LAWS19033 Taxation Law: Comprehensive Analysis of Income Tax

This assignment provides a detailed analysis of individual income tax within the Australian legal framework, referencing the Income Tax Assessment Act 1997 and relevant taxation rulings. It addresses key aspects such as the functions of taxation, equity in the tax system, taxable income calculation, and progressive tax systems. The assignment includes case studies involving foreign residents and assesses their tax obligations, along with calculations of assessable income, tax deductions, and payable tax for individuals. Furthermore, it examines the deductibility of asset depreciation and outlines the requirements for starting a new business in Australia, emphasizing compliance with various legal and regulatory standards. This comprehensive overview is intended to provide a clear understanding of the complexities of individual income tax in Australia.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................3
Answer to Question 3.................................................................................................................5
Answer to Question 4.................................................................................................................7
Answer to Question 5.................................................................................................................8
Answer to Question 6.................................................................................................................9
Reference..................................................................................................................................13

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Answer to Question 1
a)
The primary functions of taxation in Australia are to administer over the taxes,
superannuation and excise duty in order to affect the revenue system of Australia. Regulating
the aggressive tax planning, persistent tax debtors, globalisation and the cash economy1 is
considered as the primary function of taxation in Australia.
b)
Equity in a good tax system means that everybody irrespective of personnel influence
should pay a fair share of taxes as long as the individual is regarded as the residence of
Australia. The equity can be divided into horizontal equity and vertical equity.
c)
It is required to deduct the taxable deductions from the assessable income in order to
get the taxable income2 in accordance with the section 4/15 of the Income Tax Assessment
Act 1997.
d)
The aim of a progressive tax system is to implement the corresponding effect of
reducing the burden on low income, and to achieve the goal of income equality. Another goal
of a progressive tax system is to provide educational attainment for the families with lower
income in order to increase the opportunity for educational attainment for those families.
e)
The value of allowances in the assessable income is included in the Section 15-2 of
the Income Tax Assessment Act 1997.
1Parker, Hermione. Instead of the Dole: an enquiry into integration of the tax and benefit systems. Routledge,
2018.
2Thayer, Carlyle A., and David G. Marr. Vietnam and the Rule of Law. Canberra, ACT: Dept. of Political and
Social Change, Research School of Pacific and Asian Studies, The Australian National University., 2017.

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f)
In Taxation Ruling 2004-15, the residential status of the companies that are not
incorporated in Australia is stated. The requirements of carrying on business in Australia and
the duties and structure of the central and control management are also stated in this taxation
ruling3.
g)
The deductions for the capital expenditure are stated in section 40 and section 25-5 of
the Income Tax Assessment Act 1997,
h)
The fixed taxation rate over the taxable income of $37,000 is $3572. After that, 32.5%
will be deducted over the income of $37,000. Therefore, by using this rate, the tax rate for the
taxpayer with an income of $80,000 will be $17,547 in 2017/18.
i)
Section 11-55 lists the provisions that treat amounts as Non Assessable Non Exempt
income as stated in the Income Tax Assessment Act 1997.
j)
According to Tax Determination TD 2017/4, the rate which is applicable for 2500cc
and above motor vehicles is 63 percent.
Answer to Question 2
It is stated in the section 6-5(3) of Income Tax Assessment Act 1997, how a foreign
resident can be eligible and liable for paying the taxes to the Australian Government. In this
case, Martelle has come to Australia from France in order to complete her assignment of
creating colourful designs based on the vibrant colours of the Great Barrier Reef. She is
3Wilkins, Roger. "Measuring income inequality in Australia." Australian Economic Review 48, no. 1 (2015): 93-
102.

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expected to stay in the country for six and a half months. The salary of Martelle is paid to an
Australian bank4. Apart from the income that Martelle is getting from here, she has also
rented a boat for her personnel use.
According to section 6-5, there are four methods of deciding the residential status of
any individual living in Australia, which are, ordinary concepts, domicile test, 183-day test
and superannuation test. The legislation that is most relevant for Martelle is the 183-day test.
According to this legislation, if a person whose permanent residential status is outside of
Australia, will be considered as the resident of Australia if the person is living in this country
for more than 6 months and there is some taxable earning that the person is getting from
here. As the contract of Martelle has exceeded the time period of 6 months, she will surely be
regarded as the resident of Australia for the whole year. The income of Martelle will be
considered as taxable if she has managed to gain an assessable income of over $18,200. This
assessable income will be considered as a total of the ordinary income and statutory income
of Martelle. The income that is being generated from her properties and investments in
France will not be included in the taxable income of Australian legislation as only the
permanent residents of Australia needs to pay taxes even if they earn the income from outside
of Australia. As Martelle has a permanent domicile of France, she is not liable to pay taxes
for her properties in France5. As of her properties in Australia, the boat and the residential
place of Martelle will also not be included for taxation as these are not the sources of income
for Martelle.
Answer to Question 3
As far as the transaction gained by Ellen for the fiscal year 2017-18 is concerned, the
deductibility of tax needs to be decided under the Income Tax Assessment Act 1997
4Braithwaite, Valerie. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.
5Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.

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provisions. In section, 15-17 of the act the assessable income of an individual is stated. In
accordance with this legislation, the salary of Ellen will be regarded as taxable income and
thus the annual salary of Ellen will be regarded as the taxable income as a whole of $10800.
In the section 6-5 of ITAA 1997, the provision about the incomes according to the ordinary
concept is discussed. According to this provision, the bank interest, prize winnings and
termination contracts for Ellen will be included in this section6. The total amount of income
according to the ordinary concept for Ellen is $16925. Thus it can be said that the total
amount of Assessable income for Ellen is $124925.
The payable tax is calculated by deducting the tax deductions from the assessable
income in accordance the Income Tax Assessment Act 1997. It is stated in the previous
paragraph that the assessable income of Ellen is $124925 for the fiscal year 2017-18. The tax
deduction amount for Ellen is calculated as $of Ellen is $124925 for the fiscal year 2017-18.
The tax deduction amount for Ellen is calculated as $500 as a cost of the health insurance of
Ellen. Thus the taxable amount for Ellen is $124425. The static rate of taxation for earning
over $18,200 is $3572. For earning over $37,000, additional rate of 32.5% will be included in
the payable tax amount7. The total additional rate of this is measured as $16249.68 as
measured from the amount calculated for the taxation. For earning over $87,000, a tax will be
deducted with a rate of 37% from the total taxable amount. Thus the amount calculated for
Ellen is $13847.25 in this present year. So far as, the total tax which will be deducted from
the total income of Ellen is $33668.93 as per stated in the legislations related to taxation of
Australia.
Calculation of the Income for Ellen
6Thayer, Carlyle A., and David G. Marr. Vietnam and the Rule of Law. Canberra, ACT: Dept. of Political and
Social Change, Research School of Pacific and Asian Studies, The Australian National University., 2017.
7Endres, Dieter, and ChristophSpengel, eds. International company taxation and tax planning. Alphen aanDen
Rijn: Kluwer Law International, 2015.

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For the year ended 30 June 2018
Particulars Section
Amount
($)
Amount
($)
Income From House Property
Income From Salaries
Salary
Sec 15-17 Of
ITAA 97 108000
Total Income From Salaries 108000
Income From Capital gains
Income From business/ profession
Income From Other Sources
Bank Interest
Section 6-5 of
ITAA 97 425
Prize Winnings
Section 6-5 of
ITAA 98 6500
Termination Contracts
Section 6-5 of
ITAA 99 10000
Total Income From Other Sources 16925
Total Assessable income 124925
Less: Deduction
Health Insurance 500 500
Net Taxable Income 124425
Tax Calculations
0 – $18,200 Nil nil
$18,201 – $37,000 19c for each $1 over
$18,200 3572
$37,001 – $87,000 $3,572 plus 32.5c for each
$1 over $37,000
16249.6
75
$87,001 – $180,000 $19,822 plus 37c for each
$1 over $87,000
13847.2
5
Total Tax Payable
33668.9
25
Answer to Question 4
In this given segment, the transactions of Jennifer are described and the declination in
value for the stated transactions is being asked to analyse. For this segment, section 40-85 of

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the Income Tax Assessment Act 1997 is needed to be considered. The provision is stated
about the deduction in the assets’ cost. According to this provision, the meaning and
requirements of adjustable value and opening adjustable value of a depreciating asset is
analysed8. In the given case, the life span of the assets is pre-assumed. The depreciated
amount of the assets is stated in the given case study. According to the provision, the cost of
the hairdryer is $8000 with a life span of 7 months. A total sum of $ 1142 can be deductable
as a depreciation cost from the total of the hair dryer is $1142.856. In case of the intangible
assets, the cost of software is being calculated as $295. The lifespan estimated for the
intangible assets is 3 months. As per the provision, the measured depreciation amount for
reduction is calculated as $98.33333. In case of the depreciation on Audi Q5, as it is not
related to the business of Jennifer, or as it does not generates any kind of income for her, the
depreciation will not be charged upon the cost of the car9. Thus the total amount which is
calculated based on the cost of the depreciable assets is measured as $1241.19. The taxable
income will be estimated after deducting these depreciation charges from the total income of
Jennifer.
Allowable deductions
For Jennifer
Particulars Section
Amount
($)
Amount
($)
Depreciation on
hairdryer section 40-85, section 40.25
Cost 8000
Life 7
Salvage 0
Allowable
Depreciation
1142.857
1
Depreciation on
Software section 40-85, section 40.25
8Grubert, Harry, and Rosanne Altshuler. "Shifting the burden of taxation from the corporate to the personal level
and getting the corporate tax rate down to 15 percent." (2016).
9Mumford, Ann. Taxing culture: towards a theory of tax collection law. Routledge, 2017.

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Cost 295
Life 3
Salvage 0
Allowable
Depreciation
98.33333
3
Depreciation on
Audi Q5
section 40-85, section 40.25 ( not related
to business)
Cost 85000
Life 6
Salvage 0
Allowable
Depreciation 0
Total allowable
Deductions
1241.190
5
Answer to Question 5
Julie, an enthusiastic photographer is willing to start her own business in Australia. As
photography was her hobby, she does not know much about the provisions which are needed
to be considered in order to start a new business in Australia. Certain criteria needed to be
followed in order to start the business in accordance with the legislations of Australia. At
first, the business structure and the trademark of the business need to be decided. It is
required for Julie to registere for Australian Business Number, Pay as you go withholding,
Tax File Number and Goods and Service tax10. The proper preparation for tax is also required
in order to carry on the business. The legislations which are required for starting a fair trade
in Australia are Australian standards, Australian Consumer Law, Fair Trading Laws,
Competition and Consumer Act, and codes of practice. For selling a certain service,
following legislations are needed to be considered, such as pricing regulations, displaying
prices, warranties and refunds, Australian trade measurement laws, , product labelling, and
selling goods and services. The privacy act, contract act and anti bullying laws are also
10Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia. Centre for Policy
Studies, Victoria University, 2016.

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essential for the proper interpretation by Australian Taxation Office11. There are legal
obligations of marketing which is also needed to be considered before starting a business.
Proper financial plans in accordance with the legislations of ATO are also required. Security
and insurance of the business can also be helpful for Julie to start with.
Answer to Question 6
In the given case, Chang runs a marketing business. Some of the transactions occurred
in the current financial year has been given in order to evaluate the possible deductibility of
the expenses over the taxability of the overall amount. Thus the amounts that are likely to be
deductable is given below:
 According to section 175-30, an amount cannot be deducted unless it is not regarded
as an income or capital gain which is incurred by someone else. Thus, the salary
earned by Chang cannot be deducted and thus, the whole amount of the salary will be
included in the measurement of taxable income12.
 For the next transaction, Chang has paid a sum of $4000 to his son for doing some
graphic designing for him. This particular case comes under the section 900-30 where
the work expenses have been described. According to this legislation, a work expense
is a loss or an outgoing from the income and it is deductable for taxation. Thus the
total amount given by Chang to his son will be totally deducted from the payable tax.
 According to the section 175-30, an individual can gain a benefit of tax deduction if
there is any kind of deduction, income or capital gain available to the company. But in
the given case, the expenses cannot be considered as any of such criteria. Thus the
local club expenses cannot be deducted from the taxable income.
11Davis, Angela K., David A. Guenther, Linda K. Krull, and Brian M. Williams. "Do socially responsible firms
pay more taxes?." The accounting review 91, no. 1 (2015): 47-68.
12Emery, Joel. "Decoding the regulatory enigma: how Australian regulators should respond to the tax challenges
presented by bitcoin." (2016).

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 According to the section 34-20, if there is any expenditure made for purchasing the
occupation specific clothing, the amount can be deductable from the taxable income.
Thus, the amount spent for purchasing the cloths will be deducted from the taxable
income of Chang13.
 The expenses made by Chang for buying meal comes under section 900-30 of ITAA
1997 where it is stated that if any work expenses is spent as a loss or outgoing from
the income of an individual, the amount spent will be deducted from the taxable
income14. Thus amount $5500 will be deducted from the taxable income of Chang.
 According to the provisions stated in 725-315 and 725-325, the interest on loan will
be deducted from the taxable income as it would be measured upon its adjustable
value. Thus the amount of $3400 given for the interest on loan will be deducted from
the taxable income.
 In accordance with the section 28-13 of IITA 1997, the car expenses can be regarded
as deductable taxation income. The travelling cost made by Chang can be deductable
from the taxable income and $3000 will be reduced15.
 The telephone allowances can be considered under section 175-30 where it states, an
individual can gain a benefit of tax deduction if there is any kind of deduction, income
or capital gain available to the company. According to this provision, the allowances
spent can be regarded as a capital deduction from the business and thus it can be
deducted from the taxable income.
13Schenk, Alan, Victor Thuronyi, and Wei Cui. Value added tax. Cambridge University Press, 2015.
14Schneider, Friedrich. "Size and development of the shadow economy of 31 European and 5 other OECD
countries from 2003 to 2014: different developments?." Journal of Self-Governance & Management
Economics 3, no. 4 (2015).
15Dowling, Grahame R. "The curious case of corporate tax avoidance: Is it socially irresponsible?." Journal of
Business Ethics 124, no. 1 (2014): 173-184.

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 In the provision 900-95 states, the business travel expenses can be deducted from the
taxable income. Thus the amount of $6000 which was spent for air fare and
accommodation will be deducted from the taxable income16.
 The tax return fees comes under the section 175-30 where it states that the
expenditure cannot be deductable if it is not any kind of deduction, income or capital
gain by the company. Thus the amount of $500 cannot be considered as a deductable
income from the taxable income.
The total amount of deduction that is available for Chang is $25900 out of $327800.
Calculation of Business Income of Chang
For the Year ended 2018
Particulars Section
Amoun
t
Amoun
t
Salary section 175-30 300000 0
Salary to son Section 900-30 4000 4000
ocal Club penseL Ex section 175-30 900 0
Clothing section 34-20(2) 2000 2000
Meal penseEx Section 900-30 5500 5500
nterest on oanI L section 725-240,725-315,725-325 3400 3400
ravelling costT Section 28-13 3000 3000
elephone AllowanceT Section 175-30 2500 2000
Air fare and accommodation Section 900-95 6000 6000
a Return eeT x F section 175-30 500 0
Total Deduction Allowed 25900
16Evans, Chris, John Minas, and Youngdeok Lim. "Taxing personal capital gains in Australia: an alternative way
forward." Austl. Tax F. 30 (2015): 735.