BUSN 3054 Taxation Law and Practice Assignment - Semester 1, June 2019

This document provides a detailed solution to a Taxation Law assignment (BUSN3054), addressing seven key questions. The assignment covers critical aspects of Australian tax law, including negative gearing policies and their justifications, and the tax implications of property sales and land subdivisions. It analyzes tax liabilities for individuals like Paul, Marty, and Helen, considering capital gains tax, tax deductions, and the Small Business Entity System. Furthermore, it includes calculations for capital gains and losses from various transactions and determines fringe benefits tax liabilities for employers, incorporating both the operating cost method and the calculation of taxable values for different benefits. The solution also considers the application of relevant legislation and case law to support the answers.

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Taxation Law
Name
Professor
Institution
Submission Date

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{1} In terms of tax policy arguments, what is the justification for the Labor Party
approach? Which of the two opposing policy on negative gearing do you prefer?
Negative gearing refers to a policy which provides an opportunity for an investor to
borrow a loan in order to acquire an investment which is in return going to produce income. In a
short term, the gross revenue that is generated by the investment is lower than the acquisition
price as well as the premise management cost. This includes the interest charged on the loan
acquired as well as the depreciation value (Blunden, 2016, pp.340-357). An investor may be
engaged in a negative gearing policy for the purpose of expecting tax benefits or a capital gain
benefit once the selling price of the premise will exceed the accumulated costs and losses of
managing and holding the investment.
In Australia the negative gearing rather than being in the support of boosting the
construction of more houses and houses supply and also boosting the construction-related
employment, this policy promotes speculations as well as the boosted cost of housing in the
nation. In the country, only a few investors are able to generate sufficient returns from the
investment to cover their initial cost of acquiring and managing the premises. ATO reports that
in 2012 and 2011 the country had more than 1.9 million investors in the real estate business but
they failed to recover their investment as well as the costs incurred in managing the houses and
suffered a cumulative loss of more than $6.8 billion rental net loss (Davidson and Evans, 2015,
p.58).
Most investors nowadays in Australia are still in property investment just because of the
tax benefits as well as capital gain but not about the rental yields of the premises. The withdrawal
of the negative gearing in Australia can be a way to boost ownership of homes by making the

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houses more affordable. Investors use the negative gearing ratio to inflate the rental fees which
are on the other hand a challenge to the clients. By removing this policy most of the investors
would sell out the houses. Most of the political regime in the country has failed to address this
issue. In removing this policy most of the investors would be left vulnerable to the change of tax
codes. Hence the labor party approach is right t by not affecting the existing investors and only
touching on the newly developed houses or under construction hence limiting the exposure of the
current investors (Davidson and Evans, 2015, p.29). Through this, the party will allow the prices
to change on a gradual phase.
{2} advise Paul as any tax liability he may have on the sale of each house and land
package. Support your answer with any legislative and case references.
In Australia, the sale of a subdivided land is taken to several considerations. The tax
office of Australia gave out several factors to look into when the tax decision is being made for a
subdivided land for sale. The given factors included; the purpose or the intention behind the
owner decided to rezone and subdivide the land if the subdivision is part of the owners business,
the amount of money used to rezone, the way in which the subdivision is done and finally who is
actually they rezone. In this case, if the subdivision has become revenue in nature after all the
above concerns are considered, then further analysis will be approved (Braithwaite and Reinhart,
2019, p.989). If the intention of developing the land was for profit making the CGT capital gain
tax will be applied.
Considering the case of Paul his decision to engage another company already makes him
qualify for the capital gain tax. Moreover, the intention of subdividing not constructing houses

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for sale in the divided land also shows that Paul intention was for profit making. Hence Paul
would be subject to the capital gain tax on the sale of the capital assets. A similar case to this was
the case of Buono v. Comr., 111 74 T.C. 187 (1980). In this case, the court ruled that the merely
arranged subdivision and sale of more than forty slots of land did not amount to development but
rather a profit hence the defendant was obliged to pay capital gain tax (S & H, INC. v.
Commissioner, 78 T.C. 234 T.C. 1982). The intention of the owner was regarded as a profit-
making mind.
{3} Advise Marty as to what, if any, tax deductions he may be entitled to claim for
the year ended 30 June 2019. Would Marty be able to continue to claim any interest for
any tax years after 30 June 2019 (do not try and work out what his claims may be for these
later years)? Support your answer with legislative and case authority.
In Australia, there are several exemptions which are only followed not the sale of capital
assets. Considering this case there affected borrowed a loan to invest in a business and housed
the acquired money to pay for goodwill. After a few months of operating the business, he
decided to resell it as it was only accounting for losers. In the transaction of sealing the hotel, he
had not recovered his money and hence has sold it at a loss. Having made a loss Marty was not
subjective to pay the CGT taxes (Chardon, Freudenberg and Brimble, 2016, p.321). In Australia
according to the tax office as well the mITAA97 and 36, have well indicated that if a person sells
or earns a capital gain from the sale of a capital asset, he should be taxed under CGT.
A similar case to this was the Andrews v. the tax commissioner. He d resold a business
apartment and as even past and operated for thirteen years after the resale Andrew had only made

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a loss of $456, 000 which w past the cost of acquisition and managing the house. Hence the court
ruled on his favor as he was not to account for any CGT. Hence Marty would be allowed an
exception as he only accounted for a loss which was coming from the sale of a capital asset.
{4} Advise Helen as to what, if any, tax deductions she may be entitled to claim for
the year ended 30 June 2019. Ensure you consider what effect claiming under the Small
Business Entity System would make to her claims. Should Helen claim under the Small
Business Entity System? Support your answer with legislative and case authority.
Land is normally recognized by the IRS and also the tax office of Australia and hence
having invested in land, he could not be allowed to use the small business depreciating nether.
Hence having used his money to add business premises in the acquired land, he was not to be
exempted for the small business depreciating method. This is because the land is recognized as
an appreciating asset and is supposed to be treated as an appreciating asset. The depreciating
business method is used in valuing any small business which has depreciating assets. It is used to
make deductions of all the business assets (Chardon, Freudenberg and Brimble, 2016, p.342).
Moreover, this method requires that it is applied to a portion b that is only entitled to business
use only and other taxable purposes which are not used for private purposes.
It is possible for a person to claim deductions for only business or work-related expenses;
this is according to the Australia tax office. In order for a person to qualify in claiming a
deduction, he must have spent the cash and in return, the used up money was not reimbursed, the
deduction must always be related to a personal income earning and finally, a record must be
provided to prove (Woellner, Barkoczy, Murphy, Evans and Pinto, 2016, p.789). Having spent
300,000 united states dollar for the construction and also used other $50,000, Helen was

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qualified to a deduction as the building premise was directly associated with her income and also
relevant evidence existed. Helen should also use the small business system for her business as
per the date she had only used her own capital to invest in the business and the money had not
yet been recovered by the end of 2019.
{5} calculate the capital gain or capital loss in respect of each transaction and the
overall net capital gain, if any, for the year ended 30 June 2019.
1) Sold car at a capital loss
Purchase price $30,000
Selling price ($12,000)
Total capital loss$18,000
2) Sold painting at a capital gain
The purchase price $600
Selling price $6,000
Total capital gain $5,400
3) Shares sold in C Pty Ltd at a capital gain
Purchase price $10,000
Selling price $20,000
Total capital gain$10,000
4) Sold home at a capital gain
Purchase price $200,000
Selling price $500,000
Total capital gain $300,000
5) Sold block of land at a capital gain

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Purchase price $180,000
Selling price $250,000
Total capital gain $70,000
6) Sold shares in A Pty Ltd at a capital gain
Purchase price $8,000
Selling price $14,000
Capital gain $6,000
7) Sold shares in B Pty Ltd at a capital loss
Purchase price $12,000
Selling price $9,000
Capital loss $3,000
For selling the residential house Simon would not have to account for any capital gain tax as it
was the only residential house for the taxpayer. Hence in calculating the total capital gain for tax
purposes, Simon will not include the $300, 000 capital gain realized from the sale of his
residential house. The total assessable capital gain of Simon will therefore be;
(-3,000)
{6} which method should this employer use to calculate the fringe benefits tax liability for
this car for the FBT year ended 31 March 2019? Calculate the fringe benefits tax liability
for this employer for this car fringe benefit for the FBT year ended 31 March 2019.
The employer should not use the statutory cost method. Hence the car value should be not
be reduced by 1/3 in the year which will be yet to commence on 1st April and will end on March
2020 after the forth universally of acquiring the car. This is because the car had only completed

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one year of operation. Hence the employer should use the operating cost method in the
calculation of fringe benefit of the car (Bhatt, Magill, Menz, Itzen, Mehta, Reynard, and
Vengerovsky, Dun and Bradstreet Inc, 2016, pp.89-102). In this method all the required
documents of the car should be available.
Total operating cost $ 17,000
Percentage attributed to [private use 40%
Employee contribution $ 3,000
40/100x $17,000= 6,800
The gross taxable value of the car is $ 6,800
The taxable value of the car benefit is the gross taxable value subtracts the employee
contribution and hence the total taxable income of this car benefit was;
$6,800 – $3,000= $3,800
{7} calculate the fringe benefits tax liability for Datum Pty Ltd for the FBT year ended 31
March 2019.
The first step includes the calculation of the taxable value of the benefit.
For the laptop provided to Alex the taxable income for this benefit can be calculated as;
The total business use percentage multiplied by the retail selling price of the asset
60/100 x $4,000= 2,400
2400 is the gross taxable value of the laptop benefit as provided to Alex.

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The second case is the case of Linda who took away goods worth $3,100 without paying
anything and hence the total fringe benefit was equal to the cost associated to the stock taken
away without payment, hence the gross taxable value of the stock carried by Linda is $3,100.
Hence the total fringe benefits amount of Datum Pty Ltd is the sum of the benefits offered to its
employees. That is the taxable value of the laptop and the stock carried by Linda;
$3,100 + $2,400= $5,500.

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References
Bhatt, S., Magill, J., Menz, C., Itzen, H., Mehta, R., Reynard, K. and Vengerovsky, A., Dun and
Bradstreet Inc, 2016. System and method for self-monitoring credit information. U.S.
Patent Application 11/152,593.
Blunden, H., 2016. Discourses around negative gearing of investment properties in Australia,
Housing Studies, 31(3), pp.340-357
Braithwaite, V. and Reinhart, M., 2019 The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Chardon, T, Freudenberg, B and Brimble, M, 2016. Tax literacy in Australia: not knowing your
deduction from your offset. Austl. Tax F., 31, p.321.
Davidson, P. and Evans, R., 2015. Fuel on the fire: Negative gearing, capital gains tax & housing
affordability. ACOSS Papers, p.29.
S & H, INC. v. Commissioner, 78 T.C. 234 (T.C. 1982)
Woellner, R., Barkoczy, S., Murphy, S, Evans, C. and Pinto, D., 2016, Australian Taxation Law
2016, OUP Catalogue