Taxation Law Assignment: Gift, Rewards, and Residency Analysis

This document presents a comprehensive solution to a taxation law assignment. The assignment addresses three key areas: the treatment of gifts for tax deduction purposes, the tax implications of flight rewards received through customer loyalty programs, and the determination of residency status for tax purposes. The solution analyzes relevant sections of the Income Tax Assessment Act 1936 and 1997, along with associated taxation rulings and case law, to provide detailed answers to each question. Specifically, it examines whether a gift of money from parents is deductible, whether flight rewards constitute assessable income for both employees and business taxpayers, and how the residency test applies to an individual intending to set up a business in Australia. The document provides a clear and concise analysis of each scenario, supported by legal references.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Answer to question A:
The taxation ruling of TR 2005/13 provides the explanation of the gift for the
purpose of gift deductions under the provision Division 30 of the ITAA 19971. The ruling
provides the principle that is relevant in the determination of fact that whether the particular
transfer of money or property may constitute gift. As evident from the current situation it can
be seen that Johanna received a gift of $2,000 from her parents and under section 78 A of the
ITAA 1936 concerning gifts states the situations in which gift are considered as deductible
gift recipient which is not allowed as permissible deductions under division 30 of the ITAA
19972.
In order to determine whether the gifts shall be considered as the necessary to take
into the considerations the entire set of circumstances that is necessary to take into the
considerations the entire set of circumstances that surrounds the transfer and this might be
included in the considerations of parties instead of the person giving the gift. In accordance
with the present circumstances it can be stated that Section 78 A is not applicable in the
present context of Johanna for deductions of genuine gifts that is made under the ordinary
situations. Hence, the gifts will be considered as assessment and no deductions will be
allowed to Johanna.
1 Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).
2 Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016.
Oxford University Press, 2016.

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Answer to question B:
The Taxation Rulings of TR 1999/6 is dealing with the implications of tax for flight
rewards that is derived from the programs of customer faithfulness scheme following the
verdict made in Payne v. FC of T (1996) 66 FCR3. According to the section 6-5 or 6-10 of
the Income Tax Assessment Act 1997 flight rewards and package holidays will be
considered as assessable income. At the time of ascertaining the implications of tax for
rewards that is obtained from the supplier the flight reward will be assessed in the form of
regular income under the section 6-5 of ITAA 1997 for the reason that only the taxpayer can
include the non-cash benefit treated as taxable income and therefore will constitute an
assessable income. In the present circumstances of Suka flight reward received from supplier
for a free return trip to New Zealand shall be considered as the chargeable profits under
section 6-5 or 6-10 of the Income Tax Assessment Act 1997.
As held in FC of T v.Cooke and Sherden 80 ATC 4140 (1980) the court concluded
that the flight reward will be considered as income in accordance with the ordinary concepts.
It was determined by the court that the flight reward does not constitute cash or money’s
significance and flight reward could not be exchangeable in cash. Therefore, for an employee
flight reward would not be regarded as income.
In accordance with Section 21 A of the ITAA 1936 it states that in ascertaining the
proceeds generated by the taxpayer as a non-cash commercial benefit which is not
convertible to cash must be assessed in the form of convertible to cash4. The issue in the
3 ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
4 Anderson, Colin, Jennifer Dickfos, and Catherine Brown. "The Australian Taxation Office-
what role does it play in anti-phoenix activity?." INSOLVENCY LAW JOURNAL 24.2 (2016):
127-140.

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present scenario of Suka represents a non-cash business benefits which is regarded under
Taxation ruling of TR 2005/13. For a flight return to be considered as chargeable income to
a business taxpayer, it should possess the character of the ordinary profits with the exemption
that it should not be exchangeable in cash.
Citing the reference of Scott v. FC of T (1966) 117 CLR 514, the high court stated its
viewpoint that before bringing an amount within the paragraph 26 (e) of the ITAA 1936 or
section 15-2 of the ITAA 1997 it will be considered as ordinary income. In the present
context of Suka being a commercial taxpayer could have the flight return being treated in the
form of regular income under section 6-5. This is because Suka is a business tax payer and
the receipt of non-cash benefit will be treated in the form of income and hence it will be
considered as the ordinary income.
Answer to question C:
Reside test is used in determining the whether a person lives in Australia in
accordance with the ordinary sense of the word “Resides”. From the current scenario of Bin it
is evident that he intends to set up the business in Melbourne however to finalize the matters
he had to return to Hong Kong in the month of March 20175. According to the section 995-1
of the 1936 it can be stated that a person needs to satisfy the primary test of Resident or
resident of Australia to be regarded as an Australian resident.
As held in FC of T v. Applegate 79 ATC 4307 (1979) ATR 899 the place of abode
forms the major determinant in determining the tax liability of an individual. According to
5 Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.

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the Taxation ruling of IT 2650 to ascertain the residential status it is necessary to perform
the 183 day test or the domicile test to determine the residential status of Bin. According to
the ruling of IT 2650 it is necessary to determine the actual length of stay of an individual in
the overseas country6. From the present case study it is evident that Bin had not stayed in
Australia continuously for a period of six months or more.
The period and permanence of the Bin’s existence in Australia was not continuous in
nature however it is evident that to consider the intention of the Bin of taking up home in
Australia to make their home indefinitely. In conformity with the subsection 6 (1) of the
Income Tax Assessment Act 1936 Bin will not be considered as the Australian resident
because he did not resided in Australia constantly for a minimum period of six months and
does not attracts tax liability for the year ended 30 June 20177.
6 Tran-Nam, Binh, and Michael Walpole. "Tax disputes, litigation costs and access to tax
justice." eJournal of Tax Research 14.2 (2016): 319.
7 James, Kieran. "The Australian Taxation Office perspective on work-related travel expense
deductions for academics." International Journal of Critical Accounting 8.5-6 (2016): 345-
362.

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Reference List:
Anderson, Colin, Jennifer Dickfos, and Catherine Brown. "The Australian Taxation Office-
what role does it play in anti-phoenix activity?." INSOLVENCY LAW JOURNAL 24.2 (2016):
127-140.
Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
James, Kieran. "The Australian Taxation Office perspective on work-related travel expense
deductions for academics." International Journal of Critical Accounting 8.5-6 (2016): 345-
362.
Newman, Sally. "The new CGT withholding regime: More than meets the eye." Proctor,
The 36.5 (2016): 18.
ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
Tran-Nam, Binh, and Michael Walpole. "Tax disputes, litigation costs and access to tax
justice." eJournal of Tax Research 14.2 (2016): 319.
Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016.
Oxford University Press, 2016.