TAXATION LAW Assignment: Analysis of Tax Issues and Solutions

This taxation law assignment addresses several key issues in Australian taxation. It begins by examining a bank's loan account offset arrangement and its implications for fringe benefit tax, concluding that the employee, Brian, is not liable for tax on the fringe benefit. The assignment then analyzes the division of net income or loss from a rental property between co-owners, Jack and Jill, concluding that their partnership is recognized for income tax purposes but not under general law, and the losses should be shared equally. The assignment further discusses tax avoidance, referencing the Duke of Westminster's case and the principle of commercial transactions having a business purpose. Finally, it explores the tax treatment of income from the sale of timber in a forestry context, concluding that Bill is considered a primary producer and the amount received by him for granting the right to the logging company to take timber would be treated as royalties under section 26 (f) of the act.

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 2:
Issue:
The issue determines the arrangement made by the bank regarding the reducing the
interest payable by the customers to the loan account..
Laws:
a. Section 16 of the ITAA 1997
b. Taxation Ruling of TR 93/6
c. Section 8-1 of the ITAA 1997
Applications:
The taxation ruling of TR 93/6 is related to the arrangement made by the bank to
lower down the interest payable on the loan account of the customers (Woellner et al. 2016).
Such arrangement by bank are understood as interest offset arrangement however they are
known as the loan account offset arrangement. The products are generally structured in such
a manner no amount of interest is derived by the customers and as a result of this customers
are not liable to pay any amount of income tax relating to the fringe benefit arising from the
account. Under such circumstances Brian is provided with the facility of loan account offset
programme with the objective of reducing the interest charged to the employees in respect of
the loan fringe benefit under section 16 of the Fringe Benefit Tax Assessment Act 1986
(Robin 2017). As a result of from such offset arrangement Brian will not be liable to pay tax
on such fringe benefit arising from the loan account.

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Conclusion:
The loan offset benefit provided to Brian results in fringe benefit and under section 16
of the FBTAA 1986 he will not be required to pay tax.
Answer to question 3:
Issue:
The issue explains the division of the net income or loss relating to the rental property
amid the co-owners of that property.
Laws:
The taxation ruling of TR 93/32 assesses the position of taxable position of the co-
owners whose actions are not considered to be performing of a business functions (Blakelock
and King 2017). The ruling defines that Co-ownership of the rental property is regarded as
the partnership within the scope of the income tax however it is not regarded as the
partnership under the general law except the ownership is regarded as the carrying on of a
business (Barkoczy 2016). The case study introduces that Jack and his wife Jill entered in a
partnership of purchasing the rental property. A contract between Jack and Jill was formed
whereby the contract stated that Jack will be getting a profit of 10% on the other hand Jill will
be getting a profit of 90% from the joint ownership of the property.
There was a clause contained in the property that comprised of the agreement where
Jack was to shoulder entire amount of loss. This states that agreement between them were in
nature of joint owners or tenants in common. The tenancies are additionally understood as the
co-owners of the interests (Barkoczy et al. 2016). According to the Taxation Ruling of 93/32

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it can be determined that Jack and Jill their partnership accounts for income tax purpose but
not as the partners under the general law.
As determined in the case of McDonald v FC of T (1987) it was contended that there
was no partnership under the general law and only a significant relation among the partners
existed of the co-ownership (Anderson, Dickfos and Brown 2016). Being the joint tenants at
law and equity the loss that has been incurred in letting the premises must be shared equally
with the consequences that the parties are required to one of the deductions. Similarly in case
of Jack and Jill they will be held as tenants under law and equity with the losses should be
shared among them on equally basis.
If they decide to sell the premises then the cost base together with the reduced cost
based should be considered in the cost of acquisition. Furthermore, the capital gains and loss
must be considered under the interest of the ownerships between Jack and Jill.
Conclusion:
The taxpayer and his wife did not contented to be a partnership at the general law and
only a relation of co-ownership prevailed between them which required them to share profit
equally.
Answer to question 4:
The duke of Westministers’s case has been regularly referred at the time of tax
avoidance. As held in the case of IRC v Duke of Westminster (1936) the Duke of
Westminster engaged a gardener and paid the gardener from the Duke’s substantial amount
of post-tax income (Tran and Walpole 2016). To lower down the tax the Duke stopped the
payment of wages to the gardener and as an alternative drew up a covenant that agreed to
disburse a corresponding sum. Under the laws of tax of the time, this provided Duke with the

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opportunity of claiming deductions with the objective of reducing their taxable income and
hence reduces their tax liability to income tax and surtax. It can be stated that no taxpayer
would be required to pay higher amount of tax. On the other hand a succeeding principle of
WT Ramsay v IRC has been referred in order to limit the instances of tax avoidance that is
put into the use by the individual taxpayers (James 2016). The principles accordingly lay
down that commercial transaction must have the business rather than simply making tax
avoidance.
On implementing, the principles in the present age of Australia it can be stated that if
an individual is effective in ordering tax affairs with the objective that no individual is
required in their inventiveness to pay anything more than the assigned amount. The outcomes
defines that the taxpayers have the prospect of reducing tax liabilities but this should be done
inside the framework of law. If the principles is applied in the modern day of Australia then
individuals and companies are required to make their financial reports in a way that the
purpose of reducing tax should be in such a manner that tax liability should be in respect of
the legal construction of the act (Braithwaite 2017).
Answer to requirement 5:
Issue:
The problem deals with the degree of receipts that is produced from the sale of the
timber will be regarded as the taxable income indulged in the activities of forestry.
Rule:
a. Section 6 (1) of the ITAA 1936
b. Taxation Rulings of TR 95/6

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c. Subsection 36 (1)
d. Section 26 (f)
e. McCauley v FC of T (1944)
f. Stanton v FC of T (1955)
Applications:
According to the taxation ruling of TR 95/6 a taxpayer is regarded as the primary
producer under the income tax purpose for indulging in the forestry industry given that the
forestry activity comprises of carrying on of a business (Newman 2016). According to the
Subsection 6 (1) of the ITAA 1936 defines that forestry operations is regarded planting or
tending of trees in plantation or forest that is intended for felling. As evident Bill has a land
that comprises of the pine trees and he ultimately accepted the offer of the logging company
that paid him with $1,000 for every 100 meters of timber it can take from Bill’s land. As
depicted in Sub section 6 (1) of the ITAA 1936 Bill will be treated as primary producer since
he has been indulgent in tending of trees in the land which he owned (Barkoczy 2016). The
taxation ruling of 95/6 provides that the forest functions comprises of the tending of trees in a
plantation in spite of the fact that the taxpayer was not indulgent in the process of plantation
or felling down of trees. The analysis defines that Bill though being the owner of the land did
not planted the trees for felling but it can be argued that selling of timber is an assessable
income under section 36 (1).
On receiving a large sum of $50,000 by Bill for granting the right to the logging
company of taking the timber according their wants then the amount that is received by bill
will be treated as Royalties under section 26 (f) (Blakelock and King 2017). The ordinary
concept of royalty is considered under numerous cases including the case of Stanton v FC of
T (1955) which describes that the modern applications falls under two heads. It consists of

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payments that results in monopolies or owner of the soil obtains in regard to takings of
anything special that forms the part of it. Referring to the case of bill it can be said that the
definition of royalties is applicable since he being the owner of the soil grants the rights to
logging company of taking timber as much as they want from his soil.
The case of McCauley v FC of T (1944) defines that amount received as the payment
for granting the right of cutting down the trees then the sum that is received for cutting down
the timber would be regarded as royalties. The amount received by bill will be treated as
royalties under section 26 (f) of the act.
Conclusion:
The case study explains that bill is considered as performing the business forestry and
the amount received by him would be treated as assessable income.

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Reference List:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role
does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), pp.127-140.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax
Pack 3 2016. Oxford University Press Australia & New Zealand.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor,
The, 37(6), p.18.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense
deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Newman, S., 2016. The new CGT withholding regime: More than meets the eye. Proctor,
The, 36(5), p.18.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Tran-Nam, B. and Walpole, M., 2016. Tax disputes, litigation costs and access to tax
justice. eJournal of Tax Research, 14(2), p.319.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.

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