University Taxation Law Assignment: LAWS20060, Term 2, 2019

This document presents a comprehensive solution to a Taxation Law assignment, addressing key aspects of Australian taxation. It begins by defining 'usual place of abode' and its implications for residency, differentiating it from 'permanent place of abode' and referencing relevant case law like *Miller v FCT* and *Jenkins v FCT*. The solution then analyzes various tax deductions, including HECS-HELP payments, travel expenses, book costs, childcare expenses, and clothing expenses, referencing relevant sections of the Income Tax Assessment Act 1997 and tax rulings. The assignment further explores Capital Gains Tax (CGT), including event F1, CGT discounts, main residence exemptions, and the cost base and reduced cost base, with reference to specific sections of the ITAA 1997. The solution also examines the taxability of income derived from illegal activities and presents an analysis of different tax scenarios, including the assessment of income and expenses.

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 2:.................................................................................................................2
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................6
Answer to question 5:...............................................................................................................10
References:...............................................................................................................................13

2TAXATION LAW
Answer to question 2:
The word “usual place of abode” must not be allocated the similar meaning just like
the phrase “permanent place of abode”1. The 183 days generally treats a person as the
Australian occupant when they are actually living in Australia uninterruptedly for six months.
While the materials concerning the “usual place of abode” is viewed as the topic of
fact. The term “usual place of abode” is interpreted as the abode that is mainly used by
someone when they are actually in Australia. As a general rule the home of the taxpayer is
ought to be fixed and must be depicting the characteristics of residence and should not be
exhibiting a temporary place of an overnight stay.
While, the “TR of IT 2650” states that “resident” and the “resident of Australia”
explained in “subsection 6(1), ITAA 1936” as a person that has been existent in Australia for
a uninterrupted time period for greater than six months2. A person may not be said as
Australian dweller if the tax administrator is contented that the “usual place of abode” is out
of Australia with no objective of taking up Australian citizenship.
The term “permanent place of abode” represents that a person has set up their
domicile in Australia. While “subparagraph (a)(i) of the definition” “resident” needs the
commissioner to be contented that an person’s “permanent place of abode” is not out
Australia. The law court in “Miller v FCT (1946)” held that the word “place of abode”
means the residence of an individual where one exists and sleeps. As a general rule, a
1 Sadiq, Kerrie, et al. Principles of Taxation Law 2016. Ninth ed., Thomson Reuters, 2016.
2 Taxation Ruling IT 2650

3TAXATION LAW
person’s “place of abode” constitute the place of dwelling or the physical nearby where a
person lives.
The leading case of “Jenkins v FCT (1982) ATC 4089” alleged that taxpayer had the
“permanent place of abode” out of Australia3. The court adjudged the taxpayer as non-
resident in the concerned year of income. The law court explained that the word “permanent”
should be viewed in the perspective which it appears.
In overturning the decision of commissioner in “Harding v FC of T (2019)”, the
federal court stated that word “place” in “permanent place of abode” calls for consideration
of a country or town where a person physically lives “permanently”4. Given that the
individual has the left Australia on permanent basis, it should not be requirement that the
specific house or apartment in an overseas nation is lived in. Furthermore, the intention of the
taxpayer relating to the duration of their overseas was only considered relevant factor into
consideration.
The explanation of “Jenkins” and “Harding” made above makes it clear that a
person’s “permanent place of abode” cannot be determined by simply applying any hard and
fast procedures. The matter of fact ought to be discovered in every cases.
Answer to question 3:
HECS-HELP $850:
There are certain types of self-education outlays that are non-deductible. Under “sec
26-20, ITAA 1997” payments that are made under the HECS-HELP as fees are considered
3 Jenkins v FCT (1982) ATC 4089
4 Harding v Federal Commissioner of Taxation (2019) FCAFC 29

4TAXATION LAW
non-allowable deduction. The trainee made a payment of $850 under the HECS-HELP.
Denoting “sec 26-20, ITAA 1997” no deduction will be allowed in this context for self-
education expenses.
Travel – work to university $110:
Payments made for traveling between home and further education college or from
workplace to educational institution is permissible tax deduction expenses. The expense
should relate to income earning improving capacity of the taxpayer.
Similarly, the travel from the work place to the university will be permissible as
deduction under “sec8-1, ITAA 1997” to the trainee based on the assumption that the self-
education incidentals are sustained in earning the future income earning opportunity from the
present in which he is currently engaged5.
Books $200:
The “TR 98/9” cost incurred for self-education study materials such as the textbooks,
stationary, calculators etc. are considered as allowable deductions under “sec 8-1, ITAA
1997”6. The costs sustained by trainee accountant for books will be allowed for deduction
under “sec 8-1, ITAA 1997”.
Childcare expenses during evening classes $80:
“Sec 8-1, ITAA 1997” states that childcare incidentals are non-deductible. In “Lodge
v FCT (1972)” deductions were not permissible to the taxpayer for childcare costs that was
incurred to have her child minded while she attends her work. Similarly, the childcare
5 Section 8-1, Income Tax Assessment Act 1997 (Cth)
6 Taxation Ruling of TR 98/9

5TAXATION LAW
expenses of $80 incurred for attending evening classes were non-deductible7. Referring
“Lodge v FCT (1972)” the childcare outlays were not relevant in the derivation of calculable
wages.
Repair to fridge at home $250:
Under the “sec 25-10, ITAA 1997” a taxpayer can be permitted to deduct expenses
they incur for maintenances or repairs to the depreciating asset held by them completely for
generating calculable income8. The repairs to fridge at home by trainee accountant cannot be
considered as acceptable tax deduction under “sec 25-10, ITAA 1997” since the asset is not
used for producing assessable income and hence non allowed as deduction.
Black trousers and shirt required to be worn at office $145:
“Sec 8-1, ITAA 1997” explains that conventional clothing or ordinary clothing items
is not allowed for deduction in spite of the fact that the taxpayer is required to maintain an
appearance in the office. In “Westcott v FCT (1997)” no deduction was permitted for
conventional clothing irrespective of fact whether the clothing was required for maintaining a
suitable appearance9.
The expenses occurred by trainee accountant for black trouser and shirt needed to
worn at workplace is not eligible as tax deduction under “sec 8-1, ITAA 1997”. Citing
“Westcott v FCT (1997)” the expenditures were not relevant in making of wages.
7 Lodge v Federal Commissioner of Taxation (1972) HCA 49
8 Section 25-10, Income Tax Assessment Act 1997 (Cth).
9 Westcott v FCT (1997)

6TAXATION LAW
Legal expenses incurred in writing up new employment contract with new employer
$300:
As explained in “sec 8-1, ITAA 1997” no deduction is permitted for expense that are
arose in attainment new work because they are not related to production of returns. In
“Maddalena v FCT (1971)” expenses incurred in traveling new club for negotiating
payments were not allowed for deduction10. Similarly, the legal outgoing occurred in writing
up the new employment contract will not be acceptable as tax deduction under “sec 8-1,
ITAA 1997”, since they are not related to production of returns.
Answer to question 4:
Answer A:
“S-104.110, ITAA 1997” is associated with the CGT event F1. Under “s104.110 (2),
ITAA 1997” the time of “CGT event F1” arises while granting the lease. This includes time
when the agreement for the renewal or extension of lease is formed. The taxpayer ought to
take into the account that no CGT discount is permissible under CGT event F1. As evident
John has been the owner of land for which he has granted the lease for seven years at a
premium of $7,000. When the lease was granted by John has resulted in CGT event F1 under
“sec 104-110 (2)” while the no CGT discount is applicable to John.
Answer B:
Issues:
Whether the taxpayer will be entitled to CGT discount for the sale of shares under
“sec 104-10 (1), ITAA 1997”.
10 Maddalena v FCT (1971) 45 ALJR 426

7TAXATION LAW
Rule:
Under the “sec108-5, ITAA 1997”, a CGT asset refers to any property or legitimate or
equitable rights. It also includes the shares or units held in the company. A CGT event under
“sec 104-10 (1)” occurs as soon as the CGT asset is disposed11. When a CGT asset is owned
by a person for minimum of 12 months then in this a CGT discount is permissible to the
taxpayer.
Capital loss from the CGT asset is quarantined or is only permissible for offset against
the capital gains. Loss from the CGT asset is not allowed for deduction or carry forward.
Application:
The computation done above suggest that Deepak bought shares in IOOF and
Greencross Pty Ltd. The shares can be categorized as CGT asset under “sec108-5, ITAA
1997”. The sale of shares by Deepak has led to in CGT event A1 under “sec 104-10 (1)”. As
11 Lam, Dung, and Whitney, Alex. “Taxation and Property: Practical Aspects of the New
Foreign Resident CGT Witholding Tax.” LSJ: Law Society of NSW Journal, no. 21, 2016,
pp. 84–85.

8TAXATION LAW
noted, sale of IOOF shares has given rise to in capital gains while the sale of Greencross
shares has yielded capital loss12. As the IOOF shares were not under the 12 month ownership
rule, no CGT discount will be allowed to Deepak. Whereas the net loss made from the
Greencross can be carried forward to successive period.
Conclusion:
As the taxpayer here did not satisfy the “twelve-month ownership rule”, no CGT
discount can be claimed in this context.
Answer C:
Issues:
Is the taxpayer permissible to claim full exemption from CGT for main residence
under “sec 118-110, ITAA 1997”?
Rule:
General principles of “division 118-B” states that a capital gains or loss from the sale
of main dwelling is exempt from tax under “sec118-110”. Nonetheless, a tax payer is allowed
partial main dwelling exemption if they use any portion of the house for conducting business
to produce assessable income.
Application:
The taxpayer here Li has bought a house for $200,000 in 2010 and converted the
house in producing the assessable income. She started conducting physiotherapy business and
used 20% of entire floor area. In 2019, Li sold her house for $700,000. As the house was used
by Li for conducting business, she will not be eligible to obtain full main dwelling exemption
12 Kenny, Paul, et al. Australian Tax 2016. 2016.

9TAXATION LAW
under “sec 118-110, ITAA 1997”. Instead the capital gains that would be derived by will be
eligible for partial main residence13. Additionally, the dwelling was under Li’s ownership for
the period of twelve months. Hence, she will be eligible for claiming 50% discount in this
respect.
Capital gain x Percentage of floor area = Assessable portion
= $700,000 – $400,000 = $300,000 (net capital gain)
= 300,000 x 20% = $60,000
Conclusion:
Li would not be allowed to claim full exemption for her main residence however she
will be permitted to partial exemption from CGT for her dwelling under “sec 118-110, ITAA
1997”.
Answer D:
The cost base viewed as the total cost that is linked with the CGT asset. The cost base
is lowered till the degree of CGT input tax credits that are claimed by taxpayer. The cost base
item classified under sec 110-25 (1) includes five elements. While the reduced cost base
simultaneously involves the situation when a CGT event has occurred and no gains is earned
in that respect to the taxpayer. The reduced cost base is used in ascertaining any capital loss
while it can also be used in reducing the capital loss as well. The five elements of the reduced
cost are very much similar to that of the cost base of CGT asset however the third element is
different which encompasses the balancing adjustment.
13 Sadiq, Kerrie & Coleman Cynthia & Hanegbi, Rami Et AL., et al. Principles of Taxation
Law 2017. 10th ed., THOMSON LAWBOOK CO, 2017.

10TAXATION LAW
Answer to question 5:
Answer A:
In “sec 6-5, ITAA 1997” an item that carries income nature is earned when it has “come-
home” to the taxpayer. The existence of any such immorality or illegal means does not
prevents the taxability of the income. Similarly, in “Partridge v Mallandaine(1856) 2 TC
179”, the law court of law clarified that an item having the characteristic of earnings will be
derived and will be taxable irrespective of its nature14. Similarly, the income from illegal
means will be considered chargeable ordinary earnings under “sec 6-5, ITAA 1997”.
Answer B:
Receipts that are periodic in nature or the sum that is payable on periodical basis will
be considered assessable as ordinary pay. The sum of $500 received as interest from the
savings account is chargeable earnings under ordinary perceptions since it is periodic
receipts. A simple windfall gain cannot be characterised as income15. The resident tax payer
here reported winnings of $10,000 from crown casino. The amount will not be held as
income since it is a windfall gain. Receipt of rental income is observed as the ordinary returns
under the flow concept “sec 6-5, ITAA 1997”. Similarly, the rent received from boarder
sharing house is a assessable proceeds in ordinary sense of “sec6-5, ITAA 1997”.
Answer C:
Receipts which is related to the performance of personal services or provision of
services have the payment character in the recipient’s hand. In “Dean v FCT (1997)” ATC
14 Partridge v Mallandaine(1856) 2 TC 179
15 Section 6-5, Income Tax Assessment Act 1997 (Cth)

11TAXATION LAW
4762 remuneration that is received from employment is treated as taxable earnings for
rendering personal services16.
The allowance of $500 paid to the employee by the employer is an assessable income
to the employee since it constitutes an income from the personal services. Referring “Dean v
FCT (1997)” ATC 4762 the amount will be treated as taxable under the ordinary sense of
“sec 6-5, ITAA 1997”.
Answer D:
Answer E:
16 Dean v Federal Commissioner of Taxation (1997)

12TAXATION LAW

13TAXATION LAW
References:
Jenkins v FCT (1982) ATC 4089
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
Davison, Mark, Ann Monotti, and Leanne Wiseman. Australian intellectual property law.
Cambridge University Press, 2015.
Dean v Federal Commissioner of Taxation (1997)
Freudenberg, Brett, et al. "Tax literacy of Australian small businesses." J. Austl. Tax'n 19
(2017): 21.
Harding v Federal Commissioner of Taxation (2019) FCAFC 29
Kenny, Paul, et al. Australian Tax 2016. 2016.
Kenny, Paul. "Small business capital allowances." (2018).
Kenny, Paul. LexisNexis Concise Tax Legislation 2016. 2015.
Keyzer, Patrick, Christopher Goff, and Asaf Fisher. Principles of Australian constitutional
law. LexisNexis Butterworths, 2017.
Krever, Richard, and Kerrie Sadiq. "Non-residents and capital gains tax in
Australia." Canadian Tax Journal/Revue fiscale canadienne 67.1 (2019).
Lam, Dung, and Whitney, Alex. “Taxation and Property: Practical Aspects of the New
Foreign Resident CGT Witholding Tax.” LSJ: Law Society of NSW Journal, no. 21, 2016,
pp. 84–85.
Partridge v Mallandaine(1856) 2 TC 179

14TAXATION LAW
Lodge v Federal Commissioner of Taxation (1972) HCA 49
Maddalena v FCT (1971) 45 ALJR 426
Westcott v Federal Commissioner of Taxation (1997)
Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Sadiq, Kerrie & Coleman Cynthia & Hanegbi, Rami Et AL., et al. Principles of Taxation Law
2017. 10th ed., THOMSON LAWBOOK CO, 2017.
Sadiq, Kerrie, et al. Principles of Taxation Law 2016. Ninth ed., Thomson Reuters, 2016.
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Section 25-10, Income Tax Assessment Act 1997 (Cth).
Section 6-5, Income Tax Assessment Act 1997 (Cth)
Section 8-1, Income Tax Assessment Act 1997 (Cth)
Taxation Ruling IT 2650.
Taxation Ruling of TR 98/9

15TAXATION LAW