University Taxation Law Case Study: Individual Taxpayer Assessment 2

This case study provides a comprehensive analysis of an individual taxpayer's tax obligations, covering various income sources, deductions, and tax offsets. The assignment examines income from employment, including gross wages, allowances, and fringe benefits, as well as income from business activities, such as receipts, trading stock, and private expenses. It also delves into income derived from rental properties, including rent, compensation, and deductible expenses like mortgage interest and travel. The assessment further explores the application of relevant tax legislation, including ITAA 1997 and FBTAA 1986, and the implications of specific deductions and offsets, such as those related to dependent spouses. The analysis incorporates case law to support the tax treatment of different income and expense items, providing a detailed understanding of the tax implications for the individual taxpayer.

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
Income and Expense Information:.............................................................................................2
Part A: Income from Employment:............................................................................................2
Part B: Income from business:...................................................................................................4
Part C: Income from Rental Property:.......................................................................................7
Dependent tax Offset:................................................................................................................9
References:...............................................................................................................................11

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Income and Expense Information:
As per “sec 6-5 ITAA 1997” the ordinary income is an income that is in agreement
with the ordinary concepts. Interest is held as ordinary income and included in taxable
income. Eric has a joint term deposit account with his wife Linda in ANZ bank and earns an
income of $500 (Burman et al., 2016). The interest is an ordinary income under “sec 6-5
ITAA 1997” and included in taxable income of Eric.
Specific deduction is given in “sec 25-5 ITAA 1997” for outgoings incurred in
managing tax affairs. Eric has paid $400 to a tax agent for preparing his tax return. Therefore
it is allowable specific deduction under “sec 25-5 ITAA 1997”.
Part A: Income from Employment:
When a taxpayer gets a receipt from the employment and from delivering any sort of
personal services then it may be considered as the subject of tax for the employee or may be
held as fringe benefit tax for the employer. The receipt should be having nexus with the
personal service to constitute ordinary income. The example of “Dean v FCT (1997)” says
that retention payment given to employee for being employed was held as income in nature
(LeFevre, 2016). Similarly, Eric has received $7,800 as gross wages by working as employee
for Blue Merlin. The gross wages is a personal service income. Noting “Dean v FCT
(1997)” is a subject of tax for Eric and it is included for assessment as ordinary income under
“sec 6-5 ITA Act 97”.
Employees generally faces problem in understanding as what constitute allowance or
reimbursement. Allowances are salary and wages and it is simply excluded from being
considered as fringe benefit. It is treated taxable in the employees hand under the statutory
provision of “sec 15-2 ITAA 1997”. On the other hand, reimbursement is not a wages or
salary. The finding of court in Roads and Traffic Authority of “NSW v FCT (1993)” says

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that a reimbursement is payment given for the actual outgoings that is occurred
(Braunerhjelm & Eklund, 2014).
Eric has got a shift allowance of $2,000. Within the provision of under the statutory
provision of “sec 15-2 ITAA 1997” the amount is treated taxable in the Eric’s hand. Whereas
the reimbursement of $800 is not a taxable salary or wage income for Eric. Noting “NSW v
FCT (1993)” reimbursement is payment given to Eric for the actual outgoings that is
occurred.
Under the “sec 7 (1) FBTAA 1986” when the employee is given a car for their private
usage by employee then it is a car fringe benefit. Similarly, a car is received by Eric during
the year by his employer (Arnold et al., 2019). The car is used for private purpose of Eric and
constitute a non-assessable fringe benefit under “sec 7 (1) FBTAA 1986”. The employer of
Eric is required to pay FBT since the benefit was given to Eric in relation to his direct
employer with the employment.
The provision of “sec 8-1 ITAA 1997” is applied on all the taxpayers for the loss or
expenditures occurred in deriving the chargeable earnings. Eric has work related deduction
amounting to $300 for work purpose. The expenses are allowable as deduction under the
general provision of “sec 8-1 ITAA 1997”.

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Part B: Income from business:
When a taxpayer gets any proceeds from their business activity, it attracts income tax
liability for the income earned from business. The verdict noted in “GP International
Pipecoaters Pty Ltd v FCT (1990)” says that business incomes will be considered as ordinary
incidents of commercial activity and it is taxable within “sec 6-5 ITAA 1997” (Tran-Nam et
al., 2014). Accordingly, the taxpayer are also required to denote that they must account their
income under either cash method or accrual method.
The cash basis of tax accounting involves taking into account those receipts that are
received in cash. The accrual basis of tax accounting method says that all the income earned
which is yet to receive is also taken into the consideration. The federal court explained in
“Firstenberg v FCT (1976)” stated that the cash basis of accounting is the right method
because it is useful in showing the true income of the taxpayer.
The case facts obtained suggest that Eric has got a sum of $85,000 from the accounts
receivable. The judgement of “GP International Pipecoaters Pty Ltd v FCT (1990)” is
mentioned to take into account the receipts as taxable proceeds of business under under “sec
6-5 ITAA 1997” (Murphy, 2019). To account for the receipts, cash basis of tax accounting
method is followed. Referring “Firstenberg v FCT (1976)” the cash basis will help in
providing a right reflection of Eric’s taxable income.
When a taxpayer purchases any trading stock then they are allowed for deduction
under “sec 70-15 ITAA 1997”. The payment which Eric has made for accounts payable will
permitted for deduction to Eric under “sec 70-15 ITAA 1997” (Smith, 2015). Furthermore,
within “sec 70-35 (3) ITAA 1997” a taxpayer is permitted to get deduction when the opening
stock value is greater than closing stock. The case facts of Eric provides that the value of

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opening stock is in excess of the closing stock. As a result an income tax deduction for the
excess value is allowed as deduction within “sec 70-35 (3) ITAA 1997”.
Income From Business
Particulars Amount ($)
Cash Receipt 85000
Volume rebates from overseas suppliers 3500
Other income
Compensation for loss of Income 7900
Interest from Joint Account 250
Deduction is denied to taxpayer within “sec 8-1 (2) ITAA 1997” of the negative limbs
when the outgoings occurred are domestic, capital or private in type (Woellner et al., 2016).
The case facts obtained suggest that Eric has withdrawn cash and have taken goods from the
business for the personal consumption in family. The drawings of closing stock for personal
consumption and cash withdrawn are treated as private expenses and falls within the negative
limbs. As a result under “sec 8-1 (2) ITAA 1997” deductions will be denied to Eric.
The receipt of compensation payment for the loss of income within the insurance
policy is termed as taxable receipt within the legislative provision of “sec 25 and 26J of the
ITAA 1936”. The judgement of court noted in “FCT v DP Smith (1981)” explained that
compensation receipt for the loss of income under the insurance policy is a taxable income

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(Barkoczy, 2017). During the year Eric reports the receipt of compensation payment for the
loss of income under insurance policy. Quoting the example of “FCT v DP Smith (1981)”
the compensation got by Eric is a taxable receipt within the legislative provision of “sec 25
and 26J of the ITAA 1936”. Later Eric is found to have paid a fine of $900 in breach of
consumer law in Australia. Eric will be denied deduction within “sec 26-5 ITAA 1997”.
Decline in Value:
Assets Costs Purchase date Effective life Adjustible value Business use Div Method Days Held Decline in Value
Mobile Phone [phone] 2188 60% Diminishing value 365 656.4
Office Furniture 15000 01-06-2017 10 13375 100% Prime Cost 365 1337.5
Laptop Computer 4000 01-08-2018 3 100% Prime Cost 333 1216.4
Printer 150 01-03-2019 2 100% Prime Cost 121 24.9
An income tax deduction is permitted for decline in value of depreciating asset held
for generating income. Whereas in “sec 40-25 (2)” deduction for decline in value is reduced
when the asset is found to be used for both private and taxable purpose. Eric uses the mobile

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phone 60% in relation to business purpose. Hence, a deduction for decline in value of mobile
phone can be claimed by Eric under “sec 40-25 (2)” up to 60% of the taxable business use.
Part C: Income from Rental Property:
As the general rule rent is ought to be treated as the payment which is given by a
person for using another person’s property for a specified time. The ordinary income rule
states that rent is taken into consideration as the taxable income under “sec 6-5 ITAA 1997”
(Fry, 2017). Rent is treated as income within the flow concept because rent usually flows
from rental property. In the current circumstances it is found that Eric has received rent of
$23,750 for the year ended 30th June 2019. The rental income that Eric has got will be viewed
as taxable rental income under “sec 6-5 ITAA 1997”, based on the flow concept.
As a general rule, the compensation income that is received by taxpayer is known as
ordinary income. The judgement denoted in “CT v Phillips (1936)” found that amount
received as compensation that might have been the ordinary income carries the characteristics
of ordinary income (Sadiq, 2019). As evident Eric has got a compensation payment from the
rental board amounting to $1,300 for the tenants that did not paid the due rent and simply left
the property. The decision of “CT v Phillips (1936)” is referred in the circumstances of Eric
to state that the compensation that is received from the rental board will attract tax liability in
agreement the ordinary meaning of “sec 6-5 ITAA 1997”.
The legislative provision of “sec 8-1 ITAA 1997” says that a taxpayer is permitted
with an income tax deduction when the expenditure they occurred are associated to the
derivation of income or necessarily occurred while carrying on business (Anderson et al.,
2016). The case study provides that Eric has paid an interest for mortgage associated to his
rental property. The mortgage interest will permitted as tax deduction under the legislative

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provision of “sec 8-1 ITAA 1997” because expenditure they occurred by Eric in the
derivation of rental income.
Further information furnished by Eric provides that he has incurred expenses on
painting the walls of the property. The explanation given in “sec 25-10 (3) ITAA 1997”
suggest that no deduction is allowed for repairs that amounts to capital in nature. A repair
may be held as capital in nature when the repair involves initial repair of an asset. The verdict
announced by the federal court in “Law Shipping Co Ltd v Inland Revenue Commissioners
(1923)” explained that where an outgoing has incurred in initial repair of ship following the
purchase will not be allowed as deduction because such repairs are treated as initial repair
(Barkoczy, 2016). Corresponding to the example cited above the paintings carried out by Eric
on the outside wall of house is an initial repair. The expenses are classified as capital in
nature and non-deductible under “sec 25-10 (3) ITAA 1997”.
Travel expense occurred on the rental property are permitted as tax deduction. The
travel expense include the outgoings that have happened in inspecting the property (Schenk,
2017). Eric reports a travel expense amounting to $830 for inspecting the rental property and
meeting with the agents. The expenditure is an allowable tax deduction within “sec 8-1 ITAA
1997”.
Borrowing fees of greater than $100 are deductible over several years. The borrowing
fees can be allowed for deduction for a period of five years or up to the loan period. Eric
during the year incurs a borrowing expenditure of $825 which he incurred while buying the
investment house. As the borrowing expenditure is greater than $100, Eric is recommended
to deduct the expenditure over the term of loan.
The description of “sec 40-25 (1) ITAA 1997” makes the taxpayer aware that they are
permitted to obtain an income tax deduction for the decline in value of a depreciating asset in

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the year that is held for generating income (Morgan et a., 2018). The assets that is installed in
the rental property are allowed for deduction based on the effective life of asset.
Particulars Amount ($)
Rent Received 23750
Compensation from rental bond board 1300
Rent in advance 3000
Insurance recovery for storm damage 2100
Total Rental Income 30150
Allowable Rental Deductions
Decline in value (Note 1)Rental property
Carpets 1000.0
Hot water system 100.0
Ceiling fans 320.0
Barbecue (fixed) 140.0
Window blinds internal 800.0
Window curtains 1000.0
Mortgage repayments to Westpac Bank - Interest 23800
Loan application fee 82.5
Council and water rates 3400
Building insurance premium 850
Payments to solicitors
Lease preparation fees 150
Ejecting tenants 375
Garden hose and attachments 165
Travel cost 830
Pest control 280
Payment to registered tax agent 170
Total Rental Deductions 33462.5
Net Rental Loss -3312.5
Income from Rental property
Dependent tax Offset:
The Australian Taxation Office says that a deduction is permitted to taxpayer when
they are found to have an invalid spouse. In other words, an individual taxpayer is allowed to
get tax offset if they have a spouse that is invalid or the taxpayer is exclusively caring for his
invalid spouse (Bankman et al., 2018). The carer is only eligible for tax offset if they receive

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the carer payment or carer allowance within the “Social Security Act 1991” for the care they
give to that person or they are completely engaged in providing care to an individual that
receives disability support pension with “Social Security Act 1991”.
The case facts that is obtained from Eric furnishes that he has a spouse named Linda
that has lost her eye sight in a car accident. Eric exclusively takes care of Linda and she gets a
disability pension of $9,200 from the centre link during the year 2019. It can be stated that
Eric is eligible for obtaining a invalid and invalid carer tax offset because Eric spouse is an
invalid and receives a disability support pension under the “Social Security Act 1991”.

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References:
Anderson, C., Dickfos, J., & Brown, C. (2016). The Australian Taxation Office–what role
does it play in anti-phoenix activity?. Insolvency Law Journal, 24(2), 127-140.
Arnold, B. J., Ault, H. J., & Cooper, G. (Eds.). (2019). Comparative income taxation: a
structural analysis. Kluwer Law International BV.
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Publishers.
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S. (2017). Core tax legislation and study guide. OUP Catalogue.
Braunerhjelm, P., & Eklund, J. E. (2014). Taxes, tax administrative burdens and new firm
formation. Kyklos, 67(1), 1-11.
Burman, L. E., Gale, W. G., Gault, S., Kim, B., Nunns, J., & Rosenthal, S. (2016). Financial
transaction taxes in theory and practice. National Tax Journal, 69(1), 171-216.
Fry, M. (2017). Australian taxation of offshore hubs: an examination of the law on the ability
of Australia to tax economic activity in offshore hubs and the position of the
Australian Taxation Office. The APPEA Journal, 57(1), 49-63.
LeFevre, T. A. (2016). Justice in Taxation. Vt. L. Rev., 41, 763.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Murphy, K. (2019). Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University.