Comprehensive Analysis of Taxation Law Principles and Scenarios

This taxation law assignment provides detailed solutions to various scenarios, covering key concepts such as capital gains, tax deductions, tax assessments, and GST implications. It analyzes payments received for relinquishing rights, eligibility for tax deductions on donations, and membership fees. The assignment also explains the importance of tax assessment in revenue collection and the impact of self-assessment systems. Further, it discusses interest and penalties for late tax payments, defines tax sham transactions, and addresses GST adjustments for returned goods. Finally, it examines the dividend imputation system in Australia, providing computations for franking credits and tax liabilities in different scenarios. Desklib offers this and many other solved assignments for students.

0TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer I:................................................................................................................................2
Answer II:...............................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer I:................................................................................................................................4
Answer II:...............................................................................................................................4
Answer to question 3:.................................................................................................................5
Answer I:................................................................................................................................5
Answer II:...............................................................................................................................5
Answer to question 4:.................................................................................................................5
Answer to question 5:.................................................................................................................6
Answer to question 6:.................................................................................................................8
References:...............................................................................................................................10

2TAXATION LAW
Answer to question 1:
Answer I:
The payments that are received by the taxpayers for relinquishing or restricting the
rights are treated as the capital in nature and cannot be classified as income. This generally
involves the payment that is received by the taxpayer for agreeing not to do something
(Miller and Oats 2016). Restrictive covenants can be defined as the lump sum payment that is
received by the taxpayer in relation to the promise of the taxpayer to abide by the restrictions
based on the right of earning income is usually treated as capital in nature.
Citing the case laws example of “Beak v Robson (1943)” the taxpayer here received a
lump sum amount of payment from the employer following the agreement that when the
contract for employment comes to an end, the taxpayer will not be competing with the
employer within the 50-mile radius of his employer’s premises for the period of next five
years. The court of law treated the amount as capital in nature (Jones and Rhoades-Catanach
2015).
In another example of “FC of T v Woite (1982)” a football player entered in the agreement
with the North Melbourne club that bound him to only play for that club if the taxpayer were
to play in the VFL (Barkoczy 2016). The amount was treated as capital in nature because it
represented a payment that were having the nature of compensation for the taxpayer’s
restricting the part of his revenue producing activity.
In light of the above judgement the circumstances of George states that he received an
amount of $40,000 when he entered in a contract with the employer to not reveal or use any
of their private data and additionally restricting his ability of work by not competing with the
employer for rest of the employment period should be treated as capital amount. The amount

3TAXATION LAW
that is received by George express the nature of compensation that is paid for restricting his
income generating activities.
Answer II:
a. According to the “division 30 of the ITAA 1997” a taxpayer is permitted to claim for
the tax deduction where any form of gifts or donation has been made in the form of
money whose value exceeds greater than $2 to the eligible deductible gift recipient
(Brabazon 2019). As evident in the current situation of Cheryl it is noted that she
donated a sum of $300 to a local public primary school’s building fund. With respect
to the “division 30, ITAA 1997” the donation of $300 that given by Cheryl should be
considered as eligible deduction since the local primary school is assumed to be a
deductible gift recipient.
b. In another instances it is noticed that Cheryl also made a donation of $50 to the local
public library. By referring to the “division 30, ITAA 1997” it can be stated that
Cheryl will be permitted to obtain an income tax deduction for the donation that is
made to the public library because it is an Australiana fund and satisfies the
requirements stated under the “section 30-17” (Burman et al. 2016). The library is
considered as the eligible gift deductible recipient.
c. An individual tax payer is allowed to claim an income tax deduction for the complete
amount paid to the membership of trade, professional associations or business which
is associated directly to the income producing activities of the taxpayer. A taxpayer
must also denote that they are allowed to claim deduction of up to $42 per year in
relation to each subscription that is made for the membership of the trade, business or
professional association which is not directly associated to the income producing
activities of the taxpayer (Bankman et al. 2018). A payment of $700 has been made
by Cheryl for the membership of real estate agents association. She is presently not

4TAXATION LAW
working but maintains the membership of the association and anticipates to return to
work someday. Cheryl in this situation would be allowed to claim deduction of up to
$42 for the subscription charges since it is not directly associated to the income
producing activities of the taxpayer.
Answer to question 2:
Answer I:
Tax assessment is considered fundamental to the collection of tax. A tax assessment is
regarded as the end outcome of the process of determining the income tax payable by the
taxpayer and computing the tax that is payable on the income.
The tax assessment process is considered important because it helps in completion as
well as lodgement of income tax return (Schmalbeck et al. 2015). The main purpose of the
tax system in Australia is to efficiently raise revenue for distribution purpose in the
community based on the priorities of government. The tax assessment system is considered
important because it helps in improving the administration of collecting revenues based on
the minimum supervision and compliance cost.
Answer II:
By setting up the system of self-assessment, a change has been introduced by ATO
regarding its process of conducting compliance activity. Under earlier system, a large number
of resources were used by ATO to emphasize on the process of assessment (Buenker 2018).
Following the shift of focus from the assessment, a highly refined compliance model has
been formed by the ATO which is directed towards helping the taxpayers in abiding with the
compliance process and identifying those that are not paying the tax. The resources directed
towards assessment is largely directed towards the assistance of taxpayers and significantly
improving the compliance (Schenk 2017). As a result, this allowed ATO to collect huge

5TAXATION LAW
amount of revenue from those that are have under-reported their tax liability. An improved
tax system has been designed by the ATO that is centrally focussed on minimum supervision
and reduced compliance cost.
Answer to question 3:
Answer I:
On noticing that the taxpayers are late in paying tax the ATO imposes interest and
penalties. It imposes a general interest charge on the taxpayers for the late payments and
shortfall interest charge is also imposed on the amounts that are outstanding (Long, Campbell
and Kelshaw 2016). This generally includes the late payments, outstanding amounts of tax
debts and shortfall amounts.
Answer II:
Tax sham can be defined as the transaction which has no kind of business purpose and
results in economic advantage (Campbell 2018). The taxpayer enters into such transaction
only with the intent of deceiving or mainly to avoid paying tax.
The occurrence of sham transaction is mainly associated to the circumstances when
there is no consideration involved in the transfer procedure. The effect of sham mainly
involves the impact on the economy which contributes to the formation of income tax.
Answer to question 4:
As stated by the ATO when the customer returns the goods to the retailer that sold the
goods it is treated as the cancellation of the actual sale (King 2016). According to the ATO
the retailer in such circumstances have paid the GST on sale and customer on the other hand
have claimed the GST credit, both the party to the transaction will be required to make
adjustment.

6TAXATION LAW
As understood from the current situation of Surfs P/L which is a national retailer sold
a wide range of surfing and sports product to Billapong P/L. Following the purchase
Billapong P/L noticed that the company had to return 14 surfboats purchased from Surfs P/L
because they were faulty. Surfs P/L duly returned the money to Billapong P/L.
With respect to the ATO guidelines, as Surfs P/L has returned the money to Billapong
P/L, it will be entitled to the GST credit relating to the surfs boat which was included in the
earlier activity statement of the company (Murray et al. 2018). As a general note, the credit
will be reflected in Surfs P/L next activity statement as the decreasing adjustment.
Additionally, Surfs P/L will be required to issue the note an adjustment note Billapong P/L.
On the other hand, for Billapong P/L if it has claimed the GST credit on the surfboats
for the GSP paid in the price of the returned surfboats, it will be required to make an
increasing adjustment in its next activity statement.
Answer to question 5:
Australia presently has the dividend imputation system of applying tax on company.
The companies are required to pay the taxes on income and a tax credit is attached that is
referred as franking credit or imputation credit to the dividends that are paid to shareholders.
According to the “section 44(1), ITAA 1936” the dividends that is received by the individual
taxpayer is must be included into the taxable income as the statutory income (Morgan and
Castelyn 2018).
Scenario 1:
In the current situation, it is noticed that Tom being an Australian resident receives a
salary of $60,000. A resident company pays Tom with fully franked dividend of $7000. Tom
should declare the dividend in his taxable earnings. It is assumed that Tom has the marginal

7TAXATION LAW
tax rate of 32.5%. So the tax on dividends as well as franking credit for Tom is computed
below;
Dividends (section 44 ITAA 1936) = $7,000
Franking Credit = $7,000 x (30/70) = 3000 (section 207-20 (1)).
$7,000 + 3,000 = 10,000
10,000 x 0.325 = $3,250
Net amount of tax payable on the franking credit is
= $3,250-$3,000 = $250
Scenario 2:
The taxpayer here Teresa is regarded as the Australian resident for tax purpose and
with no other source of income she receives a dividend of $7,000. Based on “section 44
ITAA 1936” Teresa will be required to declare in her assessable income the sum of $7,000 as
dividend while the franking credit of $3,000 will be considered as the eligible tax offset under
legislative provision of “section 207-20 (1)”. On assuming that Teresa has the marginal tax
rate of 19% she would be required to pay tax on $570 for the dividend. As the company has
already paid the tax on the sum of $3000, Teresa here can claim for the tax refund of $2,430
being the difference amount.

8TAXATION LAW
Scenario 3:
R Co being the private company that has the base in Australia reports a tax loss of
$1,000. A dividend of $7,000 is paid to the company. The dividend constitutes an income and
the company can claim a tax offset of $1000 against the dividend income to reduce the tax
liability.
Scenario 4:
Dividends received by Super Co being the trustee of the complying superfund will
attract tax liability. The Super Co is treated as the beneficiary of the trust therefore the
company will be entitled to franked distribution from the dividend. Since Super Co is
regarded as the beneficiary it would only be imposed tax on the franked portion of the
dividend.
Scenario 5:
As per the ATO there are situations where the non-residents are paid dividend.
Similarly, in case of F Co, a non-resident company was credited with franked dividend. The
franked amount of dividends that is received by F Co will be considered exempted from
taxation and withholding tax in Australia. However, the unfranked portion of the dividends
will be subjected to withholding tax in Australia for F Co.
Answer to question 6:
The decline in value of machine for the Acme Pty Ltd is computed below;
Depreciation Schedule
Asset Base Days Days in Percent Effectiv Decline in Closing

9TAXATION LAW
Type Value Held Year age e life Value Balance
Machin
e
$
5,00,00
0
334 365 200% 8 $
1,14,384
$
3,85,616
Small business is permitted to obtain CGT concession for the active asset that are sold by
them. As per the “Subdivision 152-C” a 50% active asset reduction is permitted to small
business if the asset is held under the ownership for twelve months or more. In the situation
of Acme Pty Ltd the company sold the machine on 1st December which it bought on 1st
January in the same year. The machine failed to meet the active asset test and no 50% CGT
concession will be permitted to Acme Pty Ltd under “Subdivision 152-C” for the capital
gains made.
Computation of Capital Gains/Loss
Particulars Amount ($)
Sales Proceeds $ 4,00,000
Cost Base $ 5,00,000
Less: Depreciation $ 1,14,384
Adjusted Value $ 3,85,616
Net Capital gains $ 14,384

10TAXATION LAW
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.
Brabazon, M., 2019. International Taxation of Trust Income: Principles, Planning and
Design. Cambridge University Press.
Buenker, J.D., 2018. The Income Tax and the Progressive Era. Routledge.
Burman, L.E., Gale, W.G., Gault, S., Kim, B., Nunns, J. and Rosenthal, S., 2016. Financial
transaction taxes in theory and practice. National Tax Journal, 69(1), p.171.
Campbell, S., 2018. Personal liability of a trustee to tax on trust income: Part 1. Taxation in
Australia, 53(5), p.263.
Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation
in Australia, 51(1), p.12.
Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in
Australia. St Mark's Review, (235), p.94.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A. and Castelyn, D., 2018. Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, p.307.
Murray, I., Taylor, J., Walpole, M., Burton, M. and Ciro, T., 2018. Understanding Taxation
Law 2019.

11TAXATION LAW
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schmalbeck, R., Zelenak, L. and Lawsky, S.B., 2015. Federal Income Taxation. Wolters
Kluwer Law & Business.