Taxation Laws and Principles: Australian Tax System Analysis

This assignment delves into the Australian taxation system, utilizing five case studies to illustrate the implications of taxation laws and principles. The analysis considers the Income Tax Assessment Act 1997 and relevant legislation. Task 1 examines short-term capital gains or losses. Task 2 assesses fringe benefits tax related to a bank executive's loan. Task 3 explores partnership taxation between a couple. Task 4 analyzes the IRC vs. Duke of Westminster case, focusing on tax deductibility. The assignment provides a comprehensive understanding of various aspects of Australian taxation, including capital gains, fringe benefits, partnership agreements, and legal precedents.

TAXATION LAWS AND PRINCIPLES
1

Table of contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Task 2...............................................................................................................................................4
Task 3...............................................................................................................................................5
Task 4...............................................................................................................................................7
Task 5...............................................................................................................................................8
Conclusion.......................................................................................................................................9
Reference list.................................................................................................................................10
2

Introduction
In the study, it has been decided to show the taxation system of Australia, taking the help of the
five different case studies. With this given case reference, it is said to obtain complete sense of
implication of taxation as well as it has been decided that the principles of governing body and
certain legislation to be reviewed for the purpose of reconciling the rules and laws with that of
the case studies. In addition, principles laid in the Income Tax Assessment Act 1997 of Australia
will also be considered for the fine judgment of the case references.
Task 1
Over the last 12 months Eric has purchased certain assets and shares which he sold them along
with shares last week same year. If the assets are held for more than one year it is called long-
term assets. On the other hand, if the assets are held for less than one year it is to be said as short-
term assets (Piketty and Zucman, 2014). In this case Eric had held the assets and shares for less
than one year and sold them in the same year. So the assets which was held by Eric is short term
assets.
Computation for short- term capital gain or loss for the year ended.
Total assets purchased
An antique vase $ 2,000
An antique chair $ 3,000
A painting $ 9,000
A home sound system $ 12,000
A share of listed company $ 5,000
Assets purchased in total = $ 31,000
Total assets sold.
An antique vase $ 3,000
An antique chair $ 1,000
A painting $ 1,000
A home sound system $ 11,000
A share of listed company $ 20,000
Assets sold in total = $ 36,000
Table 1: Computation of short-term gain or loss
(Source: Created by author)
Short term capital gain for the year ended = Assets sold in total - Assets purchased in total.
= $ 36,000 - $ 31,000
= $ 5,000
3

So, it can be seen that the assets which were held by Eric was short term assets because the year
in which he purchased the assets, he sold the assets in the same year.
Task 2
In the study, it is said that Brian is a bank executive and he will be provided by three-year loan of
$1m as a part of his remuneration provided, and the interest rate will be 1% pa (payable in
monthly installments). In addition is also said that the loan has been provided on 1 April 2016
(Williams, 2016).
Brian will use 40% of his loan for income producing purpose and for meeting all his obligation
to interest payment. It is also said that the fringe benefit in the loan for the year 2016-2017 was
received by Brian. The computation of the taxable income of Brian for the year 30 June 2017 is
done below:
Amount of loan = $ 1m
Actual rate of interest on loan in Australia is 15%
Date on which loan was provided = 1April 2016
Rate of interest = 1%
Mode of payment = monthly installments.
Loan amount = 40% of $ 1 million = $ 4, 00,000.
Calculation of installments for 15 months = ($ 1, 00,000*1% / 12 months)* 15 months.
= ($ 10,000 / 12 months) * 15 months
= $ 12,500.
Calculating taxable income for the year ended 2016-17
Revenue
LESS:
Expenditures = $ 0.4 million
Interest on installments = $ 0.01 million
Actual installments = $ 0.25 million
Total = $ 0.34 million
In this study, it has been found that the amount of tax that Brian has to pay upon his taxable
income is $0.34 million and the monthly installment (interest + principle) on the loan is $ 0.26
million. It can be seen that Brian has to pay for installment and because of this his taxable
4

income has reduced by $0.26 million. On the other hand, his taxable income will be different if
he has to repay the installment at the end of the year (Allen et al. 2014).
The calculation is done below:
Revenue
LESS:
Expenditure = $0.4 million
Total = $0.6 million
Therefore, it can be seen that the repayment of the installment on monthly basis is favorable for
Brian because if he repays the installment on monthly basis he has to pay tax on $0.34 million.
On the other hand, he has to pay tax on $0.6 million which is very high (Forrest, 2014).
However, Brian can pay only the principal amount if the bank release from repaying interest on
loan. In this case Brian cannot claim the fringe benefit on the loan, because his expenditure has
dropped slightly and he must pay tax on the taxable income, which is calculated below.
Computation of taxable income for the year ended 2016-17
Revenue = $ 1 million
LESS;
Expenditure = $0.4 million
Interest on installment = $0.25 million
Total = $0.35 million
Therefore, it is clear that Brian has to pay tax on three different tax.
If he was released from paying the interest on loan, then he has to pay tax on $0.35 million. On
the other hand if he has to pay both principal and interest he has to pay tax on $0.34 million. And
if he pay the installment at the end of the year he has to pay tax on $0.6 million.
Task 3
Jack is an architect and his wife Jill a housewife wanted to purchase a property as joint tenants so
they together borrowed money. Both husband and wife entered into a written agreement that if
profit occurs 10% of the profit will be entitled to jack and the remaining 90% to his wife Jill
(Corones, 2014). It is also written that if any loss occurs jack has to entitle 100% of the loss.
However jack has to bear the whole loss (100%) as per the agreement because last year the
property generated loss of $ 10,000.
5

According to Section 35(2) of Relationship Act 2008, on the ground of Relationship of co-
tenancy a person cannot be a domestic partner of another person (Becker, 2015). According to
Section 5(1) of Partnership Act 1958, relationship between two or more parties is defined as
partnership whose aim is to earn profit and carrying on the same business. Australian Partnership
Act likewise depicts the idea of association in the event of joint occupancy and gives certain
arrangements in regards to the idea of tenure or property identified with the joint tenure, where it
is said that Joint inhabitants residency in like way joint property ordinary property or part
proprietorship does not of itself influence an association as to anything so to held or had whether
the occupants or proprietors do or don't share any advantages made by the usage thereof
(Bennett, 2016). In addition, the receipt by a man of an offer of the advantages of a business is at
first sight affirm that that individual is an associate in the business, however the receipt of such
an offer or of a portion subordinate upon or contrasting with the advantages of a business does
not of itself make that individual an accessory in the business.
However, for this situation it has been discovered that Jack and Jill have household relationship
and came into an agreement of joint tenure where both are qualified for benefit of 1:9 proportion,
however if there should arise an occurrence of misfortune just a single accomplice is qualified
for bear everything of misfortune (Palmer et al. 2015). Regarding the arrangements made in
Relationship Act and Partnership Act, one might say that Jack and Jill are no uncertainty in
residential relationship yet if there should arise an occurrence of relationship of Joint occupancy,
Partnership Act gets pulled in, where they are thought to be in association connection since the
idea of business is same, likewise both are qualified for benefit, however in the event of
misfortune, just Jack needs to shoulder the entire misfortune. Truth be told, in association act,
arrangement for organization is given that every one of the accomplices are qualified for benefit
and not misfortune. In the event that any accomplice alone bears the entire misfortune yet in
addition gets offer of benefit will be likewise be called accomplice.
In this manner, the loss of $ 10,000 will totally be borne by Jack and he is qualified for get tax
reduction on misfortune for the year finished. On the other side, if both the accomplices choose
to offer the property, they initially need to recuperate misfortune emerged from that property
then they can offer the property. Nonetheless, for this situation, there is no degree for
recuperation of misfortune, along these lines they need to offer the property for capital
6

misfortune (Latimer, 2016). Further, this capital misfortune will be balanced with the long haul
or here and now capital pick up.
Task 4
The things that held in the case of IRC vs. Duke of Westminster 1936
Duke planned a legal documents with people and making effective use of it in which he made a
legal contract to pay them weekly sum total for a time of seven years or the joint existence of the
meeting. The legal documents (Deeds) tells that the installments were made in acceptance of the
past organization reliably provided to the Duke and that the Duke wanted to make an agreement
for the single despite that he may process in the Duke’s organization or may stop to work for
Duke (Evans, 2015). Letters of explanation were sent to the workers for clarifying him that he
could maintain the full payment for future work however and that was normal by and by that he
would satisfy with the harmony made by the legal document in addition to such sum total and
may be supreme to convey the sum total of installments up to the payment he had of late been
getting or the level of pay. The payee at the time the legal contract was put into effect was
receiving compensation or settled wages and after carrying out the legal contract begin in the
Duke business and keep on getting such sum total as, pay payable before the legal document,
invented the measure of the wages or with the whole required to pay by the legal documents.
Issues held in this case
Just in case, the sum paid under the legal documents consider in the atmosphere which the
people were in the Duke’s use were something for the process, they were not allowable in
figuring the Duke’s risk for tax. Again the all total of the yearly installment, they are deductible
(allowable). At some point, in case the issue was installed under the legal contract payment for
administrations or not. It was unable to challenge that if the legal documents were transported
into reality in order to make Duke to reduce his surtax duty (Bloom, 2015).
The disposition
The payment was not benefit for regulation. Three of the five Lords comes to an end that the
letter was not a contract, only an action of hope or prediction and the four of the five Lords
comes to an end that even if it was a contract, it was nothing more than contract that the person’s
salary for the future service will not be the full salary but only the additional sum referred to the
letter. The fifth Lord comes to an end that legal document and the letter should be viewed
7

together as a simply maintaining the existing contract of service rather than radically altering it
(AbdulRazaq and Adam, 2015).
All of the Lords rejected the statement that in income cases there is a belief that the court may
ignore the legal position and regard the material of the matter. The material is that which results
from the legal rights and responsibility of the parties discover upon the ordinary legal principle.
Principles established in the case of Duke of Westminster
There is a particular crime identifying with the “false avoidance of wages impose” in the Taxes
Act, which was presented at first in 2000. Be that as it may, this law that has passed is not very
time consuming , as the income regularly want to depend on the traditional base law when the
indict.
Sometimes, you may find that the citizen is charged with a crime under the Thief Act for false
recording yet the greater part of tax delay case is carry under the regular law criminal crime of
deceive society general income (Behagg, 2016). There is no big penalty for such a crime for such
an illegal act if found responsible by law so as suspect could be convicted to life imprisonment
and in additional have to refund the income. The past Chancellor, Dennis Healey largely draw
the division between levy cheat and and tax delay has been “the depth of the jailor sector”.
Task 5
In this case, Bill owns a land and he want to graze his sheep on that land. But the difficult path is
the land has tall pine trees which he need to clear. Later he found that a logging company is
ready to pay him $ 1000 per 100 meter of timber which the logging company will cut from his
land. According to the Sales of Good Act 1954 in Australia, the contract of sale can be made
partly in writing and partly by oral agreement or without seal (Hayward, 2016). If both the
parties agree with each other than the price in the contract of sale will be fixed. In the other
words, both the parties must follow some rules regarding purchase and selling to get into the
contract. But the problem is that the after fulfilling the seller's need the buyer may not get the
payment. Now in this study, the seller who will be getting paid by the logging company for the
clearance of the tree from his land will be considered as Bill. He will get good amount if the Bill
agrees upon the payment offered to him by the company (Gordon, 2014). Thus, it is assumed that
the timber cover 4500 meter and the measurement of the Bill’s land will be in meter then he will
get,
8

For 100 meter Bill will be paid $ 1,000
For 1 meter Bill will be paid $(1,000/100) = $10
So for 4500 meters of land Bill will give = $(4500*10) = $ 45,000
Thus, we can see by the calculation that the company will be giving $ 45,000 to Bill for the
clearance of 4500 meter of timber. Thus, without investing any fund, Bill is getting a huge
amount from the logging company and can be a better deal.
The case has been found in the phrase is that Bill will give an amount of $ 50,000 by the logging
company for clearing the timber as per the requirement of Bill. For the clearance the company is
paying him a large amount, what if where both parties have no idea about how much area the
timber cover does or how much timber the company need and the owner of the land agrees on it.
In this case it can happen that Bill is getting more amount for less timber or the company is
giving less amount for the timber that is covering the land. It can be said that for one of the either
parties the deal may or may not be profitable (Greiner, 2014).
Therefore, according to survey, from the above case it can be said that if the company offered
Bill a lump sum $ 50,000 will be the best deal for clearance of timber. But on other hand if Bill
gets ready to get paid $ 1000 meter of every 100 meter then it would be loss because he will be
getting $ 45000 for 4500 meter land that the timber covers as per the calculations.
Conclusion
Attempts have been made to describe different case references with respect to the taxation law.
Based on the details it can be see that in the first case Eric has obtain capital gain of $ 5000 and
in the second case it is calculated that Brian has to pay tax on $ 0.6 million if the installment was
paid at the end of the loan tenure.
9

Reference list
AbdulRazaq, M.T. and Adam, K.I. (2015). Anti-Avoidance Legislations: Issues & Doubts in the
Application of Tax Rules in Nigeria. AGORA Int'l J. Jurid. Sci., p.1.
Allen, F., Hryckiewicz, A., Kowalewski, O. and Tümer-Alkan, G. (2014). Transmission of
financial shocks in loan and deposit markets: Role of interbank borrowing and market
monitoring. Journal of Financial Stability, 15, pp.112-126.
Becker, J. (2015). The Relation of Article 9 Paragraph 1 German Double Taxation Treaties to
Domestic Tax Law and the Consequences for Current Value Depreciation under Section 1
Paragraph 1: Foreign Tax Act. Intertax, 43(10), pp.589-594.
Behagg, C. (2016). Tax Inversions: Time to Take a Look in the Mirror Reflections on the
Inversion Phenomenon. Intertax, 44(2), pp.130-145.
Bennett, R.J. (2016). Interpreting business partnerships in late Victorian Britain. The Economic
History Review, 69(4), pp.1199-1227.
Bloom, D. (2015). Tax avoidance-a view from the dark side. Melb. UL Rev., 39, p.950.
Corones, S.G. (2014). Competition law in Australia. Thomson Reuters Australia, Limited.
Evans, S. (2015). It's' Clean Hands' Again: The Dirtiness of Not Paying Tax Considered in the
Supreme Court.
Forrest, C. (2014). Immunity from seizure and suit in Australia: the protection of cultural objects
on Loan Act 2013. International Journal of Cultural Property, 21(2), pp.143-172.
Gordon, B. (2014). Acceptance by conduct in ecommerce transactions in Australia. Commercial
Law Quarterly: The Journal of the Commercial Law Association of Australia, 28(2), p.3.
Greiner, R. (2014). Environmental duty of care: from ethical principle towards a code of practice
for the grazing industry in Queensland (Australia). Journal of agricultural and environmental
ethics, 27(4), pp.527-547.
Hayward, B. (2016). What's in a Name: Software, Digital Products, and the Sale of
Goods. Sydney L. Rev., 38, p.441.
Latimer, P. (2016). Repudiation of Partnership Contracts.
Palmer, J., Instone, L., Mee, K.J., Williams, M. and Vaughan, N. (2015). Green tenants:
practicing a sustainability ethics for the rental housing sector. Local Environment, 20(8), pp.923-
939.
10

Piketty, T. and Zucman, G. (2014). Capital is back: Wealth-income ratios in rich countries 1700–
2010. The Quarterly Journal of Economics, 129(3), pp.1255-1310.
Williams, B. (2016). The impact of non-interest income on bank risk in Australia. Journal of
Banking & Finance, 73, pp.16-37.
11