Individual Case Study Assignment: CLWM4100 Taxation Law

This document presents a comprehensive case study solution for a Taxation Law assignment, addressing various aspects of taxation in the context of a business. The solution begins by analyzing the Australian tax residency of a company based in Singapore, considering factors such as incorporation and control. It then delves into the implications of capital gains tax on the sale of assets, including personal use cars, pre-CGT assets, shares, antiques, and quotas. The analysis meticulously applies relevant sections of the ITAA 1997 and ITAA 1936 to determine the tax treatment of each asset, including the application of discounts and exemptions. Finally, the solution examines general deductions, specifically interest on business loans and expenses related to a media campaign, evaluating their eligibility under s.8-1 ITAA and s.40-880. The document provides detailed explanations and references to relevant legislation and case law, offering a thorough understanding of the tax implications in each scenario.

TAXATION LAW
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Part 1- Starting a new business
In accordance with s.6(1) ITAA 1936, a company would be considered as Australian tax
resident if one of the following two conditions is met (Barkoczy, 2015).
 Incorporation of company in Australia
 Company has business in Australia and also fulfils one of the following two
conditions.
1) Control and central management must be in Australia
2) Control of voting powers by Australian residents
The company is incorporated in Singapore hence the first condition is not satisfied. The
company does have some business in Australia. However, the control of voting powers does
not lie with Australian residents since 75 % of the holding is with directors who are non-
Australian residents. The managing director position is taken on a rotating basis and thus it
cannot be assumed that control lies in Australia since other director are also actively involved
and control is not concentrated in hands of Eleen. Hence, the company would not be an
Australian tax resident.
Part 2- Sale of Assets
1) In accordance with s. 118-5 ITAA 1997, car for personal use would be exempt from the
fold of capital gains tax. As a result, no capital gains implications would arise in this arise.
Also, the sale proceeds would be non-taxable owing to them being capital receipts (Woellner,
2014).
2) As per s.149-10 ITAA 1997, any capital asset purchased before September 20, 1984 would
be a pre-CGT asset and thus exempt from capital gains tax (Sadiq et. al., 2016). Vacant land
is a pre-CGT asset and exempt from capital gains. Also, the sale proceeds would be non-
taxable owing to them being capital receipts.
3) Cost base of shares = $ 80,000
Selling price of shares = $ 175,000
Capital gains = 175000 -80000 = $ 95,000

As per s. 115-25(1), a discount of 50% on the above capital gains can be availed since capital
gains are long term (CCH, 2013).
Hence, capital gains subject to CGT = 0.5*95000 = $ 47,500
The taxable capital gains of $ 47,500 would be declared in the tax returns.
4) As per s.118-10, any personal use asset acquired for lower than $ 10,000 would be exempt
from CGT (Gilders et. al., 2016). Thus, the antique would not attract any capital gains tax.
5) Capital loss on jewellery = 20000-5000 = $ 15,000
Assuming that jewellery was used for personal use, hence as per s.108-20(1) ITAA 1997,
capital losses would be discarded (CCH, 2013).
6) Cost base of shares = $ 41,500
Selling price of shares = $ 45,000
Capital gains = 45000 -41500= $ 3,500
As per s. 115-25(1), a discount of 50% on the above capital gains can be availed since capital
gains are long term (Deutsch et. al., 2016).
Hence, capital gains subject to CGT = 0.5*3500 = $ 1,750
The taxable capital gains of $ 1,750 would be declared in the tax returns.
7) Cost base of quota (s. 110-25 ITAA 1997) = 25000 + 5000 = $ 30,000
Selling price of quota = $ 50,000
Hence, capital gains realised = 50000-30000 = $ 20,000

As per s. 115-25(1), a discount of 50% on the above capital gains can be availed since capital
gains are long term.
Hence, capital gains subject to CGT = 0.5*20000 = $ 10,000
The taxable capital gains of $ 10,000 would be declared in the tax returns.
Part 3: General Deductions
Section 8-1 ITAA allows for deduction of interest on a business loan used for assessable
income production. However, in this case, owing to the current government policy, it seems
unlikely that any assessable income would be generated. Further, since it was a start-up, thus
no assessable income has been generated from the business. Hence, sufficient nexus with
assessable income production is lacking owing to which no deduction as positive limb under
s. 8-1(1) is not fulfilled satisfactorily (Barkoczy, 2015).
A general deduction under s.8-1 ITAA 1997 would not be available for the media campaign
since the expense was capital in nature as it was undertaken for the preservation of business
and benefit of it would be long term. One of negative limbs attached is that the expenditure
should be revenue in nature and not capital (Sadiq et. al., 2016). This is not fulfilled owing to
which general deduction does not apply. However, deduction under s. 40-880 can be availed
over a period of 5 years (Krever, 2016).

References
Barkoczy, S. (2015) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University
Press.
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., & Snape, T. (2016) Australian tax
handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F., Taylor, J., Walpole, M., Burton, M. & Ciro, T. (2016) Understanding taxation
law 2016. 9th ed. Sydney: LexisNexis/Butterworths.
Krever, R. (2016) Australian Taxation Law Cases 2017. 2nd ed. Brisbane: THOMSON
LAWBOOK Company.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, & Ting, A
(2016) , Principles of Taxation Law 2016, 8th ed., Pymont: Thomson Reuters
Woellner, R (2014), Australian taxation law 2014 7th ed. North Ryde: CCH Australia