Taxation Law Assignment on Income Tax, Partnership, and Avoidance

This taxation law assignment addresses several key issues in Australian taxation. The first part examines the taxability of lottery winnings, concluding that the periodic payments are considered ordinary income subject to taxation under section 6-5, aligning with the ordinary concepts of income. The second part discusses the Westminster principle, emphasizing that courts should focus on the substance of transactions rather than solely on their form, and distinguishes between tax avoidance and tax evasion. The third part deals with the tax implications of a partnership between a husband and wife regarding investment property, concluding that, absent evidence of a formal partnership, the couple are co-owners and must share profits and losses equally, with private arrangements not altering their tax entitlements. The assignment references relevant case law and statutory provisions to support its conclusions.

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 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................4
Answer 3:...................................................................................................................................4
Answer 4:...................................................................................................................................6
References:.................................................................................................................................9

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Answer to 1:
Issue:
The case will address taxability of the annual receipts that the lottery winner receives
periodically and in a recurring manner. The issue would consider the tax position of the
lottery payment within the ordinary meaning of the income.
Rule:
In Australia the meaning of the income comprises of the earnings based on the
statutory and ordinary concepts. This generally includes the “section 6-5” that reflects
ordinary income as the earnings within the context of the ordinary concepts (Apps 2015). The
income as per the ordinary concepts evidently comprises of the employment, income from the
running of the business and from the performance of the services. When a taxpayer receives a
receipt from the lottery as the one-off prize are not treated as the income because they are
treated as the windfall gains (Ismer and Jescheck 2017). There are several taxpayers that have
put forward their argument that their activities does not attracts tax liability and hence not
taxable as the ordinary income.
The meaning of the ordinary income is dependent to certain extent on the natural
meaning of the term and also by the interpretation of the court in “Scott v CT (1935)”. In
judging the nature of the income noteworthy emphasis has been placed on the discussion of
the term income (Whittenburg, Gill and Altus-Buller 2015). The attributes of the income
includes the amount that represents gains from the business. Another attributes of income
includes the amounts that are received as the reward for the services rendered. The court in
“Commissioner of Taxation v Stone (2002)” held that the amounts that are gains from the
items that may have possessed the nature of income if it has been derived.

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Along with these factors there are the number of other common law that attributes
have been identified which helps in determining what constitutes the income. These includes
the decision in “FCT v Dixon (1952) 86 CLR 540” whether the receipts are earned or
whether the receipt are received periodically or in recurrence manner.
In ascertaining whether the payment is the income, the law court have created three
vital principles. This includes whether the payment should be treated as the income and must
be ascertained in agreement with the ordinary meaning (Kudrna 2016). Secondly, whether the
payment that is received as the income will be reliant on the close examination of the specific
facts and looking into the character of the payment that is received by the recipient. The third
test includes whether the payment should be made objectively.
Application:
This case requires significant emphasis on the annual payment made by the lotteries
to the winner. The payment made by lotteries commission is on the annual basis and requires
close examination of the specific facts and looking into the character of the payment that is
received by the recipient.
By the interpretation of the court in “Scott v CT (1935)” the $50,000 yearly payment
reflects ordinary income as the earnings within the context of the ordinary concepts (Chen
2017). The attributes of the income includes the amount that represents gains for the
recipient.
In context of the judgement made in the “Commissioner of Taxation v Stone (2002)”
the amount of $50,000 is the item of gains for the winner of the lottery (Cachia 2017).
Emphasis can be placed in the decision of court in “FCT v Dixon (1952) 86 CLR 540” to
explain that the sum of $50,000 because the sum was received periodically or in recurrence
manner.

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Conclusion:
The case can be concluded under section 6-5 the payment is an income as per the
ordinary concepts and will be considered for taxation purpose. This is because the payment
reflects ordinary income as the earnings is surrounded by the context of the ordinary
concepts.
Answer to 2:
Answer 3:
The principle of the Westminster states that the document or the transaction that is
given in the case is genuine and the court of law cannot go behind the document to a

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particular hypothetical underlying material (Breen 2015). The principle has been reiterated in
subsequent English courts for judgements as the cardinal principle. In this case the gardener
of the duke was paid on weekly basis however to reduce the taxation liability the solicitors of
the duke made the deed in which the duke said that the earnings cannot be classified as the
real wages rather amounted as the yearly payment which was payable on the basis of weekly
instalments.
The judges in their opinion expressed that in revenues cases the court can ignore the
doctrine of the legal position and take into the regard the matter of substance (Aramayo
2016). The matter of substance in this case was the annuitant that was under the service of
Duke for something that was equivalent to his previous salary or wages. The case of
Westminster laid down the statutory interpretation instead of imposing the doctrine of tax
avoidance. Furthermore the court held that the principle of the Westminster does not forces
the court in looking into the document or the transaction that are under isolation from the
context to which it belonged.
Reference to the judgement can be made to state that transactions should be looked
just with a blinkers, it may be isolated to any context to which the transactions properly
belonged (Ohms and Olesen 2018). The duty of the court lies in determining the lawful
nature of the transactions that are sought for taxation purpose or the combination of taxation
from the series of transactions. The principles from the case of Westminster laid down that a
taxpayer had the right of administering their taxation affairs in order to reduce the taxation
and furthermore even though the purpose or the object of the transaction was to avoid the
taxation. This would certainly not invalidate the transactions until and unless the provision of
anti-avoidance is applied (Alldridge 2015). If it is noticed that the document or the
transaction is genuine and not fake under the traditional terms, the court will have follow the
forms of the transactions. The case analysis can be interpreted by stating that if there are any

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two methods through which the transaction can effected and they result in difference in
consequences of taxation, the taxpayer can freely choose to adopt the method that would
result in lesser liability. The Westminster in the current situation eventually won the case.
The above stated discussion provides a clear difference between the tax avoidance and
tax evasion is yet prevalent in Australia. With the absence of any legislative guidelines there
is bound to be uncertainty. However to say that the principle of Westminster has been
escaped in Australia is a very tall statement and yet to be accepted in Australia (Rigoni 2017).
The case eventually provides the judges has placed their focus on the principle of statutory
interpretation instead of focusing on the overarching doctrine of anti-avoidance that is applied
on the taxation laws. The approach adopted in Ramsey is largely concerned with the statutory
interpretation of the avoidance of tax and the principles that is laid down in the case of
Westminster cannot be entirely said that it is go-by. Australian has undertaken general anti-
avoidance legislation that contains certain specific rules which would frustrate the tax payers
in exploiting the regimes of taxation. Currently the anti-avoidance rules that has been adopted
in Australia stipulates that the arrangements that have the purpose of tax avoidance will be
considered as void.
Answer 4:
Issue:
The issue in this case will be assessing the relationship of partnership between the
husband and the wife for division of net income and loss reported from the investment
property.
Rule:
The term partnership under the “Partnership Act section 1” states that the
relationship that is subsisting among the person that are carrying on the business under the

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common intention of earning profits. The relationship of partnership is generally regarded as
the contractual (Coffee, Sale and Henderson 2015). Whether the partnership exists between
the parties should be taken to have intended, as understood not based on the terms of their
express agreement but based on the conduct towards one another all through the course of
performing of business. All the relevant facts and relevant situations of partnership should be
considered among the partners. An important statutory rules of co-ownership of the property
together with the joint tenancy do not itself establish a partnership as anything which is so
owned. The co-owners of the property employ the partnership rules with the objective of
profit and share the profits obtained through their employment.
As per the “section 51” no deduction is merely permitted by the virtue of the
agreement made among the taxpayer and his wife to indemnify their spouse for any kind of
losses (Lincoln 2017). It is regarded as the term of arrangement where the taxpayer usually
give away the income to their wife and does not includes any conditions of deductibility
under the “section 51 (1)”.
They court in “McDonald v FC of T (1987)” stated that there was no kind of
partnership between the parties in relation to the general law (Collins and Bey 2016). There
was only the mere investment in the property instead of partnership in their properties or their
profits. As the result of absence of any evidence, by virtue of their co-ownership they must
share profits and losses on equal basis. Their private arrangement cannot alter their respective
entitlement for the purpose of income tax.
Application:
The taxpayer here are Joseph and Jane that are owners of the property bought for
investment purpose. All the relevant facts and relevant situations of partnership between
Joseph and Jane has been considered. The co-owners of the property here Joseph and Jane

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employed the partnership rules with the objective of profit and share the profits obtained
through their employment (Kanda and Levmore 2015). As per the “section 51” no deduction
is merely permitted by the virtue of the agreement made between Joseph and his wife to
indemnify his spouse for the losses of $40,000.
The arrangement between Joseph and his wife is regarded as the term of arrangement
where the taxpayer usually give away the income to his wife. Applying the principles of
“McDonald v FC of T (1987)” there was no kind of partnership between the husband and
wife in relation to the general law (Rabkin and Johnson 2016). There was only the mere
investment in the property by Joseph and Jane instead of partnership in their properties or
their incomes. In the absenteeism of any evidence, by virtue of their co-ownership Joseph and
Jane must share losses of $40,000 on equal basis. The private arrangement among the couples
cannot alter their respective entitlement for the purpose of income tax.
If they decide to sell the property any capital gains or capital loss thereof should be
shared equally as their private arraignment of sharing profits is void.
Conclusion:
The present case is merely related to the co-ownership rather than considering it as
partnerships. Their private entitlements is a merely partnership for income tax purpose.

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References:
Alldridge, P., 2015. 13. Tax avoidance, tax evasion, money laundering and the problem of
‘offshore’. Greed, Corruption, and the Modern State: Essays in Political Economy, p.317.
Apps, P., 2015. The Central Role of a Well-Designed Income Tax in the Modern
Economy. Austl. Tax F., 30, p.845.
Aramayo, S.V., 2016. A Common GAAR to Protect the Harmonized Corporate Tax Base:
More Chaos in the Labyrinth. EC Tax Review, 25(1), pp.4-17.
Breen, O., 2015. Trustee Liability for Breach of Trust in the Common Law World.
Cachia, F., 2017. Aggressive Tax Planning: An Analysis from an EU Perspective. EC Tax
Review, 26(5), pp.257-273.
Chen, S., 2017. Do investors value corporate tax return information? Evidence from
Australia (Doctoral dissertation).
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and
materials.
Collins, J.M. and Bey, R.P., 2016. The master limited partnership: an alternative to the
corporation. Financial Management, pp.5-14.
Ismer, R. and Jescheck, C., 2017. The Substantive Scope of Tax Treaties in a Post-BEPS
World: Article 2 OECD MC (Taxes Covered) and the Rise of New Taxes. Intertax, 45(5),
pp.382-390.
Kanda, H. and Levmore, S., 2015. Taxes, Agency Costs, and the Price of
Incorporation. Virginia Law Review, pp.211-256.

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Kudrna, G., 2016. Economy-wide effects of means-tested pensions: The case of
Australia. The Journal of the Economics of Ageing, 7, pp.17-29.
Lincoln, I.V., 2017. What are the Implications for Partnerships and Partnership Taxation
Under the Republican Proposals for Tax Reform.
Ohms, C. and Olesen, K., 2018. UBS AG v. IRC, DB Group Services (UK) Ltd v. IRC:
Fiscal Nullity and the Supreme Court. Statute Law Review.
Rabkin, J. and Johnson, M.H., 2016 The Partnership Under the Federal Tax Laws. Harv. L.
Rev., 55, p.909.
Rigoni, J.M.D.M., 2017. The International Tax Regime in the Twenty-First Century: The
Emergence of a Third Stage. Intertax, 45(3), pp.205-218.
Whittenburg, G.E., Gill, S. and Altus-Buller, M., 2015. Income Tax Fundamentals 2016.
Nelson Education.