Taxation Law Assignment - Individual Analysis Report - Term 2 2019

This document presents a comprehensive solution to a Taxation Law assignment, addressing key aspects of Australian tax law. The assignment analyzes various topics, including the definition of a small business entity, deductibility of gifts, and the application of capital gains tax (CGT). It delves into the concepts of ordinary and statutory income, Medicare Levy and Surcharge, and the residency tests under section 6.1 of the Income Tax Assessment Act 1936. The solution also examines deductible expenses, such as those related to work-related travel, books, and professional development, while providing justifications based on relevant legislation and case law, including the Income Tax Assessment Act 1997, TR 2019/1, and cases like Hayes v FCT, FC of T v Applegate, and Lodge v Federal Commissioner of Taxation. The assignment covers the specific scenarios, determining whether certain expenses are deductible or not, and provides detailed explanations for each situation, making it a valuable resource for students studying taxation law.

Running head: TAXATION LAW
TAXATION LAW
Name of Student
Name of University
Author Note

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Question 1
(a) In the Taxation Ruling TR 2019/11 the topic that has been covered is the consideration of
a company’s activity to be carrying out a business as a small business entity defined
under the provision of section 23 of the Income Tax Rates Act 19862.
(b) Division 30 in the Income Tax Assessment Act 19973 is seen to be outlining the
legislations for the deductibility of gifts and contributions.
(c) The top tax rate that would be seen as applicable to a resident taxpayer in the tax year
2019-20 is $54,097 with an addition of 45% to any amount that exceeds $ 1,80,0004.
(d) As mentioned in section 118.5 of the Income Tax Assessment Act 19975 cars and
motorcycles should be treated as an exemption of capital gain tax.
(e) Under the provisions of section 104.20 of ITAA 19976 CGA event C1 deals with the loss
or destruction of any asset that is owned by the taxpayer and is a capital in nature.
(f) The current tax-free threshold for any resident individual is an income that could be seen
as amounting to less than $18,200.
(g) The legal principle that could be seen as evolving with High Court decision in Hayes v
FCT [1956]7 was that for the assessment of the CGT gain, any amount that has been
received by a taxpayer for the past services rendered by him, is required to be considered
as CGT gain. As an example an amount received by any employee for the past
1 TR 2019/1
2 Income Tax Rates Act 1986, s.23
3 Income Tax Assessment Act 1997, div.30
4www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
<https://www.ato.gov.au/Rates/Individual-income-tax-rates/>.
5 Income Tax Assessment Act 1997, s.118.5
6 Ibid, s.104.20
7 Hayes v FCT (1956) 96 CLR 47

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employment services and the receipt for which has been accrued in the past would be
considered under the assessable income for CGT gain. However, in deciding upon the
situation in the given case the judge were seen to be reaching a dilemma between whether
the receipt that the employee had received from his past employers for previous services
of employment that had been rendered should be included in the capital gain or should be
treated as an ordinary income. The judges reached to the conclusion that any income
received by the taxpayer for applying to the personal exertion should be treated as an
ordinary income of that individual, however the receipt from a former employer that has
already been accrued but has not been provided to the employee would be acquiring the
nature of capital asset because the employee had received the same as a lump-sum
amount subsequently from its accrual.
(h) The categories of the taxable income that had been mentioned in the taxation law provide
for two different classes of income that an individual taxpayer can earn. These two
classes of income can be recognized as ordinary income and statutory income. Ordinary
income of an individual can be described as all the incomes that have been derived by an
individual directly or indirectly from any source during a financial year. An ordinary
income can be seen as including the salary of an employee or any payment received for
rendering personal services. Statutory income can be referred to as to incomes other than
ordinary income but are included in the assessable income through rule of law. Some of
the examples of statutory incomes can be seen as CGT gains, dividends, allowance and
redundancy payments. For the assessment of the ordinary incomes any stringent rules are
not seen as necessary to be in compliance with, however a statutory income would be
considered as taxable only if it is supported by any legal provision of a statute. For an

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ordinary income to be assessable income there is no need of any express mention in any
taxation statute, but for the statutory incomes statutory recognition is necessary to be
considered as assessable income8.
(i) Certain categories of the taxpayers are seen as required to be paying additional amount of
taxes over the payable income tax. These additional taxes are including Medicare levy
and Medicare levy surcharge. The Medicare Levy and the Medicare Levy Surcharge can
be seen as implying towards the taxpayers two additional tax rates. These two taxes are
imposed under the provisions of the Medicare Levy Act 19869 and the ITAA 193610. The
purpose of the introduction of the Medicare Levy Surcharge was for the encouragement
high income earning taxpayers to be paying health insurance which in turn would be
reducing the burden of the Medicare. The Medicare Levy Surcharge is applicable only
towards the taxpayers without any type of private health insurance. The Medicare Levy is
seen as imposable upon both the total income and the Fringe Benefits available to a
taxpayer. The rates for this type levy can be observed as varying between 1%, 1.25% and
1.5%11.
Question 2
For assessing the residency of any individual in Australia three tests are required under
the provisions of section 6.1 of Income Tax Assessment Act 193612. These three tests are the
domicile test, the resides test and the super admission test. In addition to these the ‘183 days test’
8 Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.
9 Medicare Levy Act 1986
10 Income Tax Assessment Act 1936
11 Krassnitze, L., & Willis, E. (2016). The public health sector and medicare. Understanding the Australian health
care system, 3.
12 Income Tax Assessment Act, s.6.1

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is also seen as a requirement for the assessment of the taxability of any individual either living or
having any attachment with Australia. When discussing about the aforementioned tests two
concepts can be seen to be found under the provisions of this section. These two concepts are
‘usual place of abode’ and ‘permanent place of abode’. Although these two concepts sound
similar but both have been assigned under the Australian taxation law with distinct meanings.
For the assessment of the two concepts the actual meaning for the term ‘place of abode’ should
be clarified. The concept of place of abode can be analyzed in details under the provisions laid
down by the judges in the case I.R.C. v. Lysaght (1928)13. According to the judgment of the case,
a place of abode is required to be considered as any residential property that the taxpayer can be
seen as holding through either ownership or lease with the intent to be dwelling or living in the
place with all his surroundings and his family present.
The decision in the case FC of T v Applegate14 can be seen as providing for the best
explanation of the concept of Permanent place of abode. A permanent place of abode, as per the
provisions of the case, can be described as a place where the taxpayer has been seen as living
with the intent to reside there for a significant time period without any contention for leaving that
place. Due consideration is needed for the consideration of the motive of the person living in that
property. This has further been discussed in the case F.C. of T. v. Jenkins15.
The assessment of the concept of ‘usual place of abode’ is seen to be needed in relation to
domicile. The requirement for this assessment is to be living in a property for the main purpose
of living as per the custom. A rented accommodation can also be considered as a usual place of
abode if an individual lives in that place for a considerable time. Such a residence, however is
13 I.R.C. v. Lysaght (1928) A.C.234
14 FC of T v Applegate 79 ATC 4307
15 F.C. of T. v. Jenkins 82 ATC 4098

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required not to be confused with a permanent place of abode. This has been further discussed in
the judgment of the case Levene v. I.R.C.(1928)16.
Question 3
(a) Under the provisions of section 8.1 of the ITAA 199717 the expenditure that arises in
relation to the process of an individual’s earning of income that can be seen as assessable
has been mentioned. For the claim of any such deduction the taxpayer needs to be
representing the fact that the expenditure did not have any type of connection with any
private or domestic purpose but is solely on the basis of the income earning process. In
the current scenario, the expense towards the HECS-HELP that amounts to $850 is seen
as being incurred by way of a personal student loan and has no connection whatsoever
with the individual’s assessable income and hence there would not be any deduction
(b) As per the section 25. Of the ITAA 199718 the expense of an individual while travelling
to workplace is seen as being allowed as deductible expenditure. In the current scenario
the expenditure that can be seen as being incurred by way of travelling to the university
from workplace amounting to $110 would be seen as to be treated as a deductible
amount.
(c) Under the provision of section 8.1 of the ITAA 199719 the expenses that arise because of
the process of earning of an individual’s assessable income should be considered as a
deduction towards the assessable income of the particular individual. For the claim of any
such deduction the taxpayer needs to be representing the fact that the expenditure did not
16 Levene v. I.R.C.(1928) A.C.217
17 The Income Tax Assessment Act 1997 (Cth), s 8.1
18 Ibid, s 25.100
19 Ibid, s 8.1

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have any type of connection with any private or domestic purpose but is solely on the
basis of the income earning process. In the current scenario the expense incurred by a
taxpayer for acquiring books that is of the worth $200 should be considered as a
deductible expense as the income can be seen as incurred for the improvement of
knowledge and skills of the accountant which would in future would be seen as assisting
him in his income earning process. Hence, this amount would be considered as
deductible.
(d) Under the provision of section 8.1 of the ITAA 199720 the expenses that arise because of
the process of earning of an individual’s assessable income should be considered as a
deduction towards the assessable income of the particular individual. For the claim of any
such deduction the taxpayer needs to be representing the fact that the expenditure did not
have any type of connection with any private or domestic purpose but is solely on the
basis of the income earning process. This has been discussed in the case Lodge v Federal
Commissioner of Taxation [1972]21. The expenditure for $80 that had been incurred for
child care during evening classes cannot be considered as an expenditure in relation to
the profession of the taxpayer. It can be considered to be more of a domestic or private
expense. Hence, it would not be deductible.
(e) Under the provision of section 8.1 of the ITAA 199722 the expenses that arise because of
the process of earning of an individual’s assessable income should be considered as a
deduction towards the assessable income of the particular individual. For the claim of any
such deduction the taxpayer needs to be representing the fact that the expenditure did not
have any type of connection with any private or domestic purpose but is solely on the
20 The Income Tax Assessment Act 1997 (Cth), s 8.1
21 Lodge v Federal Commissioner of Taxation [1972] HCA 49
22 The Income Tax Assessment Act 1997 (Cth), s 8.1

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basis of the income earning process. This has been discussed in the case Lodge v Federal
Commissioner of Taxation [1972]23. The expenditure of $250 that had been incurred for
repairing fridge at home cannot be considered to be an expense related to the profession
of the taxpayer. Hence, it would not be deductible.
(f) The expenditure that the taxpayer was seen as incurring for purchasing of clothes to be
worn in her workplace cannot be considered as deductible under the section 8.1 of ITAA
1997. Therefore, amount of 145 dollars for the purpose of purchasing black trousers as
well as shirts will not be permitted as an amount which is deductible.
(g) Under the provision of section 8.1 of the ITAA 199724 the expenses that arise because of
the process of earning of an individual’s assessable income should be considered as a
deduction towards the assessable income of the particular individual. For the claim of any
such deduction the taxpayer needs to be representing the fact that the expenditure did not
have any type of connection with any private or domestic purpose but is solely on the
basis of the income earning process. This has been discussed in the case Lodge v Federal
Commissioner of Taxation [1972]25. In the current situation $300 spent for an
employment contract instituted with the new employer would not be seen as constituting
as a deductible expense as it can be seen as being incurred for the purpose of earning of
future income but itself does not constitute directly as an assessable income and therefore
will not be considered as a deduction.
23 Lodge v Federal Commissioner of Taxation [1972] HCA 49
24 The Income Tax Assessment Act 1997 (Cth), s 8.1
25 Lodge v Federal Commissioner of Taxation [1972] HCA 49

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Question 4
(a) The CGT events F2 category can be seen as dealing with the rent or lease of any property
that can be seen owned by any individual. The specific CGT event can also be seen as
including a fresh grant of lease, renewal or extension to a previous lease. However, a
discount of 50% would not be seen as being available in this CGT event. Therefore, the
$7,000 that John, the owner of the property, received from David for the lease would be
considered as CGT event F2 and would be seen as being subjected to the capital gain tax
in accordance without any imposition of the 50% discount26.
(b)
CGT Computation
2018-19
Item $ $
Shares for IOOF
Net gain CGT 1200
Proceeds of the Cost 6700
Base Cost 5500
Shares for Greencross
Net gain CGT 5880
Proceeds of Cost 14160
Base Cost 20040
Net Loss of CGT
458
0
26 Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016)

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(c) According to section 118.100 of the ITAA 199727, if a property has been occupied by any
person with the consideration of it being seen as the main residence, the proceeds earned
from the sale of property would be allowed to be considered as being an exemption from
the CGT. However for such exemption to be availed the property would be required for
being lived upon as a main residence. In the case of any business or any similar profit
making scheme can be seen as being carried out in a part of that specific property and the
rest is seen to be used for the residential purposes, the proceeds from the sale of the
property should be considered as exemption only for the part which has been seen to be
used as a residence and should be calculated proportionally.
(d) Cost base can be seen as implying the expenses which are incurred for acquiring an asset
under section 110.25 of ITAA 199728. Such costs can be seen as including cost of
purchase of the asset and additionally holding and disposal cost pertaining to the asset.
Reduced cost base, on the other hand, under section 110.55 of ITAA 9729 is required to be
calculated if transaction of capital nature is not seen to be presenting any gain.
Question 5
(a) As per the case FC of T v La Rosa 2003 ATC 451030 Any income that has been earned
through illegal ventures would not typically be considered as assessable. However, it
would be considered as assessable only if it has been seen to be executed in a way
which would be depicting the business.
27 The Income Tax Assessment Act 1997 (Cth), s 118.100
28 Ibid, s 110.25
29 Ibid, s 110.55
30 FC of T v La Rosa 2003 ATC 4510

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(b) As per the case Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2
ATD 131, income earned from the exploitation of any property through rent would be
considered ordinary income. As per Evans v. F.C. of T. 89 ATC 454032, income from
any activity that can be seen as to involve gambling outside the scope of any business
like manner will not be considered as an assessable income. Hence, in the current
scenario, $500 from bank as interest would be considered as an assessable income,
winnings received from casino would not be seen as including in the taxable income
and the rent of $2000 would be seen as to be treated as assessable income.
(c) Under section 15.2 of ITAA 199733 any amount that has been provided as an
allowance of an employee by employer against his employment would be considered
as being assessable for the employee.
For an income $ 20,000,
Not imposing Medicare Levy
For income $ 24900,
2% Levy $ 498
For taxable income $100,000
2% Levy $ 2000.
e) For income $ 25,000, tax rate applicable would be 19 % over $18,200
($25,000 – $18,200) * 19% = $6,800 * 19% = $ 1,292
31 Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 1
32 Evans v. F.C. of T. 89 ATC 4540
33 The Income Tax Assessment Act 1997 (Cth), s.15.2

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The gross payable tax = $1,292.
For income $ 40,000, tax rate applicable 3,572 and 32.5 % over $ 37,000
$3,572 + (40,000-37,000) * 32.5% = $ 3,572 + 32.5% * $3,000 = ($3,572 + $975)
gross tax payable = $ 4547.
For income $ 95,000, tax rate 20,797 and 37% over $ 90,000
$ 20,797 + (95,000-90,000)* 37% = $20,797 + 37% * $5000 = ($20,797 + $1850)
gross tax payable = $ 22647.