Taxation Law Assignment: Income, Deductions, and Tax for 2018

This assignment addresses the tax implications for Danijela, an IT manager, in the 2018 income tax year. It examines various sources of income, including salary, interest, and prize money, determining their assessability under relevant tax laws like ITAA 1997 and ITAA 1936. The solution analyzes allowable deductions, such as expenses for compulsory work clothing, while denying deductions for items like tax advice and self-education. It also covers capital gains and losses from the sale of personal-use assets. The assignment applies relevant case law, including Scott v CT, FCT v Stone, and FCT v Edwards, to support its conclusions and calculates Danijela's total taxable income for the year, providing a comprehensive overview of her tax liabilities.

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
Issues:.........................................................................................................................................2
Rule:...........................................................................................................................................2
Application:................................................................................................................................3
Conclusion:................................................................................................................................5
References:.................................................................................................................................6

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Answer to question 1:
Issues:
a. Is the taxpayer held assessable under the ordinary concepts of “section 6-5, ITAA
1997” for income derived from the employment?
b. Is the taxpayer allowed to obtained deduction for the expenditure occurred in
producing taxable income under positive limbs of “section 8-1, ITAA 1997”?
Rule:
As per “section 6, ITAA 1936” receipts derived by taxpayer from employment and
offering personal services are subjected to tax liabilities for the employee. Ordinary is better
understood as income as per the ordinary concepts and it is taxable under the “section 6-5,
ITAA 1997”1. The high court in “Scott v CT (1935)” interpreted the word income in respect
of the ordinary concept and use of mankind.
In “Moore v Griffiths (1972)” the court explained that simple prize winning should
not be treated as income2. However, prize winnings only amounts to income when it is related
with a person’s revenue producing activities. In “FCT v Stone (2005)” the taxpayer was held
assessable for the prize money because she was carrying the business of professional athlete
and the money was income.
“Section 102-5, ITAA 1997” requires the taxpayers to include in their assessable
income the net amount of capital gains that is made during the year. While the capital loss are
1 Krever, Richard E, Australian Taxation Law Cases 2014
2 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)

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only allowed to offset against the capital gains and non-allowed for deduction. Net capital
occurred by taxpayers can be carried forward to subsequent years.
Cost of acquiring ordinary items of clothing is not permitted for deductions under
“section 8-1, ITAA 1997”. As held in “FCT v Edwards (1997)” the court allowed deductions
to taxpayer for additional clothing because it was compulsorily required for the taxpayer’s
job3.
As per the “section 8-1, ITAA 1997” expenses or outgoings occurred in producing the
assessable income are allowed for deduction. Self-education expenditure associated to the
occupation in which the taxpayer is not currently engaged is not allowed for deduction since
the expenses fails to meet the nexus test. As held in “FCT v Maddalena (1971)” expenditure
to obtain the new employment was not allowed for deductions because it was not in the
course of producing taxable income.
Application:
With reference to “section 6, ITAA 1936” receipts of salary from employment by
Danijela constitute personal service income and it will be liable for assessment purpose.
Citing the case of “Scott v CT (1935)” the receipts of salary will be taxable as ordinary
income under the “section 6-5, ITAA 1997”4. Furthermore, the bank interest received by
Danijela constitute income which is beneficially derived by her. Therefore, it will be
subjected to tax as ordinary income.
3 Barkoczy, Stephen, Foundations Of Taxation Law 2014
4 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)

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Danijela also won prize money for writing research paper which was later published
into magazine. Citing “FCT v Stone (2005)” Danijela will be considered taxable because the
prize received is related to her skill and knowledge. The amount will be taxable as ordinary
income under “section 6-5, ITAA 1997”5. During the year Danijela owned a painting which
she bought for $30,000 and was sold for $25,000. This resulted in capital loss for Danijella
from the personal use asset. As a result she can carry forward the loss to the subsequent year.
Danijela incurs expenses on purchase of t-shirts which is required to compulsorily
wear at her work. Citing “FCT v Edwards (1997)” she can claim deduction for the
compulsory clothing under “section 8-1, ITAA 1997”. She also incurs an expense of $300 for
getting tax advice on setting up family trust. Danijela will be denied deduction under the
“section 8-1, ITAA 1997” because the expenses fail to meet the positive limb criteria and
were not incurred gaining or producing assessable income.
During the year Danijela also reports the expenses incurred for self-education purpose
with the hope of getting promotion. Quoting the decision made in “FCT v Maddalena
(1971)” expenditure incurred for undergoing managerial training is not allowed for
deductions under “section 8-1, ITAA 1997” because the expenditure is not associated to the
occupation in which she is currently employed and occurred at point too soon6.
In the books of Danijela
Computation of Assessable Income
For the year ended 2018
Particulars Amount ($) Amount ($)
5 Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook
Co./Thomson Reuters, 2013)
6 Woellner, R. H et al, Australian Taxation Law 2014

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Gross Salaries (12,000 x 12 months) 144000
Interest from Bank Account (50% Beneficial Interest) 2400
Winnings from Prize money 5000
Total Assessable Income 151400
Allowable Deductions
Compulsory Clothing 400
Total allowable deductions 400
Total Taxable Income 151000
Conclusion:
Conclusively, the total amount of taxable income for Danijella for the year ended
stands $151,000, based on which she will be required to pay tax.

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References:
Barkoczy, Stephen, Foundations Of Taxation Law 2014
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2014
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Sadiq, Kerrie and Cynthia Coleman, Principles Of Taxation Law 2013 (Lawbook
Co./Thomson Reuters, 2013)
Woellner, R. H et al, Australian Taxation Law 2014