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LAWS19033 Taxation Law and Practice

Published : 24-Sep,2021  |  Views : 10


You have just started a new job as a graduate accountant. Your managing partner has to do a media interview and he asks you to provide answers to some questions that will be asked. He has given you a list of questions that he has to address in his interview and he needs you to provide him with short answers to these questions and provide references so that he can check the answer if required.
1. Who is the Inspector-General of Taxation
2. What legislation governs the powers of the Inspector-General of Taxation
3. What topic does Taxation Ruling TR 2016/3 discuss
4. Which Division of the Income Tax Assessment Act 1936 contains the definitions related to the Act
5. Which Division of the Income Tax Assessment Act 1997 discusses the deductibility of gifts 
6. Which section of the Income Tax Assessment Act 1997 allows a taxpayer to deduct a loss caused through theft by an employee
7. Is a deduction allowable for membership of an association If so, are there any limits to such a deduction
8. How are compensation amounts for loss of trading stock treated
9. What is the applicable tax rate for a taxpayer who has $30,000 taxable income in 2016/17
10. For tax purposes, what is considered to be the ‘income year’ for most taxpayers.

In 2016, Julia Jenkins, a citizen of England, arrives in Australia for a long-awaited holiday.She arrives on 1 September 2016 and departs on 30 October 2016. During this time Julia travels extensively throughout Australia, as she wishes to see as many different elements of the country as she can. She also works for one week of her stay picking fruit in Bowen, for which she earns $1,000. Upon return to England, Julia misses the sunny weather in Australia and decides to return there on a permanent basis. She gives up her job, sells her family home, settles her affairs and moves to Australia permanently on the 7 January 2017.

Julia has approached you for preparation of her 2016/2017 tax return, and determination of her tax liability. Julia has been meticulous in keeping records, and provides you with the following information. It should be noted that the information provided represents her understanding of what may be relevant for income tax purposes, and you will need to form your own judgement on various matters based on your knowledge of Australian income tax law. If any doubt arises on a particular point, or further information would normally be required, you may assume such further details as are necessary to complete the return. 

All such assumptions, and the basis of any decisions you make in various matters, must be made clear by full discussion where appropriate. While the assignment is largely calculation based, there are some matters which you will
need to consider and decide upon before you can proceed with the calculations. You should include your discussion of these matters, and any conclusion you reach, as part of your assignment.

On arriving back in Australia, Julia used the money from the sale of her house to purchase a corner store in Mackay, North Queensland. Julia owns the store as a sole trader but she has a store manager who looks after the day-to-day running of the store. The store has a residence attached where the manager lives, which was originally built in July 2001. Settlement took place on 12 February 2017.
The purchase price of $500,000 included:
Residence 100,000
Plant and equipment 220,000
Vehicle 35,000
Trading stock (at cost) 80,000
Goodwill 50,000
Debtors 15,000

The equipment consists of:
Adjustable Value
Effective life/Years
Office furniture $10,000 13 1/3
Office equipment 20,000 5
Computer system (network) 15,000 4
Shop fittings 45,000 15
Floor coverings 15,000 5
Programmable cash register 25,000 5
Refrigeration unit 20,000 10
Simulated indoor plants 2,500 13 1/3
Sundry plant and equipment 38,500 13 1/3
Furniture and fittings 25,000 13 1/3
Stove 1,500 20
Refrigerator 1,200 13 1/3
Hot Water System 1,300 20
Diminishing value method was used to calculate depreciation.
Trading figures for the business from 12 February 2017 to 30 June 2017 include:

As at 30 June 2017, trading stock on hand (at cost) is valued at $28,000. However, $8,000 of this amount represents the cost of items which are past the expiry date and so cannot be sold in the course of the business. Julia plans to send these items to developing countries where they can be used. Julia seeks your advice on valuing closing stock for the best tax advantage.The manager of the store was also selling illicit drugs through his contacts in the industry.Monies from this practice amounted to $100,000 and were not included in the store accounts.

In March 2017 Julia and the store manager attended a buyer’s conference in Melbourne,which ran for one week. Following the conference they stayed on in Melbourne for 2 weeks to enjoy a short holiday. The manager’s wife accompanied them on this trip. One third of the cost of accommodation and airfares cited above relate to the manager’s wife. Julia also owns a motor vehicle for which she has maintained a log book. This log book shows she has travelled 8,000km to 30 June 2017 of which 4,000km were in connection with her business.Of the $15,000 of debt outstanding at 12 February 2017, $8,000 was written off as bad debts, the remainder having been collected.

a) Set down in statement form full details of Julia’s assessable income and allowable deductions for the 2016/2017 year of income and determine her taxable income for that year. In doing this you also need to discuss and justify the inclusion/non-inclusion of all items of income and expenditure.
b) Determine the net amount of income tax payable by Julia for 2016/2017. 


The inspector general of taxation is the independent statutory office that identifies the issues associated with the management of law. They usually reconsider aspects that are related to the management against the fundamentals of good tax administration (Anderson et al., 2016). An independent advice is provided to the government by the inspector general of taxation.

The powers relating to the inspector general of taxation is usually governed in the following legislation that are as follows;

  1. Inspector general of taxation Act 2003
  2. Ombudsman Act 1976

As stated under act of general taxation act 2003 it deals with the appointment of the inspector general of taxation (Barkoczy, 2016). On the other hand, under the ombudsman Act 1976 it is concerned with the appointment of the commonwealth ombudsman, postal industry and overseas students ombudsman.

The taxation rulings of TR 2016/3 is concerned with the discussion of the commissioner concerning the deductibility of the expenditure which is occurred during the procedure of acquisition, development, maintaining or adapting the website for use at the time of executing the business activities together with the expenditure that is associated with the domain names. The rulings further lays down that while executing the business activities of the taxpayer will constantly incur expenditure that is related to the website used during the business process (Berg & Davidson, 2016). The rulings further provide that the website is considered as an intangible software and also includes software that is integrated in the website for online use by the website users.

The definition relating to the act is contained within the Division 40 and division 328 of the Income tax assessment act 1936 (Braithwaite & Braithwaite, 2016).

As defined under the taxation rulings of 2005/13, discussions relating to the deductibility of gift are stated within Division 30 of the Income Tax Assessment Act 1997 (Brand, 2014).

Specific deductions relating to the loss that has been incurred by the taxpayer due to the theft or misappropriation caused by the employees is defined under “Section 25-45 of the Income Tax Assessment Act 1997” (Buckley & Jackson, 2014).

As defined under section 8-1 and 25-55 of the Income Tax Assessment Act 1997 a person can claim deductions relating to the membership of the association (Robin & Barkoczy 2016). An individual making payment relating to the membership of an association and it is not able to satisfy the requirements of section 8-1 of the Income tax assessment act 1997 (Burnett et al., 2015). The taxpayer will be allowed for claiming deductions up to the maximum sum of $42 in an income year for the payments made to membership of an association to which an individual belongs.

A payment of compensation received arising out of loss, destruction or compulsory acquisition associated with the CGT asset may lead to a CGT event (Clark & Maas, 2016). It is noteworthy to denote that on the receipt of compensation amount for the loss arising out of the trading stock; such payment will be treated in the form of capital proceeds arising out of the disposal of the assets.

If the taxpayer with the taxable income of $30,000 earned during the taxation income year of 2016-17, a tax rate of 19c with $1 over 18,200 is applied on the amount of the taxable income of the taxpayer (Deutsch, 2014).

According to the viewpoint of taxation, income year can be defined as the year during which the taxpayer earns an income (Fenech et al., 2016). For example, if the financial year of the taxpayer begins from 1stApril 2015 to 31 march 2016 it will be considered as the income year. Furthermore, the assessment year relating to the income earned by the taxpayer in this period would start from the end of the fiscal year that ends until April 2016 until March 2017.

Section 4-1 of the income tax assessment act 1997 defines that a person, entity or an organisation will be held liable to pay tax depending upon their taxable earned during the year (Graetz & Warren, 2016). As defined under section 4-15 of the Income Tax assessment Act 1997 the sum of taxable income is computed by subtracting the amount of the allowable deductions from the sum of income which is assessable. Assessable income is generally classified in two forms and they are ordinary income and statutory income. As defined under section 6-5 of the income tax assessment act income 1997 ordinary income can be defined as income derived from ordinary concept (James, 2016). Whereas, section 6-10 of the income tax assessment act income 1997 defines that income which is do not forms the part of ordinary income is generally known as statutory income.

As stated under section 6-5 (2) and section 6-10 (4) of the Income Tax Assessment Act 1997 income, which is generated from all the sources, forms the part of the assessable income. In addition to this, for individual taxpayer who is not a resident of Australia will be taken into considerations for assessment, which is generated from the Australia sources (Lam & Whitney, 2016). It is understood that status of residency of an individual taxpayer is considered as an important aspect in the determination of the assessable income together with the calculation of the net amount of income tax payable. Para 9 of the taxation rulings 98/17 states that a person’s status of residency should be determined based on the fact and it acts as one of the most vital aspect at the time of determining the income tax liability (Morgan et al., 2016). As stated under section 995-1 of the Income Tax Assessment Act 1936. An Australian resident can be defined as the resident who lives in Australia.

As defined under Para 11 of the taxation rulings 98/17 the main test that is considered in the determining the residency is to ascertain whether the person living in Australia is in conformity with the ordinary concept of the term residence. As it has been stated under Para 15 of the taxation rulings 98/17 the concept of ordinary residents states that an individual living in Australia permanently (Newman, 2016). As it is noticed under, the existing case study Julia had came to Australia with the objective of settling on permanent basis on 7 January 2017. It is understood that the Julia Jenkins in conformity with the ordinary concept of the definition “resides” is regarded as the Australian resident for taxation purpose. This states that income that is generated by Julia will be considered for taxation derived from all the sources (Rimmer et al., 2014).

According to section, 6-5 of the Income Tax assessment Act 1997 income that is derived from the occupation of food picking is based on her two-week stay and should be taken into the consideration under the assessable income as the ordinary income (Robin & Barkoczy 2016). Julia paid $500,000 for numerous items and they does not forms the part of ordinary income since it cannot be regarded as income in accordance with ordinary concept or statutory concept.

As it has been stated under section 40-30 of the Income Tax Assessment Act 1997 assets that have an effective useful life and they are expected to fall in their value should be considered as the depreciating asset (Saad, 2014). Depreciation can be calculated on those assets either under the straight-line method or by diminishing value method. As it has been found under the current case study diminishing method of depreciation is put into the use for taxation purpose defined under section 40-70 of the Income Tax Assessment Act 1997 (Taylor & Richardson, 2014). As defined under section 8-1 of The Income Tax Assessment Act 1997 calculation of depreciation is laid down below;

Statement of Depreciation Schedule Showing Depreciation amount

Name of Assets

Base Value of the Assets

No. of. Days held

 Effective Useful life

Depreciation Amount

Office Furniture

 $                       10,000.00



 $                     616.59

Office equipment

 $                       20,000.00



 $                  3,287.67

Computer System

 $                       15,000.00



 $                  3,082.19

Shop fitting

 $                       45,000.00



 $                  2,465.75

Floor covering

 $                       15,000.00



 $                  2,465.75

Cash register

 $                       25,000.00



 $                  4,109.59


 $                       20,000.00



 $                  1,643.84

Indoor plants

 $                       25,000.00



 $                  1,541.48

Sundry plant and equipment

 $                       38,500.00



 $                  2,373.88

Furniture and Fittings

 $                       25,000.00



 $                  1,541.48


 $                         1,500.00



 $                       61.64


 $                         1,200.00



 $                       73.99

Hot water

 $                         1,300.00



 $                       53.42

 As stated under 6-5 of the Income Tax assessment Act 1997, gross sales can be regarded as the part of ordinary income and it should be included in the assessable income (Tran-Nam & Walpole, 2016). Referring to section 8-1 of the Income Tax Assessment Act 1997 expenses that is occurred during the generation of assessable income from the execution of business activities associated with the generation of assessable income shall be allowed as deductions. Hence, salaries and expenses will be allowed as general deductions. As stated under section 25-25 of the Income Tax Assessment Act 1997 expenses that is associated to borrowings shall be deducted up to a certain amount, which is used the generation of assessable income (Woellner et al., 2017).

As it is noticed in the existing case study, borrowings are regarded as the part of business and it is allowed for deduction. As stated under section 8-1 of the Income Tax assessment Act 1997 occurring of expenses from vehicle management should be treated as perquisite that is provided to the manager and it should be allowed for deduction (Sharkey, 2015). As defined under 8-1 of Income Tax assessment Act 1997 expenditure occurred relating to conference for the generation of assessable income should be considered as allowable deduction.

As defined under section 70 -45 (1) all the Income Tax Assessment Act 1997 stock in hand is generally valued in three forms namely, valued at cost, valued on selling price or based on replacement value at the end of the year. From the current case study, it is noticed that the market price or replacement value is not stated here and value of inventory is considered at cost following the end of the financial year (Robin & Barkoczy 2016). The expenditure that is incurred for the manager’s wife cannot be allowed as deductions. From the current case study it is noticed that loss as a result of theft or stealing will be specifically allowed for deduction under section 25-45 of the Income Tax assessment Act 1997 if the sum lost forms the part of assessable income.

As understood from the current scenario an amount of $10,000 was not considered in the store accounts therefore, the same was not included in the assessable income. Section 28-12 of the Income Tax assessment Act 1997 defines that there are two methods of computing car expenditure and one of the two methods are taken into the considerations in the assessable income. Hence, car expenditure can be allowed in the form of deductions. As it has been defined under section 28-90 of the Income Tax assessment Act 1997 expenses related to car is calculated by taking into the considerations the logbook method after multiplying the amount of car expenditure in regarded to percentage of business use (Newman, 2016).

As evident in the present case study car expenditure is calculated by considering the cents per kilometre methodology in conformity with the section 28-25 of the Income Tax Assessment Act 1997. Referring to section 25-35 of the Income tax assessment Act 1997 it provides the taxpayer with an opportunity to deduct the sum of bad debt based on the condition that the amount was previously included in the assessable income for the present year or for the previous year (Sharkey, 2015). In the existing case study, the amount was included in the assessable income and deductions was allowed for the same. The taxable income of the Julia is defined below;

In the Books of Julia

Statement showing Taxable income




Income from fruit picking

Section 6-5 of ITAA 97

 $      1,000.00

Gross sales

Section 6-5 of ITAA 97

 $ 4,50,000.00

salary Of Managers

Section 8-1 of ITAA 97

 $    45,000.00

Wages of Staff

Section 8-1 of ITAA 97

 $      8,000.00

Borrowing expenses

Section 25-25 of ITAA 97

 $      2,500.00

Operating expense

Section 8-1 of ITAA 97

 $      2,000.00

vehicle expenses

Section 8-1 of ITAA 97

 $      2,000.00


Section 8-1 of ITAA 97

 $      4,000.00

Stock utilised

Section 8-1 of ITAA 97, s70-45 of ITAA 97

 $    62,000.00

Air fare

Section 8-1 of ITAA 97

 $         933.33


Section 8-1 of ITAA 97

 $      1,400.00

Car expenses

section 28-25 of ITAA 97

 $      2,640.00

Bad debt

Section 25-35 of the ITAA 97

 $      8,000.00

Statement representing Tax Payable



Taxable Income

 $                     3,12,526.67

Medicare Levy

 $                          6,250.53

Total tax payable

 $                     3,18,777.20


  1. As laid down under Section 8-1 of Income Tax Assessment Act 1997 the salary for managers shall be considered as allowable deductions (Barkoczy, 2016).
  2. The wages for staff has been considered for deductions that is allowed under Section 8-1 of Income Tax Assessment Act 1997
  3. Section 25-25 of the Income Tax Assessment Act 1997 lays down that staff wages shall be considered for allowable deductions (Robin & Barkoczy 2016).
  4. As held under 8-1 of Income Tax Assessment Act 1997 that operating expenditure will be considered for deductions by the taxpayer while filing tax return (Woellner et al., 2017).
  5. Referring to 8-1 of Income Tax Assessment Act 1997 expenditure arising out of vehicle can be claimed for deductions at the time of filing assessable income tax return(Tran-Nam & Walpole, 2016).
  6. As defined under 8-1 of Income Tax Assessment Act 1997 cost incurred for conference shall be considered as allowable deductions at the time of lodging tax return (Rimmer et al., 2014).
  7. 8-1 of Income Tax Assessment Act 1997 defines that cost incurred on air fare can be considered for deductions by the taxpayer at the time of filing tax return
  8. As held under 8-1 of Income Tax Assessment Act 1997 expenditure occurred for hotel accommodations can included for allowable deductions at the time of filing taxable return(Burnett et al., 2015).
  9. As defined under section 28-25 of Income Tax Assessment Act 1997 states down that an individual taxpayer can claim allowable deductions for the cost incurred on car expenditure (Clark & Maas, 2016).
  10. The amount of bad debt is considered as allowable deductions under Section 25-35 of the Income Tax Assessment Act 1997 while filing assessable income tax return (Woellner et al., 2017).

 Reference List: 

Anderson, C., Dickfos, J., & Brown, C. (2016). The Australian Taxation Office-what role does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), 127-140.

Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.

Berg, C., & Davidson, S. (2016). Submission to the House of Representatives Standing Committee on Tax and Revenue Inquiry into the External Scrutiny of the Australian Taxation Office.

Braithwaite, V., & Braithwaite, J. (2016). Managing taxation compliance: The evolution of the ATO Compliance Model.

Brand, R. A. (2014). Understanding Judgments Recognition. NCJ Int'l L. & Com. Reg., 40, 877.

Buckley, C., & Jackson, T. (2014). Dividend access shares: The ATO clarifies its position. Taxation in Australia, 49(2), 74.

Burnett, C., Taylor, C. J., & Wong, J. (2015). Qualification of Taxable Entities and Treaty Protection: National Report for Australia.

Clark, W., & Maas, R. (2016). Spatial mobility and opportunity in Australia: Residential selection and neighbourhood connections. Urban Studies, 53(6), 1317-1331.

Deutsch, R. L. (2014). Australian Tax Handbook 2006.

Fenech, J. P., Fang, V., & Brown, R. (2016). How Accurately Can Convertibles be Classified as Debt or Equity for Tax Purposes? Evidence from Australia. Review of Law & Economics, 12(1), 153-164.

Graetz, M. J., & Warren, A. C. (2016). Integration of Corporate and Shareholder Taxes.

James, K. (2016). The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), 345-362.

Lam, D., & Whitney, A. (2016). Taxation and property: Practical aspects of the new foreign resident CGT witholding tax. LSJ: Law Society of NSW Journal, (21), 84.

Morgan, A., Mortimer, C., & Pinto, D. (2016). A practical introduction to Australian taxation law 2016.

Newman, S. (2016). The new CGT withholding regime: More than meets the eye. Proctor, The, 36(5), 18.

Rimmer, X., Smith, J., & Wende, S. (2014). The incidence of company tax in Australia. Economic Round-up, (1), 33.

Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al). (2016). Australian Taxation Law 2016. Oxford University Press.

Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.

Sharkey, N. (2015). Coming to Australia: Cross border and Australian income tax complexities with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part 1. Brief, 42(10), 10.

Taylor, G., & Richardson, G. (2014). Incentives for corporate tax planning and reporting: Empirical evidence from Australia. Journal of Contemporary Accounting & Economics, 10(1), 1-15.

Tran-Nam, B., & Walpole, M. (2016). Tax disputes, litigation costs and access to tax justice. eJournal of Tax Research, 14(2), 319.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2017). Australian Taxation Law 2017 27th edition. OUP Catalogue.

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