Taxation Law 2 Assignment: Australian Taxation Law Analysis

This document presents a comprehensive solution to a Taxation Law 2 assignment, addressing various aspects of Australian taxation. The solution covers topics such as the functions of Australian taxation, taxation rulings, trading stock, requirements for tax agent registration, and deductions on capital expenses. It analyzes specific sections of the ITAA 1997, including those related to allowable deductions, and provides case analysis on topics like deductible expenses, residency for taxation purposes, and assessable income from various sources like employment, investments, and gifts. The assignment includes detailed calculations of assessable income and allowable deductions, providing a thorough understanding of the concepts discussed. The document is a valuable resource for students studying taxation law, offering practical examples and interpretations of relevant legislation and case law.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Part A:.......................................................................................................................2
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 7:.................................................................................................................4
Answer to question 8:.................................................................................................................5
Answer to question 9:.................................................................................................................5
Answer to question 10:...............................................................................................................5
Answer to Part B:.......................................................................................................................5
Answer to Part C:.......................................................................................................................7
Answer to Part D:.......................................................................................................................8
Answer to Part E:.....................................................................................................................10
Reference List:.........................................................................................................................13

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Answer to Part A:
Answer to question 1:
Australian taxation has three main functions which is stated below;
a. Economic growth: The government undertakes the policies to prevent the
unnecessary variations in economy. The primary function of taxation is applying price
controls, implementing policy index for quicker growth of wages1. The primary
functions of taxation also consists of growth of economy, fiscal and monetary policies
as well.
b. Employment growth: The Australian tax policy is implied to manage the demand of
goods and service. This helps in lowering the tax rate applied and may result in
growth in demand with increase employment opportunities.
c. Stability of price: The primary function of taxation is to regulate price. The
estimations states that government multiplier expenditure is positive while the tax
multiplier is negative. In the event of price fall in the economy the taxation policies
assist in recover of price.
Answer to question 2:
The taxation rulings refers to requisite of declaration made by the commissioner of
taxation. The commissioner of taxation is surrounded by rulings which represents that
taxpayer being dependent on ruling would not be held wrong in future even though the ruling
in future found to be wrong by court2. The bindings of the ATO is stated below;
1 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
2 Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.

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Public ruling: This comprises of applying tax laws on taxpayers namely the TR, TD, GSTD,
CR and PR.
Private ruling: This consists of applying of tax laws on specific arrangement where
particular taxpayers are required to depend upon.
Oral rulings: This consists of guidance for applying the tax laws on individual taxpayers.
Answer to question 3:
According to the “taxation ruling of TR 98/17” a clarification is provided relating to
packaging of items held by wholesaler, retailer of the manufacturer. With respect to “section
70-10 of the ITAA 1997” they are regarded as trading stock3. The ruling is applied is items
that produced or bought for business activities of taxpayers.
Answer to question 4:
Requirements for registration of tax agents are as follows;
a. A person should not be less than 18 years
b. The person must be proper and fit
c. The person should have sufficient qualification and experience
d. Must maintain the professional indemnity insurance to meet the requirements.
e. Should provide all the supporting documents and must finish the online application.
3 Mitchell, Rebecca. "Legal advice privilege in the taxation context: disconnected ethical
regimes for lawyers and tax advisers in the Australia and New Zealand." New Zealand
Journal of Taxation Law and Policy (2018).

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Answer to question 5:
Division of ITAA 1997 that provides deductions on capital expenses includes
Division 250 and Division 150 of the ITAA 1997.
Answer to question 6:
“Section 25-5 (1) of the ITAA 1997” provides specific deductions relating to;
a. Borrowing expenses
b. Bad debts
c. Repairs
d. Mortgage discharging expenses
e. Expense on parliament election
f. Expenses on pensions, gratuities and retirement allowances
g. Expense on local government election
h. Deductions relating to W-I-P sum
Answer to question 7:
As held in “FC of T v Day (2008)” the court of law held that the legal expenses that
was incurred for defending the case of extraneous in carrying out the income deriving
activities of the respondents4. With respect to section “section 8-1 (1) of the ITAA 1997” the
expenses was not occurred in earning the taxable income. The judgement of the court stated
the expenses were private expenses and were not allowed for deduction.
4 Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International, 2015.

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Answer to question 8:
A person that receives the amount as compensation for the loss of trading stock, cost
involved in acquiring the trading stock is reduced through such compensation. There cannot
be any capital gains except the trading stock is sold by the taxpayers.
Answer to question 9:
A taxpayer with $75,000 taxable income during the year 2017/18 will have an
applicable tax rate of $3572 plus 32.5 cents for every dollar over $37,000.
Answer to question 10:
“Section 4-10 (3) of the ITAA 1997” contains the following formula;
Income Tax = (Taxable Income x Rate) – Tax Offsets)
Answer to Part B:
According to “Section 25-10 of the ITAA 1997” a person is entitled to allowable
deductions relating to expenses incurred by them on depreciating assets which is held by the
taxpayers for generating taxable income5. As defined in “Section 8-1 of the ITAA 1997” a
person is entitled to allowable deductions relating to expenses incurred by them in deriving
assessable income. Whereas in “section 8-1 (2)(b) of the ITAA 1997” a person is prohibited
from claiming deductions on private expenses as these expenses fails to fulfil the criteria of
positive limbs. As held in “Federal Commissioner of Taxation v Lunney (1958)” it is vital
to ascertain the characteristics of outgoings which is an important prerequisite in deriving the
assessable income.
5 Pinto, Dale. "State taxes." Australian Taxation Law. CCH Australia Limited, 2013. 1763-
1762.

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In the present circumstances of Lisa, she occurs expenses relating to office. Lisa
reported an outgoings on repairs of leaking roof. This indicates that work carried out to avoid
further corrosion represents restoring the efficiency. Hence, the expense of $2400 on repairs
shall be classified as permissible deductions. Furthermore, Lisa reports painting expenses of
$5,200 that represents reinstating the previous appearance of her office and the same will be
held as deductible expenses.
Later it is noticed that Lisa incurs expenses on replacing the wooden flooring and
resurfacing of car parking. As stated in “Section 25-10 of the ITAA 1997” an individual
taxpayer incurring capital expenses shall not entitled for deductions. As held in “FC of T v
Western Suburbs Cinemas Ltd (1952)” the court stated that the cost incurred by taxpayer
was improvement and no allowable deductions shall be permitted6. Evidently, in case of Lisa,
replacement of wooden flooring and restructuring of car parking will be held as expenses of
capital nature and represents significant improvement which is non-deductible. Nevertheless,
with respect to “section 8-1 of the ITAA 1997” Lisa is allowed to claim allowable deductions
immediately relating to gardening expenses.
Computation of Allowable Deductions
Particulars Amount
Expense on Leaking Roof $2,400
Expense on Painting of Office $5,200
Expenses on gardening $750
Total Allowable Deductions $8,350
Answer to Part C:
According to the “taxation ruling of IT 2650” it provides guidelines relating to the
ascertainment of whether a person who is leaving Australia on temporary basis to reside in
6 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).

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foreign nation shall be held as Australian resident7. This comprises of foreign work
assignment on temporary basis and for income tax purpose ceases to be held as Australian
resident during their overseas stay. As stated under “section 995-1 of the ITAA 1997”
resident of Australian usually consists of persons having their domicile in Australia except
when the commissioner is satisfied that the permanent place of residence of a person is out of
Australia. In the current circumstances of Satya, she was transferred to Hong Kong relating to
work purpose for a span of five years. While in Hong Kong, Satya maintained her Australian
home and leased the same to generated $40,000 as rental income.
According to “Domicile act 1982” domicile is held as legal concept employed in
ascertaining the domiciliary position of a person. The court of law in “Bell v Kennedy
(1868)” held that a person holds the domiciliary position of their native country in which they
are born except when the person decides to choose domicile in another country8. To
determine the domiciliary position of Satya reference to “subsection 6 (1)” to consider the
intention of Satya where he chooses to make his home indefinitely. A person having the
domicile of Australia in spite of residing out of Australia would be able to hold their domicile
given the intention of an individual is to return to Australian based on any foreseeable
circumstances or after the completion of employment. Similarly in the current circumstances
of Satya, none of her residence was abandoned in Sydney and she has neither established
residence outside Australia. Presumably, Satya return to Australia at a certain stage of time is
held prominent. Hence, Satya will be held as Australian resident for taxation purpose.
7 Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.
8 Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).

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The court of law in “Applegate v FC of T (1979)” stated that the tax liability
originates on the circumstances when a person is considered to be Australian resident for
taxation purpose9. The rental income derived by Satya forms the part of taxable earnings
based on income from ordinary concepts.
Answer to Part D:
As stated under “section 6 of the ITAA 1936” an individual deriving income from
personal exertion represents, salaries, wages, bonus, gratuities and proceeds derived from the
business carried on entirely on their own or through partnerships. As stated in “Section 6-5
of the ITAA 1997” most of the income derived by individual taxpayers are held as income
from ordinary concepts. The court of law in “Scott v Commissioner of Taxation (1935)”
held that relevant principles are implemented in ascertaining how majority of the receipts are
held as income under the ordinary concepts that are in the use of mankind10. An item having
the nature of income when those income comes home for the taxpayers. An item possess the
nature of income when the same is obtained by taxpayers based on realisable value.
In the current situation of Jane, she works as a nurse in hospital and income earned
from working in hospital is regarded as income derived from personal exertion. With respect
to “section 6-5 of the ITAA 1997” Jane income from working in hospital is referred as the
ordinary income and forms the part of taxable income.
Accordingly, a mere windfall is not held as income. This comprises of winnings from
gambling except when a person is performing the business of gambling. As understood in the
9 Robin & Barkoczy Woellner (stephen & murphy, shirley et al.). Australian taxation law
2018. Oxford University Press, 2018.
10 Robin, H. Australian taxation law 2017. Oxford University Press, 2017.

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situation of Jane, she received a sum of $20,000 from betting in horse race. Such winnings
constitute a mere windfall gain for Jane and cannot be classified as income. Referring to
judgement made in “Moore v Griffiths (1972)” the court held that mere prize winnings is not
an income11.
An important fact to denote is that gains in the form of mere gift is not held as
income. As understood from the situation of Jane she received a cash gift of $30,000 in her
birthday from her brother which cannot be classified as income and it is not held for tax
purpose. The judgement made in “Hayes v Federal Commissioner of Taxation (1956)”
stated that receipts of share by an accountant from the previous business owner is not held as
income12.
Similarly referring to the judgement in “Scott v Federal Commissioner of Taxation
(1966)” stated that receiving 10,000 pounds in the form of gift from the wife of a client from
her husband estate cannot be classified as income13. Similarly, gifts received by Jane on her
birthday by her brother will not be held as income. However, Jane derived income from
painting sale and the same shall be classified as element of taxable income which would be
held liable for taxation.
Rental income constitute the full amount of rent and the associated payments which a
person receives on renting out the property. The rental income derived by a taxpayer must be
11 Chardon, Toni, Mark Brimble, and Brett Freudenberg. "Tax and superannuation literacy:
Australian and New Zealand perspectives [Part 1]." Taxation Today 102 (2017): 17-25.
12 Schenk, Deborah H. Federal Taxation of S Corporations. Law Journal Press, 2017.
13 Epstein, Richard A. "Dual Sovereignty under the Constitution: How Best to Protect States
against Federal Taxation and Regulation." Ariz. St. LJ 49 (2017): 935.

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declared while filing tax return. Similarly in the present circumstances of Jane the rental
income received by her from the property that was rented out forms the part of assessable
earnings.
Computation of Assessable Income
In the Books of Jane
For the year 2016-17
Particulars Amount
Assessable Income
Income from working in Hospital $70,000
Income from sale of painting $2,000
Income from Rental Property $20,800
Total Taxable Income $92,800
Answer to Part E:
The present issue is related to ascertaining the expenditure incurred by James that
would be allowed for deductions. As understood from the current circumstances of James, he
works in a school and reports some expenses for the year 2016-17. As evident an expenses
occurred by James for travelling to Canberra relating to job interview. As stated in the
legislative response of “section 25-100 of the ITAA 1997” a person is entitled to allowable
deductions for expenses incurred in traveling between two workplaces.
The travel expenses incurred by an individual must be directly associated between
two place of work where income is produced and neither of the place is the home for
taxpayer. As held in “Lunney v Federal Commissioner of Taxation” travel between home
and a person’s work places is held as private and non-deductible expenses14. According to
“section 8-1 of the ITAA 1997” travel among two unconnected workplaces is non-
14 Bankman, Joseph, et al. Federal Income Taxation. Wolters Kluwer Law & Business, 2017.

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deductible. Similarly, the traveling expenses incurred by James for interview is a non-
deductible expenses.
James reported an expenditure of $3,000 relating to relocation to Canberra. As
defined under “section 8-1 (2) (b)” a person is prohibited from claiming allowable
deductions relating to expenses that are personal or of domestic nature since these expenses
are non-deductible neither under positive limbs non under second negative limbs. Referring
to judgement made in “Fullerton v Federal Commissioner of Taxation” expenses occurred
by taxpayers in relocating from city to another was held as non-deductible expense because
deductions are not allowed for personal or domestic arrangements15. Therefore, the expenses
of $3,000 incurred in relocating by James is a non-deductible expenses.
“Section 8-1 of the ITAA 1997” allows a person to claim deductions for expenses
that are incurred for work purpose. However, an individual is only allowed to claim
deductions for such expenses provided the taxpayers has kept appropriate records for work
expenditure. James reported expenses on telephone that were related to work and the same is
incurred in producing taxable income. With reference to “Section 8-1 of the ITAA 1997”
James would be allowed to claim allowable deductions for work purpose expenses.
According to “section 8-1 (2) (b), expenses that are private in nature or possess the
characteristics of domestic arrangement that fails meet the eligibility of both the positive
limbs or rules of second negative limbs are not allowed as allowable deductions. Similarly,
James reported an expenses relating to purchase of meal from school canteen. Therefore,
these expenses is classified as personal expenses and no deductions can be claimed in this
respect.
15 McDaniel, Paul. Federal Income Taxation. Foundation Press, 2017.