Taxation Law Assignment: Deductions, CGT, and Case Studies

This taxation law assignment solution comprehensively addresses various aspects of tax law, including allowable deductions under ITAA 1997, capital gains tax (CGT) calculations, and analysis of relevant case studies. The assignment delves into specific scenarios such as deductions for business expenses, including recreational business expenditure, and the treatment of capital improvements to rental properties. It provides detailed calculations for CGT, considering both old and new regimes, and examines the application of CGT discounts. The solution also covers topics like the deductibility of home office expenses and the impact of capital losses on net capital gains. Furthermore, the assignment references key legal precedents and taxation rulings to support its conclusions, making it a valuable resource for understanding complex tax concepts and their practical application.

Running head: TAXATION 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 to question 2:.................................................................................................................2
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................3
Answer to question 5:.................................................................................................................4
Answer to question 6:.................................................................................................................5
Answer to question 7:.................................................................................................................5
Answer to question 8:.................................................................................................................5
Answer to question 9:.................................................................................................................6
Answer to question 10:...............................................................................................................6
Reference List:...........................................................................................................................8

2TAXATION LAW
Answer to question 1:
As defined under the section 8-1 of the ITAA 1997 an individual is allowed to claim
an allowable deductions for the expenditure that is associated in gaining the assessable
income only to the extent that the it is related in the derivation of taxable income or the
expenditure is relevant and incidental in deriving taxable income. Referring to the case of
“Federal Commissioner of Taxation v Herald and Weekly Times” the court denied the
taxpayer with the deductions relating to the cost that were capital in nature (Woellner et al.
2014). Similarly in the case of Paper Co the cost incurred in legal expenditure was entirely
laid out for the purpose of production therefore a deductions is allowed in this respect.
Answer to question 2:
Answer I:
Referring to “section 108-70” the cost that is associated with repairing the damaged
drainpipe line of the rental property that are caused because of the storm can be considered
into the cost base since it is capital costs and it is held as capital improvement to the property.
Answer II:
According to the section 110-25 (2) the expenses that is incurred relating to the
payment of the auctioneer relating to the sale of the property would be incurred in the cost
base of the taxpayers property (Pinto 2013).
Answer to III:
As defined under the section 110-25 of the ITAA 1997 the cost associated to land tax
that was incurred at the time of acquisition and selling the same for the loss will not be
included in to the cost base of the property (Basu 2016).
Answer to IV:

3TAXATION LAW
As defined under section 104-10 any form of transfer of title or gifting of the property
is not included into the cost of property. The gifting of apartment at no considerations shall
not incur into the cost base of the apartment.
Answer to question 3:
Computation of Capital Gains Tax:
Calculations of Capital Gains Tax
in the Books of Claude
Particulars Amount ($)
Selling Cost $ 6,00,000
Add: Cost of Selling
Legal Charges $ 12,000
Total Sale Cost $ 5,88,000
Purchase Price $ 3,00,000
Add: Cost of Purchase
Legal Costs $ 10,000
Total Acquisition of Costs $ 3,10,000
Capital Gains $ 2,78,000
Taxable Capital Gains $ 1,39,000
Capital Tax Payable $ 41,842
Answer to question 4:
Decline in Value
=
Cost of the Asset
x
Total No. of Days Held
x 100%
365
Effective Life of
Asset
$8,000 365 days 100% $1,333.33
365 days 6 years
It can be stated that the declining value of the projector was $1,333.33

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Total percentage of Business use = 90%
The total amount of deductions that can be claimed by Matthew is reduced to $1,2000 as the
projector was used by Matthew for 90% of the business use.
Answer to question 5:
Answer I:
According to the section 32-10 of the ITAA 1997 the cost that is occurred by the
accountant relating to the golf membership club in order to take his client for a golf game is
held as the recreational business expenditure (Robin and Barkoczy 2018). With reference to
section 32-10 of the ITAA 1997 the cost will be held as allowable deductions.
Answer II:
As evident in the case of “FCT v. Collings (1976)” the expenses that was occurred by
the taxpayer relating to the travelling amid the home and the work place was out of the usual
day to day journey (Robin 2017). The expenditure was held as the special circumstances in
the current case and the court of law explained that the expenditure was occurred for
generating assessable income. The high court held that the expenses was not private in nature.
With reference to “section 51 of the ITAA 1936” the expenses was allowed for deductions
purpose.
Answer III:
As stated under the section 8-1 of the ITAA 1997 the long service leave is held as the
allowable deductions.
Answer to IV:

5TAXATION LAW
With reference to section 25-25 of the ITAA 1997 the expenditure incurred by the
taxpayer relating to the borrowing for financing the purchase of the factory premises will be
held as the allowable deductions (Blakelock and King 2017).
Answer to question 6:
Computation of Capital Gains Tax
For the year ended 2017
Particulars Amount
Selling Price $597,000
Less: Advertisement Costs $3000
Purchase Cost $450,000
Capital gain/loss $147,000
CGT Under the Old Regime
Indexed capital gain/loss $147,000
Tax payable under old regime (marginal tax rate x indexation factor x
capital gain)
$58,675
CGT Under the New Regime
Tax payable under new regime (marginal tax rate x half capital gain) $23,028
Answer to question 7:
As stated under the section 8-1 of the ITAA 1997 a business is allowed to claim
expenditure that is occurred for the purpose of advertisement or relating to the sponsorship.
The primary reason for considering the expenditure as the allowable expenditure because the
expenditure is occurred in running the business of the taxpayer (Schenk 2017). The sum paid
in lump sum to the Victorian government will be regarded as the allowable business
expenditure and the same will be held deductible under the section 8-1 of the ITAA 1997.
This is because the expenditure is occurred in producing the taxable business income.
Answer to question 8:
Answer I:

6TAXATION LAW
As per the division 115 capital gains tax discount is only made available to the
individual taxpayers, trusts or the entities that complies superannuation (Epstein 2017).
Hence, in the situation of Century Pty Ltd division 115 discount is not applicable for the
compensation payment that is received from the insurance payment.
Answer II:
As evident in the situation of Marcia there is an occurrence of capital gains event G1
following the receipt of the relinquishing the right of not working within the 300 kilometre as
the practicing tax account for three years time period. Therefore, the receipt of $120,000 by
Marcia qualifies as the CGT discount capital gain based on subsection 115-25 (1) of ITAA
1997 as the criteria of division 115 was satisfied.
Answer to question 9:
As defined under the “taxation ruling of 93/30” a taxpayer is not allowed to claim
deductions relating to any expenses that is related to home since these expends forms the part
of the private or domestic in nature (Samansky and Smith, 2017). However an exception to
this rule is that a taxpayer is allowed deductions if any portion of the room is employed for
generating income and holds the nature of place of business.
The expenditure incurred from such place of business is allowed for deductions.
Referring to the case of “Swinford v Federal Commissioner of Taxation” a taxpayer was
allowed deductions for using the part of the room in the form of business place (Bankman et
al. 2016). Joey in this regard would be entitled to claim allowable deductions for cost of
$1,000 relating to internet, $4,000 cost associated to interest and the $450 for the payment of
accountant fees.

7TAXATION LAW
Answer to question 10:
Computation of Capital Gains Tax
Particulars Amount
The 12-month ownership rule Yes
Selling Price $700,000
Purchasing Cost $500,000
Capital gain $200,000
Assessable capital gain $100,000
Capital gain tax payable $26,632
Less: Capital Loss from Sale of Shares $ 25,000.00
Net Capital gains $ 1,635.00

8TAXATION LAW
Reference List:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation.
Wolters Kluwer Law & Business.
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor,
The, 37(6), p.18.
Epstein, R.A., 2017. Dual Sovereignty under the Constitution: How Best to Protect States
against Federal Taxation and Regulation. Ariz. St. LJ, 49, p.935.
Pinto, D., 2013. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia
Limited.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.), 2018. Australian taxation
law 2018. Oxford University Press.
Robin, H, 2017. Australian taxation law 2017. Oxford University Press.
Samansky, A.J. and Smith, J.C., 2017. Federal Taxation of Real Estate. Law Journal Press.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation
law.