Laws20060: Taxation Law of Australia Assignment - Term 1, 2020

This report analyzes the taxation law of Australia, focusing on the residential status of an individual and the possibility of objecting to an amended assessment. Part A determines Rachel's residency status based on the resides test, domicile test, and 183 days test. It concludes that Rachel qualifies as a resident. Part B evaluates a case study involving Julie Banks, assessing whether her activities constitute a business or a hobby, and whether certain expenses are deductible. The memo discusses the amended assessment notice, potential grounds for objection, and the relevant time frames. It examines specific deductions, including Facebook sales expenses, clothing expenses, home office expenses, and repair expenses, referencing relevant sections of the Income Tax Assessment Act 1936 and 1997 and taxation rulings. The analysis determines which objections are valid and calculates the revised taxable income after considering valid objections. The report provides a detailed legal analysis and recommendations based on Australian taxation law.

Running head: TAXATION
TAXATION
Name of the Student
Name of the University
Author note

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Table of Contents
PART A...........................................................................................................................................2
PART B...........................................................................................................................................5
Bibliography..................................................................................................................................14

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PART A
The objective of this part of the analysis is to determine the residential status of Rachel
for the period 1st July to 30th June 2019. The residential status will be determined on the basis of
four residency test as prescribed by Section 6(1) of ITAA 36 1 –
(i) The resides test
(ii) The domicile test
(iii) The 183 days test
(iv) The superannuation test
Residency – The resides test assists in determining whether individual resides in Australia as per
the ordinary meaning of the word. Taxation Ruling TR 98/17 Income Tax, summarizes the
situations in which the individuals are entering Australia will be considered as residing in
Australia like for employment, tourist, and migrants2. This ruling suggests few factors that will
help in determining the status of the individual like – (a) Individual’s behavior in Australia –
such as intention of stay, family and business ties, employment ties, social and living
arrangements, and maintenance and location of assets. (b) Physical Presence in Australia –
Usually as a practice six months are a considerable amount of time along with other behavior and
practices of individual. (c) Nationality – One can be a dual resident at the same time. This is the
common law test.
The other three tests that are statutory tests are discussed as below –
1 Www5.austlii.edu.au, "INCOME TAX ASSESSMENT ACT 1936 - SECT
6Interpretation", Www5.Austlii.Edu.Au (Webpage, 2020)
<http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s6.html>.
2 Ato.gov.au, "Legal Database", Ato.Gov.Au (Webpage, 2020)
<https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001>.

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Domicile test – It is the first statutory test it implies that a person will be resident of Australia if
their domicile is in Australia unless permanent place is outside. Domicile means permanent
house or something more than just a residence. It can be determined in two steps and both the
steps must be fulfilled –
(i) Determine if domicile is in Australia, if yes then determine then determine the next
step.
(ii) Determine the permanent place of abode and if it is in Australia, then only individual
will be considered as a resident.
183 days test - The second statutory test is 183 days rule, it implies that if an individual has
stayed here for more than half the year (Income Year) then they will be considered as resident
unless-
 Usual place of adobe is outside
 No intention to take up residence here.
The superannuation test is not applicable.
As per the above test rules, residency status of Rachel will be decided. She entered
Australia for employment purpose, hence it falls under the one of the criteria and fulfills one
factor in residency resides test. There was no intention or purpose to reside in Australia in the
taxable period, though her family stayed in Australia for a considerable amount of time and held
bank account that is held assets for a considerable amount of time. But Rachel was not there for a
considerable amount of time. She just visited there for one month and then they shifted back.
They had a permanent place of adobe in Australia for six months and then sold it. It can be
concluded that Rachel does not pass the 183 days test, but passes the domicile test since they had

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a permanent place of adobe and domicile in Australia. Rachel does not passes the residency test
as there was no intention of staying in the Income year 2019, but passes the domicile test and
hence qualifies to be a resident of Australia.

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PART B
Memo
123 Accounting Pty Ltd
To: Douglas Parks
From: <student name>
Date: <insert date>
Re: Objection to 2018 Notice of Amended Assessment for Julie Banks
Executive Summary
The objective of the memo is to discuss the facts of the case study and assess whether there is
any possibility for objection to any of the amendments made by the Commissioner. This memo
also explains the procedure for objection and the time frame defined as per the Income-tax laws
and rules. The motive is to identify the reason for the amended assessment notice and if any
objection is possible and valid. The memo also discusses and explains the time frame within
which Julie can file the objections and the process of making objections.
Discussion
(1) For assessing the correctness of amendments and deductions, the relevant laws, and
guidelines and rulings have been referred. To assess whether there is any scope of the
objection, each item will be examined separately by referring to relevant sections.
(i) It is essential to determine whether the activity carried by Julie will be considered as a
business, or it was just a hobby. As per tax laws and Taxation Ruling TR 97/11, the
pursuit of a hobby cannot be defined as the activity of carrying on a business for the

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purpose of taxation. Therefore money which is earned from following the hobby
should not be considered as income and therefore not assessable. The expenses which
are incurred in relation to the hobby activities will not be allowed as deductions.
Sometimes hobby is recognized as income when it turns or capable of turning into a
business. For assessing whether it is a hobby –
 Purpose – The purpose and intention for carrying out the activity is the key factor. When
there is no intention to make a profit from this activity, it will be regarded as a hobby.
 Scale of the operations - Carried out on a small scale
 Sale activity - Sold to friends and family and for public sale, and not at large scale
 Profitability - Losses will be incurred since it is just for personal satisfaction and pleasure
and there is no definite plan for earning profits
 Ordinary course of business - Not carried out as an activity in the ordinary course of
business
 The regularity of transactions - Absence of regular sale activity
 Motive - Intention is to continue this as recreation and hobby only.
According to Section 6 of the Income-tax Assessment Act, the business includes any trade,
profession, vocation and employment as well as calling. But it does not include occupation as an
employee. It is important to determine the nature of the operation and activities, especially when
the objective is profitability. The regularity of the event and operation is important in deciding
the nature. When what is being done can be defined as a hobby or recreation, it will not be
considered as a business even though the events and activities are reasonably substantial. For
identifying whether it is a business or not, it is essential to understand the factors and
characteristics of a business–

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 The intention is to start a business and to operate in a regulated way by registering the
business name or obtaining an ABN. 3
 There is a repetition of operations and events and regularity is maintained.
 The purpose is to earn a profit.
 The activities are planned and conducted in an organized way. They are following
industry practices like – maintaining business records, operating from business premises,
maintains a separate business account, obtained the license and have a registered business
name.
 The scale of operations and size of the business is consistent with other companies
operating in the same industry.
In light of the above stated provisions, it has been observed that Julie created a business page
for selling her clothes to the public at large and it was a regular activity and not like once in a
while. She did not obtain ABN just to avoid the hassle, which reflects that otherwise, she would
have obtained ABN. The page created on Facebook is a business page, and the sale was not
restricted to family and friends and has made paid advertisement. Hence it is to be treated as a
business and not a hobby. The intention is not to earn a profit, but the activity is regular, and sale
is for large public, and the designs are on demand; thus there is a chance of making it into a big
scale. Therefore the expense of $16000, which is related to Facebook sales should be allowed as
a deductible expense for conducting the business. Since it is regarded as a business, Julie must
obtain an ABN for carrying out further activities.
(ii) The salary income must be taken for the twelve months, and the employer is under
legal obligations. The employer always gives a salary on the third of next month;
3 Ato.gov.au, "Home Page", Ato.Gov.Au (Webpage, 2020) <https://www.ato.gov.au/>.

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therefore for the month of June 2018, it will be given on 3rd July. But this income is
earned and belongs to the year 2018, it must be taxable in the same year. Hence this
must be included in the income of Julie for computing taxable income. There will be
no objection against this amendment.
(iii) As per s8-1 ITAA 1997, which is related to deductions for work expenses for the
employees; the work expenses will be allowed as deduction only when it passes both
positive and negative test. The ruling sets out when the expenses of the employee will
b deductible or disallowed. The work expenses are used to refer for the loss or
outflow which is incurred for earning that particular salary income. The expense will
be deductible when it is incurred to earn a particular salary income, and when fulfils
the criteria of the “negative test.” It clearly states that the expense should not be
private and domestic in nature. The Act has not defined the terms private and
domestic. The ruling suggests that everyday clothing and personal grooming items are
generally classified as private expenses. Hence the expense for personal clothing of
$6000 is correctly disallowed, and no objection can be raised against it. There is no
dress code from the employer side, so it is not mandatory, clothing expenses are not
compulsory and are avoidable.
(iv) The expenses should be incurred for earning the income; to qualify for the deduction
and should not be reimbursed by the employer. Julie has incurred $300 for cooling
and lighting expenses for the office work. The expense contributes to the salary
income since she works from home after office hours, and neither employer
reimburses for the same. She carries her laptop from office to work at home; it

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implies that she is required to work from home and have to reply to emails; hence the
expenses incurred for electricity due to office work should be allowed for expenses.
(v) The s25-10 ITAA 1997 deals with the deduction of repairs for premises or part of
premises or on a depreciating asset which is used for earning the respectively
assessable income4. The TR 97/23 states that initial repairs are the repairs which
existed at the time of acquisition and expense is incurred for remedying the defects. It
is not material whether the assessee was aware of the defects. In the given case study,
Julie bought the dishwasher, which was already defective and needed repairs. Hence
this expenditure is treated as a capital expenditure and will not be allowed for
deduction. There is no ground to raise any objection. Therefore the Commissioner is
correct in disallowing the repair expense of $300.
The taxable income as per Commissioner’s amended assessment notice –
= taxable income as per original return (1,07,250) + salary income for June (10,000) +
disallowed expenses : (16000+ 6000+300+200+500) = $1,40,250
After objecting for expenses incurred for working from home –
Taxable income = 140250 – 300 = $1,39,950
(2) A valid objection can be raised against the income tax assessment and is regulated by
Part IVC of the TAA. The amendment which was made to the relevant section and came
into existence from I July 1992. When a taxpayer is not satisfied with the original
assessment or amended assessment, they can raise an objection in the manner stated
under Section 175A of the ITAA 1936. It does not apply in the case of determining a tax
4 Www6.austlii.edu.au, "INCOME TAX ASSESSMENT ACT 1997", Www6.Austlii.Edu.Au (Webpage,
2020) <http://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/itaa1997240/>.

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loss. The objection can be raised when the taxpayer is dissatisfied and has reasonable
grounds to challenge the assessment issued by the Commissioner. It is unjustified when
assessee objects because the taxable income or tax payable amount is too less in the
assessment. The objection will be regarded as valid if it relates to specific elements –
Amount of taxable income of the taxpayer.
The objection will be valid if it fulfils all the requirements as set out in section 14ZU. It
requires that –
 The objection must be made in an approved form
 It must be lodged within the period that is prescribed in section 14ZW.
 It must be stated in detail, and the grounds must be clearly stated.
The Commissioner can amend an assessee’s assessment at any time as per the time limits
prescribed in Section 170 of the ITAA 1936 even if the assessee has filed an objection
against the assessment. The taxpayer can object only against the elements which they are
amended. Like in the given case, the travelling expenses related to rental income from a
property is allowed as a deduction only to assessee’s who are engaged in the business of
letting rental properties. Julie is not engaged in the business of letting properties to earn
rental income from it. Therefore the expenditure of $500, which is incurred for travelling to
the property will not be allowed as deduction while computing her amended taxable income.
But since it was not amended, no objection can be raised against it.
Time limits for amended assessment objections – The period for objecting to an amended
assessment is similar to that for original assessment. When the amendment period for the original
assessment is standard period that is of two years, the objection must be made within one of the
following two dates whichever is later –

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 Two years after notice of the original assessment was served, or
 Sixty days after notice of amended assessment as served.
In other cases later of the following two dates –
 Four years after notice of the original assessment was served, or
 Sixty days after the notice of amended assessment was served.
In the given case, the original notice of assessment was served on 26th November 2018, and
an amended notice of assessment was served on 21st January 2020. Therefore the objection can
be raised within two years from 26th November 2018, that is within 24th November 2020 (later).
The procedure to raise an objection against the amended notice of assessment –
When the objection determines that a taxation decision is not correct and can be explicitly
defined by providing the reasons in detail, it satisfies the requirement. Then the taxpayer must
file the objection within the time period, and if Commissioner did not determine the objection
within sixty days from date of filing the objection, assessee could give a written notice. The
objection must be made as per the requirements made in Section 388-50 n Schedule I, which
states that –
- Must be in a form as approved by the Commissioner
- Contains the necessary and desired information
- Contains a signed declaration and
- Must be provided in the manner determined by the Commissioner.
On the ATO website, the standard form templates that are approved are available. These
templates are Objection form and must be downloaded and filled by the accountants on behalf of

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Julie for raising the objections. These forms contain the requirements for declaration purpose and
the process of lodging objections. The Objection form can be filed by the taxpayer themselves or
by the tax professionals. After downloading the form it must be filled appropriately. The form
contains complete details like - the reason why the tax decision is wrong, relevant facts along
with supporting documents and complete declaration. The objection can also be sent by post and
by fax.
(3) In the given case, Julie has incurred administrative charges of $960 (20*4*12) charged
by the property manager for the rental property. Julie forgot to include this expenditure
and did not claim any deduction for this expense in her original return. The correct tax
treatment of this transaction must be determined as per the ITAA 19975. The expenses for
which the taxpayer are entitled to the deduction in the income year in which it has been
incurred. It includes –
Insurance
Bank charges
Electricity and gas
Interest on loans
Land tax
Legal expenses.
The taxpayer can claim a deduction for any local government rates and taxes for
the period during which property is lent out on rent. But when the rates and duties are not
paid within due date, interest is charged for late fees under relevant statute and law. The
deduction for interest on late fees can also be claimed. The interest on late fees in these
5 Www6.austlii.edu.au, "INCOME TAX ASSESSMENT ACT 1997", Www6.Austlii.Edu.Au (Webpage,
2020) <http://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/itaa1997240/>.

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situations are not considered as pecuniary punishment for breach of Local Government
Act but perceived as an administrative charge for recording the time value of money. The
administrative charges are deductible expenses and allowed for the deduction.
Julie has forgotten to claim the deduction; therefore, she has incurred an error in
filing the tax return for the year 2018. She can request for an amendment to income tax
assessment. The amendment can be made within two years from the date of the notice of
assessment. In this case, the date of notice for assessment was 26th November 2018;
therefore, it can be amended within two years that is till 24th November 2020. She can file
for an amendment to tax return within the due date or can file an objection if wants to
dispute the decision. The objection and amendment can be made only within due dates as
prescribed by the Act. There are certain situations in which late filing can be allowed
only when the reasons are reasonable and justifiable. Julie can file for amending the tax
return for allowing administrative charges as a deduction.

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Bibliography
Ato.gov.au, "Home Page", Ato.Gov.Au (Webpage, 2020) https://www.ato.gov.au/
Ato.gov.au, "Legal Database", Ato.Gov.Au (Webpage, 2020)
https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001
Www5.austlii.edu.au, "INCOME TAX ASSESSMENT ACT 1936 - SECT
6Interpretation", Www5.Austlii.Edu.Au (Webpage, 2020)
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s6.html
Www6.austlii.edu.au, "INCOME TAX ASSESSMENT ACT
1997", Www6.Austlii.Edu.Au (Webpage, 2020)
http://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/itaa1997240/