseph to shoulder 100 per cent of the loss.
During the last income year, the couple reported a loss of $40,000.
There is an application of TR 92/32 to describe the position of Jane and Joseph. The
explanation of the ruling is referred in this case to understand that there is no partnership
between the couples as per the general law. The couples here Joseph and Jane are the
associates for the tax purpose. (Brydges and Yuen 2018).
Quoting the case of “McDonald v FC of T (1987)” the couple are the joint tenants
based on law and in equity. The loss of $40,000 incurred in subletting the premises must be
shared equally (Santhanam 2016).
If the alternative situation of selling the property is made by the couple, then the
taxpayer in such situation should share the net gains and loss originating from the property
should be shared in equal manner (Peiros and Smyth 2017). Their partnership agreement
whether oral or in writing does not has any impact on the sharing of profit and loss (Dumiter,
Turcas and Opret 2015).

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Conclusion:
Joseph and Jane are not the partners in terms of the general law even though their
relationship is regarded as the partnership for income tax purpose. Net profits and loss
obtained from the rental property must be shared in the similar proportion as their interest of
ownership.

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References:
Brydges, N. and Yuen, K., 2018. A matter of trusts: Trusts, income tax, CGT and foreign
residents. Taxation in Australia, 53(2), p.80.
Chung, E., 2017. What you want to know about negative gearing but are too afraid to
ask. REIQ Journal, (Mar 2017), p.38.
D'Ascenzo, M., 2015. Modernising the Australian Taxation Office: Vision, people, systems
and values. eJournal of Tax Research, 13(1).
Dumiter, F., Turcas, F. and Opret, A., 2015. Australian Tax System: Double Taxation
Avoidance Conventions, Structure and Developments. Journal of legal studies, 16(30), pp.1-
17.
Duncan, A., Hodgson, H., Minas, J., Ong, R. and Seymour, R.G., 2018. The income tax
treatment of housing assets: an assessment of proposed reform arrangements.
Hashimzade, N. and Epifantseva, Y. eds., 2017. The Routledge Companion to Tax Avoidance
Research. Routledge.
Kasper, M., Olsen, J., Kogler, C., Stark, J., Kirchler, E., Hashimzade, N. and Epifantseva, Y.,
2017. Individual attitudes and social representations of taxation, tax avoidance and tax
evasion. The Routledge companion to tax avoidance research, pp.289-303.
Kemme, D.M., Parikh, B. and Steigner, T., 2017. Tax havens, tax evasion and tax
information exchange agreements in the OECD. European Financial Management, 23(3),
pp.519-542.
King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation
in Australia, 51(1), p.12.

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Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in
Australia. St Mark's Review, (235), p.94.
Martin, F. and Connor, M., 2017. Using Blended Learning to Aid Law and Business
Students' Understanding of Taxation Law Problems. J. Australasian Tax Tchrs. Ass'n, 12,
p.53.
McGregor-Lowndes, M., 2016. Lawyers, reform and regulation in the Australian third
sector. Third Sector Review, 22(2), p.33.
Pakpahan, C. and Butler, D., 2018. Superannuation: Proposed SG amnesty raises
opportunities and risks. Taxation in Australia, 53(1), p.36.
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), p.394.
Santhanam, R., 2016. 51_Salaries and Income-Tax.
Sharma, A.K., 2016. How to Axe a Double Taxation Avoidance Agreement: Analysing
Section 94A of the Indian Income Tax Act. Intertax, 44(11), pp.838-844.
Shaw, A., 2017. Tax files: Why small really is better: Accessing the lower corporate tax rate
for small business entities. Bulletin (Law Society of South Australia), 39(10), p.39.
Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the public sector: Fourth international
student edition. WW Norton & Company.
Yuan, H., 2016. Mid market focus: The sharing economy and taxation. Taxation in
Australia, 51(6), p.293.

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