LAW300 Taxation Law Assignment: Income Tax and Regulatory Measures

This assignment solution addresses a taxation law problem, analyzing income tax, deductions, and the Australian Taxation Office (ATO) regulations. Part A examines income from personal exertion and business, determining assessable income and allowable deductions for Zara and the Smartmans' business, including specific deductions for tax return expenses. It applies relevant sections of the ITAA 1936 and 1997, and case law such as McNeil v FCT and Mansfield v FCT. Part B explores the ATO's IT and regulatory measures, including MyTax, end-to-end solutions, and activity-based compliance. It also discusses policy responses to challenges presented by emerging technologies and the need for reliable data to improve automation and reduce taxpayer compliance burden. The solution provides a detailed computation of Zara's tax liability and discusses the importance of technology and regulatory measures in taxation.

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 Part A:.......................................................................................................................2
Answer to Requirement (i):....................................................................................................2
Answer to requirement (ii):....................................................................................................4
Answer to Part B:.......................................................................................................................5
Answer to requirement (i):.....................................................................................................5
Answer to requirement (ii):....................................................................................................7
References:.................................................................................................................................9

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Answer to Part A:
Answer to Requirement (i):
Income obtained from personal exertion is explained under the “sec 6 (1) ITAA
1936”, and it is not put into use anywhere else in the Act (Woellner et al. 2016). When a
taxpayer earns income from salary, wages, bonus, fees, commissions etc. or any proceeds
from the business falls within the head of “sec 6 (1) ITAA 1936”.. The law court in the
“McNeil v FCT (2007)” explained that whether or not an amount can be classified as income
it is mainly reliant on the quality in the recipients hands and not based on the character of
expenses occurred by other party. Under “sec 6-5 ITAA 1997”, the assessable income
comprises of ordinary earnings under the ordinary concepts.
The case study provides that Zara is employed with American Express in Sydney and
reports the receipt of gross salary that amounted to $225,000. As defined in “sec 6 (1) ITAA
1936”, the gross salary that is received by Sara amounts to income from personal exertion
(Sadiq 2019). Referring to “McNeil v FCT (2007)” the gross salary will be considered
taxable as ordinary income under the “section 6-5 ITAA 1997”.
As explained in “sec 8-1 (1)” a tax payer is permitted to get deduction from their
taxable earnings for any kind of loss or expenses till the extent that it is occurred in earning
taxable earnings or the expenses that are occurred necessarily in conducting the business with
the motive of earning income (Barkoczy 2016). While the negative limb of “sec 8-1 (2)” says
that a person is not permitted to get deduction if the expenses are capital in nature or private
or domestic in type. The taxpayers are required to denote that costs that is occurred in the
ordinary articles of clothing such as suits is not allowed deduction. The decision given in
“Mansfield v FCT (1996)” explained that usually outgoings that is occurred on ordinary

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clothing articles would not be allowed for deduction, irrespective that such kind of outgoings
is important to assure that a suitable appearance is maintained in a specific job or profession.
Sara during the year occurred expenses on dresses, jewellery and personal fitness.
Referring to factual decision made in “Mansfield v FCT (1996)” it can be stated that Zara is
not allowed to claim deduction for the expenses on dresses, jewellery and personal fitness
because it is a private expense under “sec 8-1 (2)” and it is not permitted for deduction
(Taylor et al. 2017). The expenses are not related to derivation of assessable income and
hence it is not relevant in the derivation of the taxable income.
As stated by the ATO, an individual is allowed to claim deduction for the cost that is
occurred in attending the seminars, education, conferences and educational workshops which
is related to the taxpayer’s work related activity. There may be circumstances where the
taxpayer may occur for expenses for meals, accommodation, incidentals at the time of
travelling away for overnight work. The examples include the interstate work related
conferences.
As evident in case of Zara she reported expenses on interstate travel that included air
ticket, food and transportation of $20,000. The expenses will be allowed for deduction under
the general provision of “section 8-1 ITAA 1997”, because the expenses are relevant in the
derivation of taxable income (Morgan, Mortimer and Pinto 2018). Furthermore, Zara also
reported attending an international IT conference and occurred expenses on conference fees,
air ticket and food & accommodation. Zara within “sec 8-1 ITAA 1997”, is allowed to obtain
deduction for conference, air tickets and accommodation because it is adequately related to
her work activities. These expense are directly related to her income producing activities.
Gains that amounts to simple prize winnings are not held as income under the
ordinary concept of “sec 6-5 ITAA 1997” (Keyzer, Goff and Fisher 2017). As held in the

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case of “Moore v Griffiths (1972)” winning any simple prize is not held as income. Zara
during the year won a first prize of Rolex that worth $35,000 in a lucky draw conference. The
amount will not be classified as income because it is a simple prize winnings and does not
relates to any derivation of assessable income.
The definition of business is given in “sec 995-1” comprises of any profession, trade,
employment vocation and calling but do not take into account the employees engaged in
occupation (Robin and Barkoczy 2020). The proceeds that are earned from business are held
as taxable ordinary income under “sec 6-5” and the outgoings occurred for while carrying out
the business are allowed for deduction under “sec 8-1 ITAA 1997”.
In the later part of the case both Mr and Mrs Smartman has opened a home-based
business for developing and marketing a comprehensive computer software. During the year
ended 30th June 2020 the business reported an income of $80,000 while the total expenses
occurred stood $40,000. The proceeds derived from business will be included in her taxable
income as ordinary business gains and will be held assessable under the “sec 6-5 ITAA
1997” (Freudenberg et al. 2017). While the business expenses will be allowed for deduction
within “sec 8-1 ITAA 1997” because the expenses occurred in conducting business activities.
Commonly, a specific deduction happens when the specific provision under the
income tax legislation allows taxpayer with a deduction. As given in the “sec 25-5” taxpayers
are given deduction for specific types of expenses occurred in managing their tax affairs
(Butler 2019). As evident in case of Zara, for the year ended 30th June 2020 reported tax
return expenses for her business and lodgement of personal tax return. Zara will be allowed a
specific deduction under “sec 25-5 ITAA 1997” for the expenses occurred on managing tax
affairs.

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Answer to requirement (ii):
The total tax liability for Zara is computed below;
Computation of Taxable Income
In the books of Zara
For the year ended 30th June 2020
Particulars Amount ($) Amount ($)
Assessable Income
Gross Salary 2,25,000.00
Income from Business 80,000.00
Total Assessable Income 3,05,000.00
Allowable Deductions
Interstate travel expenses 20,000.00
International IT Conference
Air Ticket 4,000.00
Food & Accommodation 1,500.00
Conference Fees 5,000.00
Tax return expenses
Tax return expenses - Personal 2,750.00
Tax return expenses - Pharmacy Hero 1,100.00
Accounting & Other business service 3,300.00
Total Allowable Deductions 37,650.00
Total Taxable Income 2,67,350.00
Tax on Taxable Income 93,404.50
Add: Medicare Levy 5,347.00
Less: Tax Withheld 75,000.00
Total Tax Payable 23,751.50
Answer to Part B:
Answer to requirement (i):
The IT and the Regulatory measures that is adopted by the Australian Taxation Office
are as follows;
Self-service and pre-filling of tax information: On the basis of current trends in tax
administration, the ATO has introduced MyTax digital service. Ever since the introduction of

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the MyTax it is projected that the system has successfully delivered a reduction in the
compliance cost for the individual tax payers of approximately $285 million each year. By
the year April more than $3.2 individual tax returns have been filed by making use of mytax.
It is commonly available in many devices and it is very convenient for the taxpayer. For the
Australian taxation office the return on investment happens based on the fact that the
taxpayers are more likely to be voluntarily adhere with the obligations of tax when doing the
work in quick and easy manner (Main 2019). Taxpayers that are using the my tax also have
the access to the pre-filing services which makes it easy to make sure that they have not
omitted the income such as the salary and wages or dividend and interest.
The study reveals that in spite of the advances the online tax returns for individuals
has been lagging behind. Whereas the electronic lodgement was high for the business but
only two third of the individuals taxpayers that lodge online (Van Brederode 2019). As per
the tax administrators it is estimated that attaining the higher use of electronic lodgement and
payment system will help in reducing the costs and improving the service to the taxpayers.
The most significant innovation in this respect involves the provision of pre-filled tax
information for the individual tax payers.
End to end solutions:
The latest innovation involves the modern tax administration ecosystem which
involves several partners in public and private sector along with the taxpayers themselves.
This has allowed the tax administration at ATO to submit an advice regarding the
effectiveness that the end to end solution is integrated into the natural system that these
products affords both the agency and businesses.
An important significant improvement that has happened for the business that has
employers is the super stream that has streamlined the procedure of paying the

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superannuation contribution for employees (Hum et al. 2019). This has enabled them to use
the single channel for paying multiple funds. It is anticipated to render savings to the
employers of around $350 million per year. The single touch payroll system would
additionally streamline and automate the obligations for reporting for employers through their
regular payroll events. From the perspective of technology, an ecosystem is built around the
core accounting system. With Xero being an international accounting platform, the
innovation provides effective horizontal accounting regime which is integrated through the
ATO if some is a tax agent. Besides this, it is also thriving the ecosystem of industry through
specific vertical applications.
Regulatory measures taken by ATO:
Activity based evidence and metrics: The ATO has introduced activity based proportionate
approach for compliance obligations, indulgence and regulatory enforcement actions. The
ATO has introduced the risk management policies and process that comprises of qualitative
assessment of the policies and process place and compliance by the ATO staff (Bankman et
al. 2018). The compliance as well as enforcement strategies are consistent with the policies
and procedures of ATO which includes qualitative assessment of communication with the
help of compliance and strategies of enforcement.
Base monitoring and inspection: Base monitoring and inspection approaches on the risk has
been adopted by the ATO wherever possible in order to consider the circumstances and
operational requirements of the taxpayers (Oishi, Kushlev and Schimmack 2018). The
qualitative reporting assessment comprises of the monitoring and enforcement of strategies
that is adopted for drawing the commissioner’s discretion to the application of penalties.

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Answer to requirement (ii):
To address holistically the certain types of opportunities and challenges that is
presented by emerging technologies and regulatory measures, a policy response along with
the administrative measures may be needed. The stakeholders have acknowledge that the
quick technological advancement and regulatory measures have resulted in several changes
which includes newer working patterns in gig or sharing economy. According to the
stakeholders, it is believed that the ATO and the government must have the systematic
approach in place in order as well as respond to the technological developments and
innovations (Woellner et al. 2016). The stakeholders have also cited their opinion that
making use of emerging technology and new regulatory changes would help in increasing the
automation inside the taxation system, however there is a significant need for more reliable
data.
The data must be obtained by the third parties such banks, whose burden of
compliance would increase correspondingly. The advantage of availability of large amount of
reliable data to government and its agencies, particularly the ATO involves greater
efficiencies and lower costs. The compliance of the taxpayers is also reduced with the help of
such kind of initiatives and brings improvement to pre-filled returns. The stakeholders have
expressed their views that there are restrictions to the degree of automation which can be
attained within the Australian taxation system largely due to the complexity and features such
as the work related expense deductions.
The stakeholders have also observed that the DTA offers wide range of guidance to
those agencies that are seeking to modernize the manner in which the taxpayers interact with
the government with the help of online service which is considered effective and cost
effective. The stakeholders believe that which are adopting the different platforms results in

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range of compliance requirements (Feld 2016). The stakeholders believe that to attain optimal
results, there should be more coordination and constant approach should be taken.

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References:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2018. Federal Income Taxation.
Aspen Publishers.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Butler, D., 2019. Who can provide taxation advice?. Taxation in Australia, 53(7), p.381.
Feld, A., 2016. Federal Taxation of State Tax Credits.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.
Hum, F., Jackman, B., Quirico, O., Urbas, G. and Werren, K., 2019. Australian Uniform
Evidence Law. Cambridge University Press.
Keyzer, P., Goff, C. and Fisher, A., 2017. Principles of Australian constitutional law.
LexisNexis Butterworths.
Main, J., 2019. Taxation: Buying or selling: beware the sting of GST. LSJ: Law Society of
NSW Journal, (55), p.73.
Morgan, A., Mortimer, C. and Pinto, D., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Oishi, S., Kushlev, K. and Schimmack, U., 2018. Progressive taxation, income inequality,
and happiness. American Psychologist, 73(2), p.157.
Robin and Barkoczy woellner (stephen & murphy, shirley et al.), 2020. Australian taxation
law 2020. Oxford university press.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.

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Taylor, J., Walpole, M., Burton, M., Ciro, T. and Murray, I., 2017. Understanding Taxation
Law 2018. LexisNexis Butterworths.
Van Brederode, R.F., 2019. Ethics and Taxation. Springer.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.