Taxation Law Case Study

This case study examines the taxation implications for an overseas student, Manpreet, in Australia. It discusses his residential status, assessable income, and the deductibility of expenses related to his education. The analysis references relevant sections of the Income Tax Assessment Act 1997 and various case law to determine the allowable deductions and tax offsets applicable to Manpreet's situation. The study concludes with a computation of his assessable income and the tax implications thereof.

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 question 1:.................................................................................................................2
Computation of Assessable Income...........................................................................................6
Reference List:...........................................................................................................................7

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Answer to question 1:
The present case study is concerned with the determination of the net tax payable by
Manpreet. As it is evident from the case study it is understood that Manpreet arrived in
Australia as an overseas student enrolled in an academic course with a duration for more than
six months in an Australian institute1. Any overseas student enrolled in a course having
duration of no less than six months shall be considered as an Australian resident.
To determine the taxable situation of Manpreet it is necessary to work out the
residential status of an individual whether an individual is an Australian or overseas resident
for the purpose of assessment. As evident from the case study Manpreet will be regarded as
an Australian resident for assessment purpose since he is enrolled in a course which has the
duration of more than six months in Australian institute2. Furthermore, Manpreet is a part
time office assistant with an Australian organization for a monthly salary of $45,000.
Manpreet also incurred expenditure related to educational purpose.
As evident Manpreet incurs an expenditure of $18,000 which cannot be considered as
allowable deductions. A person can claim allowable deductions for self-educational purpose
if their study is linked with their employment or given an individual received a assessable
1 Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).
2 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.

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bonded scholarship3. It should be understood that educational courses should have sufficient
relation to the present job and;
a. Improve the required skills or knowledge which a person requires in their current job
b. If it is probably leading to an improvement in the income from their current
employment
A person will not be able to claim allowable deductions for the purpose of self-education
for those courses which has no sufficient link with the present job even though it;
a. Might have general association to it; or
b. Offers a person with an opportunity for a new employment
As defined under section 8-1 of the ITAA 1997 an expenditure is allowable as deductions
if there is an adequate link between the expenditure and the revenue generating activities,
such that its required aspect is associated with work and not private or domestic in nature4. As
decided in Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; (1958) for an
expense to qualify the test under section 8-1 of the ITAA 1997 must own the necessary
feature of an outgoing incurred in gaining the taxable income or comprise of an income
generating expenditure5.
3 Russell, Tim. "Trust beneficiaries and exemptions from CGT: Reflections on the Oswal
litigation." Taxation in Australia 51.6 (2016): 296.
4 Woellner, Robin, et al. Australian Taxation Law Select: legislation and commentary. CCH
Australia, 2013.
5 Barrett, Jacqui, and Alessar Elsayed. "Deductibility of employer contributions to employee
remuneration trusts-where are we at?." Governance Directions66.5 (2014): 307.

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The viewpoint is held up under Ronpibon Tin NL v. FC of T (1949) where the income
should have the connection between the outgoing and assessable income because the
outgoing is supplementary and significant in gaining a taxable income6. Hence, the expenses
incurred by Manpreet will not be regarded deductions. It should be noted that deductions are
not allowed for self-educations expenses if the matter of self-expenditure is designed to get a
new job or present an opportunity of new income7.
As defined under section 8-1 of the ITAA 1997 expenditure are regarded as allowable
deductions if there is an adequate relations between the expenses and the income generating
capacity, such that it has the necessary characteristics of work and it is does not have the
nature of domestic or private8.
One cannot consider adequate that expenses are perquisite in producing the taxable
income. The expenditure should be important and incidental to the original activities that
results in producing the assessable income9. Citing the reference of FC of T v. M I Roberts
92 ATC 4787 the federal court by imposing the principles of Maddalena permitted the mine
manager to deduct the expenditure associated with the MBA. As stated under section 8-1 of
6 ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
7 Somers, Renuka, and Ashleigh Eynaud. "A matter of trusts: The ATO's proposed treatment
of unpaid present entitlements: Part 1." Taxation in Australia 50.2 (2015): 90.
8 Barkoczy, Stephen. "Core Tax Legislation and Study Guide." OUP Catalogue(2017).
9 Tran-Nam, Binh, and Michael Walpole. "Tax disputes, litigation costs and access to tax
justice." eJournal of Tax Research 14.2 (2016): 319.

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the ITAA 1997 expenditure incurred by Manpreet on new mobile phone signify an important
aspect in gaining the assessable income and Manpreet will be allowed to claim deductions for
it10.
Assumptions:
a. Receipt of sum from India represents a income from trust and it will be considered
for assessment under subsection 6AB(1)
b. As the taxable income of Manpreet is lower than $37,000 hence the amounts if
lowered by 1.5 cents for each amount of the dollar over $37,000. Hence, Manpreet
can claim a low income tax offset of $212.511.
c. Since the total amount of taxable income of Manpreet is $8,609 therefore a Medicare
Levy of 2 per cent is applicable to arrive at the taxable income12.
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 Low Income Earners (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Income-and-
deductions/Offsets-and-rebates/Low-income-earners/>
12 Medicare Levy (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Medicare-levy/>

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Computation of Assessable Income

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Reference List:
Barkoczy, Stephen. "Core Tax Legislation and Study Guide." OUP Catalogue(2017).
Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).
Barrett, Jacqui, and Alessar Elsayed. "Deductibility of employer contributions to employee
remuneration trusts-where are we at?." Governance Directions66.5 (2014): 307.
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.
ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
Russell, Tim. "Trust beneficiaries and exemptions from CGT: Reflections on the Oswal
litigation." Taxation in Australia 51.6 (2016): 296.
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
Somers, Renuka, and Ashleigh Eynaud. "A matter of trusts: The ATO's proposed treatment of
unpaid present entitlements: Part 1." Taxation in Australia 50.2 (2015): 90.
Tran-Nam, Binh, and Michael Walpole. "Tax disputes, litigation costs and access to tax
justice." eJournal of Tax Research 14.2 (2016): 319.
Woellner, Robin, et al. Australian Taxation Law Select: legislation and commentary. CCH
Australia, 2013.
Low Income Earners (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Income-and-
deductions/Offsets-and-rebates/Low-income-earners/>

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Medicare Levy (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Medicare-levy/>