Taxation Law and Practice: Assessment on Taxation Law Concepts

This assignment on Taxation Law and Practice covers various aspects of Australian taxation. Part A explores the sources of taxation law, residency definitions, Medicare levy, specific deductions, and the valuation of stock. Part B analyzes the deductibility of expenses, including tax advisor fees and solicitor fees for objections. Part C examines the residency status of an international student. Part D calculates assessable income, including income from employment, tips, and gifts. Part E discusses deductible outgoings for a mortgage broker working from home. The assignment provides a comprehensive overview of key concepts such as assessable income, deductions, and residency, using examples to illustrate the practical application of tax laws.

Running head: TAXATION LAW AND PRACTICE
Taxation Law and Practice
Student’s Name:
University Name:
Author Note

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Table of Contents
Part A.........................................................................................................................................2
Part B..........................................................................................................................................4
Part C..........................................................................................................................................5
Part D.........................................................................................................................................6
Part E..........................................................................................................................................7
References:.................................................................................................................................9

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Part A
1. The primary source of the Commonwealth Parliament’s Taxation can be found under
section 51(ii) of the Australian Constitution (Chordia, Lynch, & Williams, 2013).
2. The primary source of Australia’s taxation laws is roughly, the parliament, courts and
government departments or statutory authorities. The taxation laws are derived from
the Commonwealth Constitution and the rules and regulations of its international
treaties, as well as many Double Tax Agreements (DTAs) done with foreign countries
(Whait, 2012).
3. Taxation Ruling TR 98/17 discusses essentially the meaning of the word resides, in
respect to the definition of the word resident in the Income Tax Assessment Act, 1936
under subsection 6(1). This ruling applies to probably all the individuals visiting
Australia including students living in Australia for academic purposes or migrants
residing in Australia or contractual employees. The ruling however is not applicable
for residents of Australia who have been living overseas for a temporary period of
time. The word resides generally means a person dwelling in a particular place for a
considerable amount of time (Kobetsky et al., 2012). However under the definition of
this ruling, the period of stay of a single individual is not the determining factor in
regards of he or she being the resident of Australia. An individual is considered a
resident of Australia on the grounds of quality, character, behavior and habit of that
particular individual. Furthermore the living and social standards, business links,
location and preservation of assets, are also monitored and evaluated. The consistent
maintenance of behavior along with the residing status is the determining factor for an
individual to gain residential status of the country. Now to explain the meaning of the
term resident or resident of Australia in legal terms, a resident is a person who is

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living in Australia continuously or intermittently for a part or half of the income year
and has an intention to take up resident status in Australia. An individual’s purpose or
reason of stay in Australia also acts as a determining factor in ensuring whether he or
she resides in Australia or not (Harding, 2012).
4. Medicare levy is a service provided by the government of Australia which lies in the
domain of public health care. A resident, who pays the taxes regularly and has an
annual income of $26,668 per year, he or she has to pay a Medicare levy of two
percent which is always calculated on the respective taxable income of the taxpayer.
For an instance if the total taxable income of an individual is $60000, then the
Medicare levy of two percent that is $1200 will be payable by him. Therefore any
resident having taxable income that is greater than or equal to $26,668 will have to
Medicare levy will be reduced and earnings below the minimum level will have zero
Medicare pay a Medicare levy of two percent. In case the taxable income is below the
limit then the levy applied on it (Taylor, 2012).
5. The Division of the Income Tax Assessment Act 1997 that denies a company that has
been fined under Commonwealth consumer legislation for engaging in misleading and
deceptive conduct from deducting the costs of the fine is 3(G)5 (Taylor & Richardson,
2012).
6. A specific deduction is an expense or loss which can be deducted under a specific or a
particular provision of the Tax Acts except section 8-1 of the ITAA 1997. Now
Section 25-45 ITAA97 specifically involves deduction in respect to a loss due to
events such as embezzlements, theft, larceny or defalcation on the part of the
stakeholders or taxpayers. Thus the deduction under Section 25-45 ITAA97 is a
specific deduction (Boccabella, 2012).

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7. The significance of the High Court case, W Thomas & Co Pty Ltd v FC of T (1965)
115 CLR 58, in the topic of deductions is that in this case as it can be observed,
deductions regarding repair of walls, roof and floor of the building, was considered a
capital expenditure. The entire point of the case law lies in determining whether a
particular renovation is a repair or maintenance, meaning whether a particular repair
is required for the property to function properly or is it just needed for the
maintenance of the appearance of the property. Thus the expenditure incurred in this
situation is of a capital nature. It therefore will be not deductible under subsection
53(1) (Maples, 2012).
8. The three ways that a taxpayer can choose to value each item of stock on hand at the
end of the income year are the cost price method, market selling value method and the
replacement value method. The cost price method roughly involves bringing the stock
to its present location and value. The market selling value method involves usage of
the current stock when it is sold normally, in a particular financial year. The
replacement value method involves the cost of the stock to retrieve an almost identical
item on the ending day of the financial year.
9. The applicable tax rate for a taxpayer whose taxable income is $45000 is $3572 plus
32.5c for each $1 over $37000. Therefore the tax rate would be [$3572 +
32.5c*($45000 - $37000)] $6172.
10. PAYG stands for pay as you go. PAYG tax collection system refers to the process
where an employer helps his employees or payees in meeting up to their tax liabilities
at the end of the financial year by withholding some amount of their respective
payments (Kaganovich & Zilcha, 2012).

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Part B
According to the question, the first cost is payment to tax advisor to complete
previous year’s income tax return ($1000) which will be deductible as it is included in the
preparation and lodging of the tax return and related activities. The next cost is the amount
paid by Ram to his solicitor to draft an objection to an ATO assessment that he received two
years ago, which will not be deductible as the maximum time limit within which the
objection should be registered with the ATO has passed. Had the payment been done by Ram
within the prescribed time limit then the transaction would have been counted under the
deductions (De Mooij, 2012). The third cost is the total income tax paid by Ram that is
$50000. As nothing is mentioned in the question, it may be assumed that the income tax paid
by Ram is of the current financial year. Thus after reducing the total assessable income by the
deductions, the amount of tax payable or income tax is arrived at. Therefore no deduction
will be applicable for the third cost (Harding, 2013).
Part C
According to the given question, on November 11 Tina a twenty year old international
student arrives in Brisbane to study at university. Here the key points vital for arriving at a
decision in regards to the residency status of Tina is that she is more than eighteen years old
and arrives in Australia. Then the next statement mentioned in the question is that she works
part time in a local supermarket to help with living expenses and study fees. Her earnings to
30 June are $12,000. Hence the key points that can be inferred from this statement is that she
has visited Australia for academic purposes and in order to support her expenses, she has
taken up a part time job that which has fetched her $12,000 on 30th June (Shaw, 2012). The
last statement is that she does not do well in the assignments and exams and fails all subjects
and therefore she returns to her home country. Thus the only key point in the last statement is

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the total time period for which she stays in Australia that is 11th November to 30th June (8
months and 19 days). Though there are many perks of being a resident in Australia like
applying for an Australian passport and to travel in and out of Australia without being applied
for a resident return visa, participating in elections, and applying for a job in armed forces.
But unfortunately Tina will not be able to be a resident of Australia because in order to be a
permanent resident of Australia the person applying for being a resident in Australia should
stay in Australia for four consecutive years immediately before applying for the same. The
person should also be a permanent resident of Australia for twelve months and must not be
absent from Australia for a period not more than twelve months before applying. Thus Tina
cannot be a resident of Australia because her total stay in Australia is only for 8 months and
19 days. Neither does she satisfy any of the conditions in terms of tenure of stay in Australia
nor does she have any intent of continuing her association with Australia as unfortunately she
has failed her subjects and returned to her home country. Tina will also have to pay foreign
tax as she has earned a certain sum of money in Brisbane (Mabaso, 2012).
Part D
In this question, it has been asked to calculate the assessable income of Jimmy who is
an Australian single full-time university student and works part time in a restaurant. It has
been asked in the question to calculate the assessable income of Jimmy.
Assessable income is any income which is obtained through business or service, even
foreign income is also included in assessable income. Essentially assessable income is the
income or amount that is considered while calculating taxable income payable by an
individual for a particular financial year (Higgins & Sinning, 2013).
Now the first point that has been given about Jimmy’s income is that the income
earned from working in restaurant is $27,000. This entire amount will be counted in

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assessable income as this is the direct income earned by Jimmy. As mentioned in the question
Jimmy also has received tips from customers for $750 cash which will also be included in the
assessable income calculations. The third point is that Jimmy gets a bottle of alcohol as a gift
from one of the customers worth $250 but Jimmy does not drink so he gives away the bottle
to Eva. Now this income will not fall under assessable income as the item of income that is
the bottle is passed on to Eva. Had Jimmy accepted the bottle of scotch, then the income
would have been included in assessable income because it is a gift related to the work that
Jimmy does. The fourth point is that Jimmy receives a gift worth $15,000 for Christmas from
his parents. This will not be included in assessable income because the nature of the gift
received by Jimmy from his parents is personal (Rahman & Harding, 2014). A personal
income is not included in assessable income. The last point is that each month Jimmy’s
employer at the restaurant takes all staff including Jimmy out for dinner and the total expense
of the food that Jimmy eats on these nights is $645. This will not be included in assessable
income because there is no mention of payment of $645 as an allowance to Jimmy by his
employer. Therefore without any recorded bill or receipt this income cannot be included in
assessable income (Menezes, 2012).
Now the total assessable income is:
PARTICULARS AMOUNT ($)
Income from working in restaurant 27,000
Tips from customers 750
TOTAL ASSESSABLE INCOME 27,750
Part E
In this question it has been asked whether Josie who is a single Australian mortgage
broker and arranges for loan from her clients. As it can be understood from the question Josie

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does most of her work from home. It is also mentioned that home office occupies only 15
percent of the total space in her home (Taylor & Richardson, 2013). The outgoings incurred
by Josie are council rates which is a deductible item. The next outgoing is interest on her
home loan for 18,900$ which is also a deductible item but not totally, that is, as Josie works
from home and only fifteen percent of the total space in her home is occupied by her home
office that is why only fifteen percent of 18,900$ will be deductible (Tran-Nam & Evans,
2012). The next outgoing is electricity and heating costs for $6,800 of which only fifteen
percent will be taken into account. The daily wages for cleaning lady will also be deductible
but again only fifteen percent of it will be taken into account as only fifteen percent of the
total home space constitutes of her office (Kobetsky., 2012). The next outgoings are home
telephone and mobile bill, percentages of which are given as to how much are the phone used
for business purposes (Whait, 2012).
Therefore the total outgoing that is a deductible expense for Josie is:
DEDUCTIBLES AMOUNT($)
Council rates 4900
Interest on her home loan (15%*18900) 2835
Electricity and heating costs(15%*6800) 1020
Cleaning lady(15%*3400) 510
Home telephone(60%*2700) 1620
Mobile telephone bill(90%*7200) 6480
TOTAL DEDUCTIBLE AMOUNT 17365
The total deductible amount is $17635.

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