Taxation Law Assignment: Comprehensive Analysis of Tax Law Principles

This taxation law assignment solution provides comprehensive answers to several questions related to Australian tax law. It covers a range of topics including the useful life of depreciable assets, tax offsets, marginal tax rates, consumption tax, and capital gains tax (CGT) events. The assignment delves into specific sections of the ITAA 1997, such as those concerning tax deductions for loan interest, apportionment of losses and outgoings, and non-deductible expenses. The solution analyzes various case studies, including those related to CGT events, main residence exemptions, and the application of CGT discounts. Furthermore, the assignment addresses the taxability of prizes, reimbursements, gifts, and compensation for personal injuries, referencing relevant case law and statutory provisions to support the analysis. The document offers detailed explanations and applications of tax principles to real-world scenarios, providing a valuable resource for students studying taxation law.

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:.................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................3
Answer to C:..........................................................................................................................3
Answer to D:..........................................................................................................................3
Answer to E:...........................................................................................................................3
Answer to F:...........................................................................................................................4
Answer to G:..........................................................................................................................4
Answer to H:..........................................................................................................................4
Answer to I:............................................................................................................................5
Answer to question 2:.................................................................................................................5
Answer to A:..........................................................................................................................5
Answer to B:..........................................................................................................................5
Answer to C:..........................................................................................................................6
Answer to D:..........................................................................................................................6
Answer to E:...........................................................................................................................6
Answer to question 3:.................................................................................................................7
Answer to A:..........................................................................................................................7
Answer to B:..........................................................................................................................7
Answer to C:..........................................................................................................................8

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Answer to D:..........................................................................................................................8
Answer to question 4:.................................................................................................................9
Answer to A:..........................................................................................................................9
Answer to B:........................................................................................................................10
Answer to C:........................................................................................................................10
Answer to D:........................................................................................................................10
Answer to E:.........................................................................................................................11
Answer to question 5:...............................................................................................................11
Issues:...................................................................................................................................11
Laws:....................................................................................................................................11
Applications:........................................................................................................................12
Conclusion:..........................................................................................................................13
References:...............................................................................................................................14

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Answer to question 1:
Answer to A:
The taxation ruling TR 2018/14 covers the topic related to useful life of depreciable
assets within “section 40-100, ITAA 1997”1.
Answer to B:
Matters relating to the tax offsets are given under the Division 13, ITAA 19972.
Answer to C:
The highest rate of tax that is applied on the resident taxpayer during the year 2018/19
is as follows;
Limit of Assessable Income Tax ($)
$180,000 and over $54,097 + 45c for each $1 over $180,000
Answer to D:
Personal use assets under “section 118-10 (3) of the ITAA 1997” that are acquired at
$10,000 or less must be ignored from the capital gains tax.
1 "Ato.Gov.Au", Ato.Gov.Au (Webpage, 2019) <https://www.ato.gov.au/law/view/document?
DocID=TXR%2FTR20184%2FNAT%2FATO%2F00001>
2 "INCOME TAX ASSESSMENT ACT 1997 - SECT 13.1List Of Tax
Offsets", Classic.Austlii.Edu.Au (Webpage, 2019)
<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s13.1.html>

4TAXATION LAW
Answer to E:
As per the “section 104-15, ITAA 1997” a CGT event B1 happens when the taxpayer
forms an arrangement with alternative entity with the right of using the CGT assets they own
is passed to alternative entity and the title of the asset may be handed to an alternative entity
or in advance the conclusion of the agreement.
Answer to F:
The formula given under “section 4-10 (3) of the ITAA 1997” is as follows;
Income Tax = [ Taxable Income x Rate] – Tax Offsets
Answer to G:
The decision that was given in the “FC of T v Day 2008 ATC 20-064” stated that
where relation among the legal expenditure and income is identified as incurred in relation to
the claim of breach of negative duties imposed based on the terms of employment was
adequate to satisfy the criteria of “paragraph 8-1 (1) (a) of the ITAA 1997”. The law court
found that the legal outgoings which was incurred by the respondent was in relation to
disciplinary action which was taken by his employer were not considered as private
outgoings. Hence, the expenses were permissible deduction within the “paragraph 8-1 (1)
(a) of the ITAA 1997”.
Answer to H:
Marginal Tax Rate Average Tax Rate
The marginal rate of tax evaluates the
impact of taxes on the earnings, expenditure
and spending3.
The average tax evaluates the taxation
burden.
3 Braithwaite, Valerie. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.

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The marginal tax rate is regarded as the
rising value of tax which is paid on
increased revenues.
The average rate of tax constitutes the total
sum of tax that are divided by the total
earnings.
Answer to I:
The consumption tax is the tax regarding the purchase of products and services.
Consumption tax generally takes the size of sales tax, excise, tariffs and other taxes that are
imposed on the products and services.
Answer to question 2:
Answer to A:
As explained in the “section 8-1, ITAA 1997” a taxpayer is permitted to claim an
allowable income tax deduction for outlays occurred on loan interest while producing
income. As held in “Ure v FCT (1981)” taxpayer here was allowed deduction for borrowing
the sum in discharge of the mortgages on residential property4. The interest on loan occurred
by Brent to pay the employee wages is treated as allowable deduction under “section 8-1,
ITAA 1997” as it happened in ordinary business course.
Answer to B:
There are some conditions where the loss or outgoings must be apportioned up to the
limit where fractional deduction is allowed. The judgement in “Ronpibon Tin NL v FCT
(1949)” held that administrative expenses and director’s fees should be ascertained to the
extent that are incurred in producing the taxable income. Quoting “Ronpibon Tin NL v FCT
4 Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.

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(1949)” the mobile phone expenses of Julie is allowable for deduction up to 60% as it is
related to work purpose while the remaining portion is a private expense and non-deductible5.
Answer to C:
Rendering “section 8-1 (2) (b), ITAA 1997” expenditure that are private and does not
satisfy the positive limbs is non-deductible under the negative limbs. As held in “Lodge v
FCT (1972)” a deduction is not permitted to taxpayer for childcare expenditure as it was not
incidental to generating taxable income6. Similarly, the babysitting expenses occurred by
Sally is non-allowable deduction under “section 8-1 (2) (b), ITAA 1997” because it is a
private expenditure.
Answer to D:
“Section 8-1, ITAA 1997” is implemented for both the loss and outgoings incurred by
taxpayer. As held in “Charles Moore & Co (WA) Pty Ltd v FCT (1956)” the taxpayer is
permitted deduction for the money that was stolen from day to day activities. Similarly, Jerry
will be permitted deduction for the theft of goods that amounted to $20,000 since it was
related to the taxpayer’s everyday business activities7.
5 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.
6 Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.
7 Abrams, Howard E., and Don Leatherman. Federal income taxation of corporations and
partnerships. Wolters Kluwer Law & Business, 2019.

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Answer to E:
Outgoings of preliminary nature or pre-commencement of income producing acts are
not in the course of earning income and hence non-deductible under “section 8-1, ITAA
1997”. The taxpayer was denied deduction in “FCT v Maddalena v FCT (1971)” for the
expenditure incurred in gaining a new employment as it occurred at a point too soon and not
in the course of earning income. Evidently, the expenditure occurred by taxpayer for
contesting a government election is non-deductible under “section 8-1, ITAA 1997” because
it is pre-commencement to income generating acts.
Answer to question 3:
Answer to A:
The taxpayer has to follow the “CGT event F2” if they are following any lease or
contract. This impacts on the taxpayer who will be getting the lease from the owner and they
gain the same right8. According to the scenario of Andy, he gave the land for lease purpose to
Brian with respect to the premium of $5,000 for five years. Hence this has resulted in “CGT
event F2” and as a result of which Andy is not eligible for getting 50% of CGT discount as
this operation is not eligible for CGT F2.
Answer to B:
As per ATO, “CGT event B1” comes into the picture when a property or land is being
leased to some new owner9. The new owner enjoys the rights and the facilities of that
particular land when the contract starts or he starts paying the rent for that particular property.
8 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
9 Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19
(2017): 21.

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In contrast with this discussion, Farm Ltd was eligible in purchasing 100-acre farm for a sum
of $800,000 as they were paying to the land owner $40,000. Here, the CGT event B1 has
taken place hence John is eligible in getting the 50% discount as per the CGT criteria or
based on the transaction he made after being in contract.
Answer to C:
According to the Australian Taxation Office, the taxpayer is allowed for partial
residential exemption if they are not living in residence while maintaining the ownership of
that particular property. Jamie and Olivia has come across such situation as they rented one
property for two years and then they have used that particular property for generating their
taxable income. Apart from this they have also used it as a main residence before selling it
out in 2018. Hence, they are only eligible for partial main residence exemption. Olivia and
Jamie is also allowed to get 50% of the CGT discount for maintaining their capital gain tax.
Answer to D:
A taxpayer is permitted to apply the CGT Discount Method to calculate the net
amount of capital gains on most of the assets which is owned by the taxpayer for a minimum
of a one year or 12 months of an income year. Here, Chris has reported the capital gains from
the disposal of BHP shares. The capital gains amounted to $13,320. While Chris reported a
capital loss from the sale of Wesfarmers shares. The shares were not held by Chris for a

9TAXATION LAW
period 12 months. Therefore, no CGT discount method can be applied for the capital gains
made on the sale BHP shares that amounted to $13,320 in case of Chris. While Chris can
carry forward the capital loss from Wesfarmers in the next income year.
Answer to question 4:
Answer to A:
A taxpayer is not considered taxable for their prizes. However, if these prizes are
relevant to their taxable income then that might be considered to be taxable as ordinary
income. According to “FCT v Kelly (1985)” the taxpayer had received an award from
Channel 7 for being the fairest and the best player, in this scenario this award is considered as
the ordinary income because this award was associated with taxpayer’s skills which was
helpful to him for earning ordinary or taxable income10.
Referring “section 6-5, ITAA 1997” the taxpayer’s prize money of $2,000 was
considered as the ordinary income. This gain was taxable for the taxpayer as this was directly
in relation with taxpayer’s income producing activities.
Answer to B:
According to “section 6-1 of the ITAA 1936” the taxpayer is should include income
for assessment purpose obtained from the personal exertion income. This includes gratuity,
remuneration, wages and allowances11.
10 James, Kieran. "The Australian Taxation Office perspective on work-related travel expense
deductions for academics." International Journal of Critical Accounting 8.5-6 (2016): 345-
362.
11 Burton, Hughlene A., and Stewart Karlinsky. "Tax professionals' perception of large and
mid-size business US tax law complexity." eJTR 14 (2016): 61.

10TAXATION LAW
According to the considered case study, the employee gained $500 from his employer
as he visited Sydney and came back to his workspace for the purpose of his work. In contrast
with this scenario, the amount $500 will be considered as reimbursement of expenses for the
expenses that was occurred by the taxpayer. Therefor it is not an income under ordinary
concepts.
Answer to C:
The tax payer can be given personal gifts, however, if these are not related to their
income then these will not be considered as their ordinary gain. As per “FCT v Scott (1966)”,
the court has suggested, the gift of 10,000 pounds from the longstanding wife of client will
not be considered as the income in the absence of husband. Along with this the iPhone
received by the taxpayer is worth $1,000, however this will not be considered as income as
well because it is a simple gift.
Answer to D:
As held in “paragraph 118-37 (1) (b) of the ITAA 1997”, the taxpayer should
disregard the money which he has received for his personal injury or illness or damages
which has been caused by personal reason.
The taxpayer had meet with an accident and he received about $10,000 for his
personal injuries. In this case the compensation amount will not be considered as taxable
income and taxpayer should not pay the tax for this.
Answer to E:
The taxpayer is eligible to involve himself in different earning activities however if he
is involving himself for the earning activities which are yet to be executed in the current
income year and also planned for the future years, it will not be considered as the income for
the current income year. In respect of above the discussion, the case study highlights that the

11TAXATION LAW
taxpayer purchased the shares with the value of $5 however the current market value of this
share is $7.50. Hence, this increase in price will not be considered as his income as he has not
earned this gain. As per “section 6-5, ITAA 1997” the taxpayer is not eligible to include his
gain in the ordinary year’s income if that is planned for any future perspectives12.
Answer to question 5:
Issues:
This section is highlighting discussion if the migrant to Australia will be considered
as Australian occupant or not under “section 6 (1), ITAA 1936”.
Rule:
According to “section 6-1 of the ITAA 1997”, people who are residing in Australia
from a long time and who are having permanent residence in Australia will be considered as
the Australian resident. However, to discuss this fact from the perspective of commissioner of
taxation people who are residing in Australia might have residence outside of Australia will
not be held Australian resident13. Hence, to judge who is actually residing in Australia there
are four residence tests in Australia. The person can be Australian resident if they meet one of
these four criteria. These tests are Ordinary concepts test, resides test, 183 day’s test and
superannuation test. A person needs to meet one of these tests to be an Australian resident.
According to reside test the person should be present for a longer span of time in
Australia regardless of their nationality, religion or any other specific parameter. Whereas,
12 Burton, Mark. "A Review of Judicial References to the Dictum of Jordan CJ, Expressed in
Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes
of the Australian Income Tax." J. Austl. Tax'n 19 (2017): 50.
13 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).

12TAXATION LAW
Domicile test states, until the person can prove that they have permanent residence out of
Australia and if they have Australian domicile then they will be considered as Australian.
According to the judgement made in “Applegate v FCT (1979)” the taxpayer was identified
as non-resident of Australia as they had domicile outside of Australia. Apart from this, as per
court the permanent stay of any person is checked in each year with respect to their behaviour
towards Australian culture and habits14.
According to 183 day’s test, if the taxpayer is living in Australia from last six months
of current income year then they will be considered as Australian resident until they are able
to proven that they have a permanent residence outside of Australia.
Applications:
Nisu came to Australia on 30th December 2018 regarding her studies. She had a plan
in taking the residence over Australia for three years. However, she had to go back to Nepal
for her family issues. According to ordinary concepts, she should not be considered as an
Australian resident as she did not live here for a considerable period of time nor she had been
permanently dwelling in Australia. The domicile test also states that Nisu cannot be treated as
Australian resident as she never had Australian domicile.
However, according to 183 day’s test, Nisu will be considered as an Australian citizen
as she was present in Australia for continuous six months of the current income year. In this
case her behaviour of staying in Australia is considered for judging her presence over
Australia. Hence, the time scale of six months proved Nisu as an Australian resident under
the meaning of “section 6 (1), ITAA 1936”.
14 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

13TAXATION LAW
Conclusion:
As per discussion, Nisu meet the criteria of 183 day’s test to be prove herself as an
Australian citizen. She is present in Australia from last 6 months of the current income year
and under “section 6 (1), ITAA 1936” she is considered to be an Australian.

14TAXATION LAW
References:
"Ato.Gov.Au", Ato.Gov.Au (Webpage, 2019) <https://www.ato.gov.au/law/view/document?
DocID=TXR%2FTR20184%2FNAT%2FATO%2F00001>
"INCOME TAX ASSESSMENT ACT 1997 - SECT 13.1List Of Tax
Offsets", Classic.Austlii.Edu.Au (Webpage, 2019)
<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s13.1.html>
Abrams, Howard E., and Don Leatherman. Federal income taxation of corporations and
partnerships. Wolters Kluwer Law & Business, 2019.
Abrams, Howard E., and Don Leatherman. Federal income taxation of corporations and
partnerships. Wolters Kluwer Law & Business, 2019.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).\
(https://ideas.repec.org/b/oxp/obooks/9780190304423.html)
Braithwaite, Valerie. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017. (https://www.taylorfrancis.com/books/9781315241746)
Burton, Hughlene A., and Stewart Karlinsky. "Tax professionals' perception of large and
mid-size business US tax law complexity." eJTR 14 (2016): 61. (https://heinonline.org/hol-
cgi-bin/get_pdf.cgi?handle=hein.journals/ejotaxrs14&section=6)
Burton, Mark. "A Review of Judicial References to the Dictum of Jordan CJ, Expressed in
Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes
of the Australian Income Tax." J. Austl. Tax'n 19 (2017): 50. (https://heinonline.org/hol-cgi-
bin/get_pdf.cgi?handle=hein.journals/jouaustx19&section=5)

15TAXATION LAW
Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19
(2017): 21. (https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/
jouaustx19&section=8)
James, Kieran. "The Australian Taxation Office perspective on work-related travel expense
deductions for academics." International Journal of Critical Accounting 8.5-6 (2016): 345-
362. (https://www.inderscienceonline.com/doi/abs/10.1504/IJCA.2016.081623)
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.
Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
(https://eprints.qut.edu.au/128447/)
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
(https://ideas.repec.org/b/oxp/obooks/9780190304386.html)