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  • Subject Name : Taxation Law

Primary Sources of Tax Law - Question 1

1) The fee received from the normal ongoing business will be considered as receipt and under the receipts method, income is derived when it is received, either actually or constructively, under subsection 6-5(4) of the ITAA 1997. The effect of that subsection is that income is taken to have been derived by a person although it is not actually paid over but is dealt with on his/her behalf or as he/she directs.

2) This Ruling does not apply to income that is subject to specific provisions of the ITAA, e.g. dividends assessable under subsection 44(1) of the ITAA 1936, securities assessable under Division 16E of Part III of the ITAA 1936, or financial arrangements entered into by financial institutions covered by Division 230 of the ITAA 1997. It only applies to income assessable under subsections 6-5(2) and (3) of the ITAA 1997.

3) This is the income from employment that would normally be assessable on a receipts basis. Salaries are assessable on receipt even though they relate to a past or future income period.

4) Reimbursement of expenses of the amount is not assessable as *ordinary income under section 6-5.

5) Yes, it is part of assessable income under the dividend section.

6) Under the existing law, compensation for a personal injury received in the form of a lump sum is generally tax-free in the hands of the recipient. It is not liable to be assessed under subsection 25(1) of the ITAA 1936 of subsection 6-5(1) of the ITAA 1997 because the payment is of a capital nature. It is not subject to capital gains tax.

Primary Sources of Tax Law - Question 2

The cost base for CGT purposes would include the total original purchase price ($300,000) plus all the costs involved in the transaction ($51,000) plus the ownership costs ($30,000). A total of $25,000; $2,000, $408,000. With a sale price of $500,000 it is clear the proceeds are larger than the cost base. The total capital gain on the sale of the property can be calculated as $500,000 less $408,000, totaling $92,000.

Main residence - A transitional rule will not deny the MRE to taxpayers who held the dwelling immediately before 7.30 pm (AEST) on 9 May 2017 if:

they are non-residents at the time of the CGT event;

they held an ownership interest in the dwelling at all times from immediately before the announcement until immediately before the CGT event happens;

and the CGT event happens on or before 30 June 2020.

It is therefore, exempt.

Shares – Proceeds ($100 * 10) 1,000

Cost ($50 * 10) (500)

CGT 500

Personal use asset - Any personal use asset you acquired for less than $10,000 is disregarded for CGT purposes, so pool table is disregarded. The lounge made a loss for $8,000 so it is a tax benefit! This can be offset against a brought forward loss of $1,500.

CGT $92,000

Shares $500

Main residence Exempt

Personal Use Asset Offset against loss (b/f) while pool table is disregarded

The CGT will be taxed at 40%.

Primary Sources of Tax Law - Question 3

Car Expenses: Steve is able to claim a deduction for car expenses using either the cents per kilometre or logbook method on 4,000 business km. He can claim a single rated of 68 cents per kilometre from 1 July 2018 (72 cents per kilometre from 1 July 2020). $6,800 is the total expenditure (without depreciation) out of which $5,000 can be claimed on vehicle. The rest is taxable.

NOTE: The cents per kilometre rate covers decline in value, registration, insurance, maintenance, repairs and fuel costs. You can’t add these expenses on top of the rate when calculating your deduction.

Monica - The tenant is not responsible for damage caused by a genuine accident or through normal wear and tear; nor are they responsible for damage caused unintentionally through use of a domestic appliance requiring instruction for which the landlord has failed to provide instructions [ss 69(3a), 48(2)]. The landlord must ensure that a property is in a reasonable state of repair, although this does not apply to a property that is subject to an order under the Housing Improvement Act 2016 (SA). $8,000 is deductible expenditure.

Small business - From 12 March 2020 until 30 June 2020, the instant asset write-off: threshold amount for each asset is $150,000 (up from $30,000) eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

$1,000 will be immediately written off. As the termination value of $30,000 is lesser than the adjustable value of the machinery at the time of its sale, the difference of $3,000 is not included in computation of tax assessable income.

Bike Ltd. Since the record is kept the maximum tax saving would be $5,000 and $6,000 not to be included in the tax profiles as these belongs to 2019 FA and will be charged in the required tax years.

Question 4: Partnership

Partners are taxed on their share of the profits of the partnership or are entitled to a deduction for their share of the losses incurred by the partnership as disclosed in their own tax returns. Partners are responsible for their own superannuation arrangements. However, the partnership is required to pay superannuation for its employees. Any nominal payment of a salary or wages to a partner is considered a distribution of profit. A partnership is not a taxable entity, but it must lodge a tax return at the end of each income year.



Assessable income:

- TP: s 6-5 ITAA97



- Employee salary and superannuation



Net income of partnership (s 90, ITAA 1936)


Amount available for distribution is $26,000 ($50,000 less superannuation of $1,000, salary to Alpha $20,000 and $3,000 for superannuation).


Salary                              $20,000

Share $26,000 * 70%      $18,200

Superannuation               $3,000


Interest                            $1,000

Share $26,000 * 30%      $7,800

Total                                $50,000

The MLS rate of 1%, 1.25% or 1.5% is levied on your taxable income, total reportable fringe benefits, and any amount on which family trust distribution tax has been paid. It will be 1 per cent of $18,200 and 1.25% of $7,800.

Question 5 – Trust

It is a revocable trust. A revocable trust (also known as a living trust) is used to avoid having your estate subject to probate—the legal process of distributing your estate.

Net income of trust

Rental income                                                                         $22,000

Fully franked income (s 44 ITAA36)                                        $3,728

Unfranked income                                                                   $20,000

Total net income                                                                      $45,728

Tax consequences

$45,728 at 90% belongs to Alpha [taxed at higher rate] =      $41155.2

Residual belongs to Beta =                                                     $4322.8

Goody Pty Ltd will be taxed @30% CR.

Question 6 – FBT

  1. It is a fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.
  2. Fringe benefits tax (FBT) - Superannuation
  3. It is a Fringe Benefit
  4. It is a Fringe Benefit
  5. It is an exempt benefit.
  6. $250 is an exempt benefit and a gift worth $500 is FBT
  7. It is exempt benefit
  8. It is a fringe benefit

Question 7 – GST

  • Sale of photos:
  • As there is a sale of goods, it is necessary to determine if the sale is a “taxable supply”: see [25.90].
  • The elements of taxable supply per s 9-5 of GST Act are:
    1. Making of a supply: see [25.100]
      • the sale of paintings is a supply of goods and is therefore a “supply” per s 9-10 of GST Act
    2. the supply is for consideration: see [25.110]
      • Peter receives payment for the photos which is consideration for the supply per s 9-15 of GST Act.

Finally, it is also necessary to consider whether the sale of the photos could be either a GST-free supply (Div 38 of GST Act) (see [25.140]) or an input taxed supply (Div 40 of GST Act) (see [25.160]) because, if so, it would not be a taxable supply: s 9-5 of GST Act.

The Ruling makes clear that supplies of hotel accommodation by hotels located in Australia will be "connected with" Australia, and subject to Australian GST (assuming all of the other requirements of a taxable supply in section 9-5 of the GST Act are satisfied).

For strawberries supply GST is not applied to Australian Government levies

Childcare supply is a GST-free supply.

GST is levied on your selling fees, regardless of which eBay website you use for selling.

Zero rate applies here as you can claim back the GST you pay on goods or services you sell to NZ.

For Susan she does not has to be registered for this low value imported one off good.

Assumption: an input tax credit is also known as a GST credit. If your NFP is registered for the GST you can claim an input tax credit for any GST included in the price of goods and services bought in carrying on your activities. To claim input tax credits you must be registered for GST.

$330 * 1.1 = $363 can be claimed.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Taxation Law Assignment Help

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