LAWS20060 Taxation Law of Australia Assignment: Term 1, 2019, Analysis

This document is a comprehensive solution to a Taxation Law of Australia assignment, addressing multiple questions related to income tax, capital gains tax (CGT), and various deductions. The assignment covers topics such as the methodology for calculating asset depreciation, tax offsets, marginal and average tax rates, and consumption taxes. It explores specific scenarios, including the deductibility of loan interest, allocation of dual-purpose expenses, and the treatment of child care expenses. The document also analyzes CGT events, exemptions for main residences, and the impact of capital gains and losses on assessable income. Furthermore, the assignment delves into the taxability of prize winnings, the application of general deductions, and the treatment of expenses related to employment and elections. The solution references relevant legislation, cases, and tax rulings to support its arguments, providing a detailed analysis of each question and its associated legal principles. This assignment provides a thorough understanding of key concepts in Australian taxation law.

Running head: TAXATION LAW OF AUSTRALIA
Taxation Law of Australia
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1TAXATION LAW OF AUSTRALIA
Table of Contents
Answer to Question 1:.....................................................................................................................3
Part a:...........................................................................................................................................3
Part b:...........................................................................................................................................3
Part c:...........................................................................................................................................3
Part d:...........................................................................................................................................3
Part e:...........................................................................................................................................4
Part f:...........................................................................................................................................4
Part g:...........................................................................................................................................4
Part h:...........................................................................................................................................5
Part i:............................................................................................................................................5
Answer to Question 2:.....................................................................................................................6
Part a:...........................................................................................................................................6
Part b:...........................................................................................................................................6
Part c:...........................................................................................................................................7
Part d:...........................................................................................................................................7
Part e:...........................................................................................................................................8
Answer to Question 3:.....................................................................................................................8
Part a:...........................................................................................................................................8

2TAXATION LAW OF AUSTRALIA
Part b:...........................................................................................................................................9
Part c:...........................................................................................................................................9
Part d:.........................................................................................................................................10
Answer to Question 4:...................................................................................................................11
Part a:.........................................................................................................................................11
Part b:.........................................................................................................................................11
Part c:.........................................................................................................................................12
Part d:.........................................................................................................................................12
Part e:.........................................................................................................................................12
Answer to Question 5:...................................................................................................................13
Issues:........................................................................................................................................13
Laws:..........................................................................................................................................13
Application:...............................................................................................................................14
Conclusion:................................................................................................................................15
References:....................................................................................................................................16

3TAXATION LAW OF AUSTRALIA
Answer to Question 1:
Part a:
As explained in the “Taxation Ruling TR 2018/4”, the methodology utilised to compute
or ascertain the economic life of the asset for depreciation purpose is mentioned in accordance
with “Section 40(100) of ITAA 1997”.
Part b:
As per “Division 13 of ITAA 1997”, considerable explanation has been provided, in
which the taxpayer could obtain access about detailed tax offset1.
Part c:
In case of Australian residents with the maximum bracket of income, there is application
of a particular tax rate. For above taxable earnings of $180,001 and more, the Australian
residents need to incur $54,097 along with $0.45 for every $1 made beyond $180,001.
Part d:
It is mentioned under “Section 108-10(2) of ITAA 1997” that collectible discloses those
assets set aside mainly for private use. The special rules applicable on the collectibles have to be
in compliance with “Section 118-10(1) of ITAA 1997”, which states that there is ignorance of
capital gains under the first component; in case, the collectible has cost base below $5002.
1 Stephen, Barkoczy, Foundations Of Taxation Law 2014.
2 John D., Buenker, The Income Tax and the Progressive Era. Routledge, 2018.

4TAXATION LAW OF AUSTRALIA
Part e:
CGT event B1 is associated with the enjoyment and utilisation before the title is passed.
As per “Section 104(15) of ITAA 1997”, the occurrence of this event takes place at the time the
taxpayer develops a contract with another organisation, in which the right to enjoy and use the
CGT asset owed to the taxpayer is transferred to the other organisation and the asset title might
be transferred to the other organisation before the agreement is terminated.
Part f:
“Section 4-10(3) of ITAA 1997” emphasises on the process of computing the tax amount
needed to be incurred by an individual. The formula in order to compute the income tax is
provided as follows:
Income Tax = [Tax Rate * Taxable Income] – Tax Offsets
Part g:
The verdict provided in the case of “FC of T v Day 2008 ATC 20-064” signifies that the
taxpayer was the servant of the public and the person is applicable for deduction of legal
outgoings with reference to “Section 8(1) of ITAA 1997”. This happened owing to the various
charges imposed on the part of the taxpayer. The charges had relationship with disciplinary
cases. According to the Commissioner, cases filed against the taxpayer had been due to personal
concerns and therefore, it is not possible to allow legal outgoings for deductions, as per “Section
8(1) of ITAA 1997”3. The reason was the dismissal of the taxpayer from work and the
expenditures were the results of personal consequences.
Part h:
Marginal rate of tax tends to differ from average of tax in the following ways:
3 Daniel, Butler, "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.

5TAXATION LAW OF AUSTRALIA
 Marginal tax rates are achieved through implementation on those individuals falling
within the higher income group. In case of average tax rate, it signifies the portion of
income that the taxpayer has paid as tax4.
 Marginal tax rate denotes the tax levied on the final dollar of income, while the taxpayers
have to incur lower average tax rate compared to the marginal tax rate.
 The marginal rate of tax analyses the tax impact on savings, earnings and investment. On
the contrary, the average rate of tax generally gauges the tax burden5.
Part i:
Tax consumption is a kind of tax applicable on purchase of products and services. This
type of tax generally occurs as tariffs, sales tax, excise duty and other kinds of compensation
taxes levied on products and services. The instances of consumption taxes constitute of excise
duties, value added tax as well as taxes, which are imposed on gross business receipts6.
4 Gashenko, Irina V. et al., Optimization of the Taxation System: Preconditions, Tendencies and
Perspectives. Springer, Cham, 2019. 33-39.
5 Robert N, Gordon, "REIT and MLP Taxation Under the New Tax Law." Journal of Taxation of
Investments 35.4 (2018).
6 Janet, Grange, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation

6TAXATION LAW OF AUSTRALIA
Answer to Question 2:
Part a:
As per “Section 8(1) of ITAA 1997”, a taxpayer is allowed for deduction from taxable
earnings or loss or expenses until the degree occurred to generate assessable income.
“Amalgamated Zinc Limited v FCT (1935)” case states that deductions were provided to the
taxpayers in relation to expenses taken place to gain or generate taxable income7. In this case,
Brett obtained loan from the bank so that the staff wages could be settled effectively. By
referring to the above case, the loan interest paid on borrowings by Brett took place during the
period of generating assessable earnings. Hence, loan interest is allowed for deduction under
“Section 8(1) of ITAA 1997”.
Part b:
Any loss or expense taking place due to dual purpose needs to be allocated in such a
manner that it satisfies the positive limbs of “Section 8(1) of ITAA 1997”. According to the
verdict of the Federal Court in “Ronpibon Tin NL v FC of T (1949)”, expenses need to be
allocated until the deductible portion having dual purpose8.
In the provided case, Julie paid mobile phone expenses for dual purposes that include
work purpose as well as private purpose. By referring to the above case, Julie could obtain
deduction until 60% of the expenses, as they fulfil the positive limbs of “Section 8(1) of ITAA
1997”.
7 Geralyn, Jover-Ledesma, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
8 Richard E, Krever, Australian Taxation Law Cases 2014

7TAXATION LAW OF AUSTRALIA
Part c:
“Section 8(1) of ITAA 1997” does not provide any scope for general deduction for child
care expenses. According to the case of “Lodge v FCT (1972)”, there was reporting of child care
expenses from the end of the taxpayer, since the taxpayer was not in a position to earn taxable
income9.
In the year, Sally paid $1,200 to a babysitter. By referring to the verdict passed in the
above-mentioned case, this expense could be categorised in the form of private expense, which
was not in line with the income generation activities of Sally. This restricts the scope for
deduction in accordance with “Section 8(1) of ITAA 1997”.
Part d:
The application of general deductions could be made on outgoings as well as losses.
From the case of “Charles Moore and Company (WA) Private Limited v FC of T (1956)”, it
could be seen that the taxpayer was allowed the deduction claim for the stolen money at the time
of visiting, since the loss had adverse impact on the financial position of the individual10.
In a similar fashion, the business goods of Jerry were stolen costing $20,000, which is
eligible for deduction based on “Section 8(1) of ITAA 1997”. The reason is that the loss has
negatively affected the financial position of the business of Jerry.
9 Michael, Lang, et al., eds. Introduction to European tax law on direct taxation. Linde Verlag
GmbH, 2018.
10 Paul, Kenny, Australian Tax 2013 (LexisNexis Butterworths, 2013)

8TAXATION LAW OF AUSTRALIA
Part e:
The expenses having association with the generation of taxable earnings in the future
years, in which there is absence of establishment of nexus is not eligible for deduction. From the
case of “Maddalena v FCT (1971)”, it was found that for finding new employment, expenses
were incurred and they were not eligible for deduction, as per “Section 8(1) of ITAA 1997”11.
The reason involved the observance of the preliminary nature of the expenses to income
generation activities.
In the current case, the taxpayer incurred expenses of $5,000 and $2,000 for contesting in
local government election and big election party respectively, which were not allowed for
deduction by “Section 8(1) of ITAA 1997”. By referring to the above case, the expenses were
observed to be preliminary to the income generation activities.
Answer to Question 3:
Part a:
The Australian Taxation Office (ATO) allows a taxpayer in selecting CGT event F2 to an
individual at the time of providing any extension or grant associated with long-term lease. This
could be applied in case of land owner when the individual provides any sub-lease12.
11 Angharad, Miller, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
12 Annette, Morgan, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.

9TAXATION LAW OF AUSTRALIA
In this case, Andy owns a land, which he leases to Brian at a premium rate of $5,000 for
five years. The lease grant to Brian leads to CGT event F2. However, it is not possible for Andy
to collect 50% CGT upon undertaking the CGT event.
Part b:
ATO states that there is occurrence of CGT event B1 when the new owner purchases the
land. Generally, land use takes place when ownership of land is transferred to the new owner and
from the time the landholder would enjoy rents and profits13. In the provided, John provided the
option to Farm Limited to purchase the land for $40,000.
Part c:
ATO provides basic exemption on capital loss or gain to the taxpayer for selling the main
residence. However, “Section 118-10(1) of ITAA 1997” states the main dwelling needs the
primary residence of the taxpayer in the entire ownership period and it is not utilised for
generation of income. If the property is utilised for income generation, the primary residence is
entitled to only partial exemption14.
Jamie and Olivia purchased a residential property, after which it was provided as rent for
two years from 2006 to 2008. However, the use of the property was seen to be for residential
purpose from 2008 to 2018, after which sale of the property was made at $300,000 capital gain.
13 Annette, Morgan, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
14 Matteo, Morini, and Simone Pellegrino. "Personal income tax reforms: A genetic algorithm
approach." European Journal of Operational Research 264.3 (2018): 994-1004.

10TAXATION LAW OF AUSTRALIA
Therefore, Olivia and James could claim only partial exemption from the capital gains generated.
Moreover, one-year ownership rule was fulfilled by the property resulting in 50% CGT discount
to be obtained from the earned capital gains.
Part d:
Although Chris has made capital gains through sale of BHP shares, he has reported
capital loss as well by selling the shares of Wesfarmers. Moreover, Chris did not have the asset
ownership for a year and thus, it did not meet the one-year ownership rule. Hence, the
application of CGT discount is not possible on the generated capital gains15. Instead, Chris could
only incorporate capital gains into assessable income earned from the shares of BHP, while the
capital loss suffered owing to the sale of the shares of Wesfarmers have to be brought forward to
the upcoming years.
15 Shari, Motro, "The Income Tax Map: A Bird's-eye View of Federal Income Taxation for Law
Students." (2016): 1.

11TAXATION LAW OF AUSTRALIA
Answer to Question 4:
Part a:
The ordinary concept does not take into consideration the coincidental prizes and
winnings to be income although windfall income has been earned. By studying the case of “Kelly
v FCT (1985)”, the prize winnings were taxable due to the close relationship with the usage of
the taxpayer’s skills16.
In this case, the taxpayer earned $2,000 as prize from the best television advertisements.
Hence, by considering the above case, prize winnings were deemed as taxable income, as per the
ordinary concept of “Section 6(5) of ITAA 1997” due to their association with the income
generation activity of the concerned taxpayer.
Part b:
“Section 6(1) of ITAA 1936” states that income from private exertion includes salaries,
allowances, gratuities, wages and others, which an individual taxpayer obtains in his
employment course by working as an employee.
In the given case, the employee obtained $500 from the employer related to the outlay
paid in order to travel to Sydney for work reasons. The employee received the ticket amounting
to $120 and the remaining amount was provided to him. Therefore, the latter amount is deemed
to be taxable income in accordance with “Section 6(5) of ITAA 1997”.
16 Dale, Pinto, and Michelle Evans. "Returning income taxation revenue to the states: back to the
future." (2018).

12TAXATION LAW OF AUSTRALIA
Part c:
It is not possible to categorise the uncertain gifts that the taxpayer has obtained for
personal services in the form of income. From the case of “Scott v FCT (1966)”, it has been
analysed that $10,000 obtained from the client’s wife out of the husband’s estate was not an
income, as the gift was the result of the personal association between the parties.
The taxpayer has obtained iphone of $1,000 from the client. By taking reference of the
above case, this gift could not be adjudged in the form of income, as it is provided owing to the
personal relationship between the two parties.
Part d:
As per ATO, when a taxpayer obtains the compensation amount for the personal injury
claims and the individual agrees with the court verdict in recipient’s favour, the compensation
receipt is not an income and thus, it is tax-free17.
In this case, the taxpayer obtains the compensation amount of $10,000 because of the
injuries suffered from the car accident. This compensation is equivalent to personal injury
payment and thus, it is free from tax.
Part e:
The taxable income to be obtained in the upcoming years, as presently entitled to such
income; in that case, the earnings are deemed to be preliminary for the taxpayer to be achieved.
The shares were bought by the taxpayer for $5 each and they are now trading at $7.50 per share.
17 Andrew, Shaw, "Tax files: Why small really is better: Accessing the lower corporate tax rate
for small business entities." Bulletin (Law Society of South Australia) 39.10 (2017): 39.

13TAXATION LAW OF AUSTRALIA
The taxpayer has not sold the shares yet, which results in no income generation. The reason is
the failure to establish nexus and there is increase in remoteness to the taxpayer to be obtained.
Answer to Question 5:
Issues:
The provided case highlights the issues about the residential status of the migrant entered
into Australia and whether the individual could be considered as a resident of Australia within
the ordinary concept of “Section 6(1) of ITAA 1936”.
Laws:
“Section 6(1) of ITAA 1936” considers an individual to be an Australian resident, if the
individual inhabits in Australia having a fixed home in the nation. There are certain tests
included in the definition and satisfying one test is adequate to be recognised an Australian
resident18.
As per the residency test, an individual is an occupant in Australia for tax purpose, if the
person is staying in Australia regardless of the nationality or citizenship along with fixed home.
According to the “Domicile Act 1982”, the domicile test describes an individual to be a
resident of Australia having an Australian domicile unless the person could prove the existence
of a permanent residence outside the country19. From the case of “Applegate v FCT (1979)”, it
18 Dale, Pinto, and Michelle Evans. "Returning income taxation revenue to the states: back to the
future." (2018).
19 Alfred, Tran, "Can taxable income be estimated from financial reports of listed companies in
Australia." Austl. Tax F. 30 (2015): 569.

14TAXATION LAW OF AUSTRALIA
has been identified that although the taxpayer retained the domicile of Australia, the individual
had proved a permanent residence outside Australia.
The 183-day test signifies that when an individual is present for 183 days in Australia in
an income year, the individual would be treated as an Australian resident by complying with
“Section 6(1) of ITAA 1936”.
Application:
From the provided case of Nisu, the individual came to Australia for completing his
higher studies. After arriving in the nation, he took a home on rent with other students. In
relation to the residency test, it is observed that it is not possible to treat Nisu in the form of a
resident, as he is not staying in Australia for adequate amount of time.
Nisu is subject to the application of the domicile test for ascertaining the residential
status. It could be observed that after Nisu arrived in Australia, he was involved in part-time
work and he rented an apartment as well. Moreover, he enrolled in the local Australian soccer
team. By using the case of “Applegate v FCT (1979)”, Nisu could be identified as the resident of
Australia owing to the durability with continual association in Australia20.
From the 183-day test, Nisu has been in Australia for 183 days in an income year; thus,
fulfilling the criteria of Australian resident, as per “Section 6(1) of ITAA 1936”.
20 Helena, Yuan, "Mid market focus: The sharing economy and taxation." Taxation in
Australia 51.6 (2016): 293.

15TAXATION LAW OF AUSTRALIA
Conclusion:
From the above case, it has been evaluated that Nisu satisfies the criteria of being treated
as an Australian resident in accordance with “Section 6(1) of ITAA 1936” owing to the
fulfilment of the 183-day test and the domicile test.

16TAXATION LAW OF AUSTRALIA
References:
Barkoczy, Stephen, Foundations Of Taxation Law 2014.
Buenker, John D. The Income Tax and the Progressive Era. Routledge, 2018.
Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
Gashenko, Irina V., Yuliya S. Zima, and Armenak V. Davidyan. "Principles and Methods of
Taxation." Optimization of the Taxation System: Preconditions, Tendencies and Perspectives.
Springer, Cham, 2019. 33-39.
Gordon, Robert N. "REIT and MLP Taxation Under the New Tax Law." Journal of Taxation of
Investments 35.4 (2018).
Gordon, Roger H. "The Rise of the Value-Added Tax. Cambridge Tax Law series." (2016): 243-
246.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2014
Lang, Michael, et al., eds. Introduction to European tax law on direct taxation. Linde Verlag
GmbH, 2018.

17TAXATION LAW OF AUSTRALIA
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing,
2016.
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 (CCH Australia, 2013)
Morini, Matteo, and Simone Pellegrino. "Personal income tax reforms: A genetic algorithm
approach." European Journal of Operational Research 264.3 (2018): 994-1004.
Motro, Shari. "The Income Tax Map: A Bird's-eye View of Federal Income Taxation for Law
Students." (2016): 1.
Pinto, Dale, and Michelle Evans. "Returning income taxation revenue to the states: back to the
future." (2018).
Shaw, Andrew. "Tax files: Why small really is better: Accessing the lower corporate tax rate for
small business entities." Bulletin (Law Society of South Australia) 39.10 (2017): 39.
Tran, Alfred. "Can taxable income be estimated from financial reports of listed companies in
Australia." Austl. Tax F. 30 (2015): 569.
Yuan, Helena. "Mid market focus: The sharing economy and taxation." Taxation in
Australia 51.6 (2016): 293.