Individual Taxation Law Assignment: Analysis & Application - LAWS20060

This assignment addresses several key concepts within Australian taxation law. It begins by examining the application of section 23 of the Income Tax Rates Act and Division 30 of the Income Tax Assessment Act regarding business entities and deductions for contributions or gifts. It then delves into the taxation of individuals, including the top tax rate, capital gains tax exemptions for cars and motorcycles, and the treatment of damaged or lost assets. The assignment also explores the differences between ordinary and statutory income, the Medicare levy and surcharge, and residency tests under section 6.1 of the Income Tax Assessment Act, including the concepts of permanent and usual place of abode. Furthermore, it analyzes deductible and non-deductible expenses under section 8.1 of the ITAA, such as HECS-HELP repayments, work-related travel, books, childcare costs, and other personal expenses. Finally, the assignment covers CGT event F2, cost base calculations, and main residence exemptions.

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

1TAXATION LAW
ANSWER 1:
a) Under the Taxation Ruling TR 2019/11 the topic that has been provided is the situation
and time when the company will be carrying out a business like a small scale business
entity provided under section 23 in the Income Tax Rates Act2.
b) Division 303 laid in the Income Tax Assessment Act provides the legislation that is
concerned with the deductions of any contribution or gift.
c) The top rate of taxation that is levied on an individual being a residential taxpayer for the
taxation year 2019-20204 is 54097 $ subject to an additional 45 % of any amount that will
be in excess of 180 000 $.
d) A perusal of section 118.5 contained in Income Tax Assessment Act5 reveals that both car
and motorcycle are exempted from capital gains tax.
e) If an asset which was previously owned by an individual taxpayer was damaged, lost or
destroyed then such asset will be dealt in as per section 104.20 contained in ITAA6 CGA
event-C1. However such must be of capital nature.
f) The present threshold free from taxation in case of any resident individual for his
assessable income amounts to an income incurred by him provided such income is less
than 18200 dollars.
g) The High Court while deciding the case of Hayes v FCT 7 involving assessable income
held that an amount received by a tax payer for any services rendered by him in the past
1 TR 2019/1.
2 Income Tax Rates Act 1986 s 23.
3 Income Tax Assessment Act 1997 Div 30.
4 www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
<https://www.ato.gov.au/Rates/Individual-income-tax-rates/>.
5 Income Tax Assessment Act 1997 s118.5.
6 Ibid s 104.20.
7 Hayes v FCT (1956) 96 CLR 47.

2TAXATION LAW
will be considered to be CGT gain. Further, in this regard it can be stated that any sum of
money received being an employee from his employer against the service rendered by
him to such employer will be regarded as the capital gain of the employee’s assessable
income. Every income received by applying personal exertion is to be considered as the
ordinary income pertaining to such individual but the receipt from a previous employer
which has already accrued but not given to employee will amount to capital asset as the
same will be received by the employee as a huge sum of money subsequently from the
accrual of it.
h) The differences between the ordinary income with the statutory income are to be
discussed here. A tax payer in his individual capacity usually can earn two kinds of
income as per the classification of the taxable income given under the provisions of the
taxation law. These two types are called the ordinary and statutory incomes. Ordinary
income denotes the incomes that are earned by such taxpayer from any type of source in a
financial year. The ordinary income includes one’s salary as an employee or any kind of
payment earned against any personal services provided. On the other hand, any income
other than statutory income amounts to a statutory income which is incorporated under
the assessable income as per the rules of law. Examples of Statutory income are
dividends, CGT gains, redundancy payments as well as allowances. In order to assess the
ordinary income, no strict rule is to be followed but this is not true for statutory income
which can be subjected to taxation when it is backed up by any statutory provision. There
is no need of any express mention in any tax related statute for considering an ordinary
income as the assessable income but statutory mention is compulsory for a statutory
income to be considered as the assessable income8.
8 Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.

3TAXATION LAW
i) The differences between the Medicare levy and the Medicare levy surcharge are
discussed here in this answer. Some of the tax payers are required to pay extra taxes on
the payable income tax. Such extra taxes are called as the Medicare levy and the
Medicare levy surcharge. These two Medicare levy and the Medicare levy surcharge
implies two extra taxation rates applicable to the tax payers. These two Medicare levy
and the Medicare levy surcharge are imposed as per the provisions enumerated in the
Medicare Levy Act9 and the ITAA10. The Medicare levy surcharge was introduced with the
aim of encouraging the taxpayers of earning high income to pay for insurance health
thereby diminishing the Medicare burden to some extent. The Medicare Levy Surcharge
is applied to the tax payers devoid of any private type of health insurance. The Medicare
Levy can be imposed on both total income as well as Fringe Benefits of the tax payer.
The rates of Medicare levy and Medicare levy surcharge usually vary between 1 percent,
1.25 percent and 1.5 percent11.
Answer 2:
In order to assess the residency requirement if an individual taxpayer, three types of tests
are used that are laid down in section 6.1 contained in the Income Tax Assessment Act 12. These
are the domicile test, residing test and the super admission test. Beside these, the 183 days test is
also used to assess the individual’s taxability either living or connected to Australia. In these
tests, mainly two types of concepts or principles prevail in the said section. The concerned
principles are called as the ‘permanent place of abode’ and the ‘usual place of abode’. Although
9 Medicare Levy Act 1986.
10 Income Tax Assessment Act (Cth) 1936.
11 Krassnitze, L., & Willis, E. (2016). The public health sector and medicare. Understanding the Australian health
care system, 3.
12 Income Tax Assessment Act (Cth) 1936 s 6.1.

4TAXATION LAW
both sounds similar but under the Australian taxation law both renders distinct meanings. The
principles of place of abode are discussed in details in the decision held in the case of I.R.C. v.
Lysaght13 according to which the place of abode refers to a residential property which is held by
the taxpayer being the owner or lessor for staying or living in that place along with family
together with its surroundings.
The case of FC of T v Applegate14 provides the most relevant analysis of the permanent
place of abode concept. The permanent place of abode refers to a place where the taxpayer is
staying with an intention of residing for a considerable time and not showing any intention to
leave it. Due consideration is required for considering the intention of the tax payer which was
further discussed in the F.C. of T. v. Jenkins15 case.
The concept of ‘usual place of abode’ is related to domicile of any person. The
requirement for it is living in a property for living there as a custom. For example, a rented
accommodation will amount to a ‘usual place of abode’ if an individual stays there for long time.
This has been given in the Levene v. I.R.C16. case.
Answer 3:
a) Section 8.1 contained in ITAA17 states that the expenditure related to the process of earning
income can be assessed as mentioned. In order to claim any deduction, the tax payer is
required to show that the expenditure is not connected with any type of domestic or private
cause but is absolutely cased on the earning of income. In the present case, the expenditure
13 I.R.C. v. Lysaght (1928) A.C.234.
14 FC of T v Applegate 79 ATC 4307.
15 F.C. of T. v. Jenkins 82 ATC 4098.
16 Levene v. I.R.C. (1928) A.C.217.
17 The Income Tax Assessment Act 1997 (Cth) s 8.1.

5TAXATION LAW
for HECS-HELP amounting to 850 dollars seems to be incurred by means of student loan of
personal nature. It is by no way connected to the assessable income of the individual and thus
will not be subjected to deduction.
b) Section 25.100 of the ITAA18 states that expense of travelling to the workplace incurred by
an individual amounts to an expenditure subjected to deduction. In the present case, the
expenditure of 110 dollars for travelling to university from the workplace will be considered
as deductible expenditure.
c) Section 8.1 of ITAA19 states that expense arising out of procedure of earning an assessable
income by an individual is subjected to deduction of the assessable income of the individual
concerned. To claim it, the tax payer must show that the expenditure is without any
connection of domestic or private reason but solely connected with process of income
earning. In the current case, the expense of getting books costing 200 dollars for gaining
knowledge and skill related to accountant will be subjected to deduction as it will help the tax
payer in future in his income earning method.
d) Section 8.1 of ITAA 199720 states that expense arising out of procedure of earning an
assessable income by an individual is subjected to deduction of the assessable income of the
individual concerned. To claim it, the tax payer must show that the expenditure is without
any connection of domestic or private reason but solely connected with process of income
earning. This has been construed in the Lodge v Federal Commissioner of Taxation21 case.
Here the expenditure of 80 $ incurred for child care during evening time classes is not related
to the profession of an individual tax payer. So it is not subjected to deduction.
18 The Income Tax Assessment Act 1997 (Cth) s 25.100.
19 Ibid s 8.1.
20 Ibid s 8.1.
21 Lodge v Federal Commissioner of Taxation [1972] HCA 49.

6TAXATION LAW
e) Section 8.1 of ITAA22 states that expense arising out of procedure of earning an assessable
income by an individual is subjected to deduction of the assessable income of the individual
concerned. To claim it, the tax payer must show that the expenditure is without any
connection of domestic or private reason but solely connected with process of income
earning. Here the expenditure of 250 $ incurred for repairing of fridge is not related to the
profession of an individual tax payer. So it is not subjected to deduction.
f) Section 8.1 of ITAA23 states that expense arising out of procedure of earning an assessable
income by an individual is subjected to deduction of the assessable income of the individual
concerned. To claim it, the tax payer must show that the expenditure is without any
connection of domestic or private reason but solely connected with process of income
earning. Here the expenditure of 145 $ incurred for buying trousers is not related to the
profession of an individual tax payer. So it is not subjected to deduction.
g) Section 8.1 of ITAA24 states that expense arising out of procedure of earning an assessable
income by an individual is subjected to deduction of the assessable income of the individual
concerned. To claim it, the tax payer must show that the expenditure is without any
connection of domestic or private reason but solely connected with process of income
earning. This has been construed in the Lodge v Federal Commissioner of Taxation25 case.
Here the expenditure of 300 $ incurred for employment contract with a new employer is
although related to the profession but it does not amount to an assessable income of the tax
payer. So it is not subjected to deduction.
22 The Income Tax Assessment Act 1997 (Cth), s 8.1.
23 Ibid.
24 Ibid.
25 Lodge v Federal Commissioner of Taxation [1972] HCA 49.

7TAXATION LAW
Answer 4:
a) The CGT event F2 category deals with the property that has been rented or leased by the
owner. The particular CGT is also seen to include a new grant, extension or renewal of an
existing lease. But a 50 percent discount is not available in this CGT event. Hence 7000
dollar received by David from John for lease will amount to a CGT F2 event and will be
subjected to the capital tax gain without 50 percent26 discount imposition.
b)
CGT Calculation
2018-19
Items $ $
Shares for IOOF
CGT Net gain 1200
Cost Proceeds 6700
Base Cost 5500
Shares for Green cross Pty ltd
CGT Net gain 5880
Cost Proceeds 14160
Base Cost 20040
CGT Net Loss
458
0
c)
As per section 118.100 of the ITAA27, when a property is occupied by an individual as
his main place of residence, the sum of money earned from selling it will amount to an
exemption from CGT. But to effect such exemption, the main criterion is that the
property must be lived as the main place of residence. For any business or profit making
venture will be considered to be carried out in such property in its definite part and the
26 Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016).
27 The Income Tax Assessment Act 1997 (Cth), s 118.100.

8TAXATION LAW
remaining part to be considered as the residential portion of the property. In such case,
the sale proceeds will be exempted for the part used for residential reason and calculation
will be done in proportionate manner.
d) Cost base refers to expenses that are incurred to acquire an asset as per section 110.2528
of ITAA. Such costs will be included to the asset’s purchase price and additional holding
as well as disposition costs. Again as per section 110.55 of ITAA29, the reduced cost base
must be calculated if capital transaction does not result into gain.
Answer 5:
a) According to the decision held in FC of T v La Rosa30 case, any income will not be
considered to be assessable if it is earned by illegal way. But it will fall under assessable
income only when if such way is found to be executed in a manner that depicts business.
b) The decision held in Adelaide Fruit and Produce Exchange Co Ltd v DFC of T31 states
that income incurred by exploiting a property by rent will amount to an ordinary income.
Again as held by Evans v. F.C. of T32 case, income arising out of gambling is beyond the
scope of business and hence will not amount to assessable income. Thus in this case,
bank interest of 500$ and 2000$ rent income will be amount to assessable incomes but
income of 10,000$ from the Casino will not amount to assessable income.
c) According to section 15.2 of ITAA33, any sum of money given as an employee allowance
against employment from his employer will amount to an assessable income for such
employee.
28 The Income Tax Assessment Act 1997 (Cth), s 110.25.
29 Ibid s 110.55.
30 FC of T v La Rosa 2003 ATC 4510.
31 Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 1.
32 Evans v. F.C. of T. 89 ATC 4540.
33 The Income Tax Assessment Act 1997 (Cth) s15.2.

9TAXATION LAW
d) For an income of 20,000$, Medicare levy is not imposed. For income of 24900$, 2%
levy is 498$.
For income of 100,000$, 2% levy is 2000$.
e) In case of income of 25000$, the applicable rate of taxation is 19% beyond 18200$.
Hence, {(25,000$ – 18,200$) * 19%} =(6,800$ * 19%) = 1,292$
Therefore, gross tax payable= 1292$
In case of income of 40000$, the applicable rate of taxation is 3572$ and 32.5% beyond
37000$
Hence,
3,572$ + {(40,000-37,000) * 32.5%} = {3,572$ + (3000$ *32.5% )} = ($3,572 + $975)=
4547 $.
Therefore gross payable tax= 4547 $.
In case of income of 95000$, the applicable rate of taxation is 20797$ and 37% beyond
90000$
Hence,
20797$+ {(95000-90000)$*37%= 20797$ + 5000$ * 37%= 20797$+ 1850$= 22647$.
Therefore, gross payable tax= 22647$.

10TAXATION LAW
References:
Books and Journals:
Adelaide Fruit and Produce Exchange Co Ltd v DFC of T (1932) 2 ATD 1
Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018
Barkoczy, Stephen. "Foundations of taxation law 2016." (OUP Catalogue 2016)
Krassnitze, L., & Willis, E. (2016). The public health sector and medicare. Understanding the
Australian health care system, 3
Cases:
Evans v. F.C. of T. 89 ATC 4540
F.C. of T. v. Jenkins 82 ATC 4098
FC of T v Applegate 79 ATC 4307
FC of T v La Rosa 2003 ATC 4510
Hayes v FCT (1956) 96 CLR 47
I.R.C. v. Lysaght (1928) A.C.234
Levene v. I.R.C.(1928) A.C.217
Lodge v Federal Commissioner of Taxation [1972] HCA 49

11TAXATION LAW
Legislation:
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
The Medicare Levy Act 1986
TR 2019/1
Website:
www.ato.gov.au, "Individual Income Tax Rates", Ato.Gov.Au (Webpage, 2019)
https://www.ato.gov.au/Rates/Individual-income-tax-rates/