course material

1. LAWS19033 Taxation Law And Practice A
Answers:
Part A
1. Income should come in and it should be money or it must be convertible in money. To
classify anything as income, it should “come in” to the taxpayer and it needs to be received
by taxpayer as money or it is received in a form which can be converted in money otherwise
it cannot be considered as gain for tax purpose. As per the “sec 21A of ITAA 1936”, it
provides that any sort of non-cash business benefits should be treated as convertible in cash
in order to determine the assessable income of taxpayer from carrying on a business
activity (Barkoczy, 2016). As defined in “sec 21A (5) of ITAA 1936” the non-cash business
benefits involve a property and services that is provided in regard to business relationship.
As per the “sec 21A of ITAA 1936” it does not consider any benefit received as property or
services to be income (Sadiq, 2020). The main effect is that the non-cash benefit is already
treated as income which is obtained from doing any business. Accordingly, “subsection 21A
(2)” states that the amount which should be taken into consideration must be the amount
that the taxpayer would have paid the provider for property or services on the basis of
arm’s length transaction.
The client in the current circumstances has received a holiday trip that involves airfares and
hotel accommodations worth $20,000 from his supplier after selling huge amount of shirts.
The holiday trip of $20,000 received by the client will be considered as a “non-cash business
benefit” which is delivered in respect of professional relationship. Therefore, in “sec 21A of
ITAA 1936”, the sum of $20,000 will be included in the client’s assessable income.
2. Interest is regarded as the return that simply runs from lending the cash and it is
considered as the reward regarding the loss of usage of that sum (Shome, 2021).
Accordingly, “Riches v Westinster Bank Ltd (1947)” receiving of interest is regarded as an
ordinary income within “sec 6-5 ITAA 1997” (Anderson et al., 2016). Interest is normally
derived when it is received.
As evident in present circumstances, David reports receiving interest of $257.50 in August
2022. The taxpayer in the current situation follows cash basis and hence the interest is

2. derived only when it is received. Therefore, the interest is not derived by him for the year
income year ended 30th June 2022. Hence, he must include the sum of $257.50 for the
income year ended 30th June 2022 because it was derived by him in that year only and he is
not required to pay income tax for 30th June 2022.
3. As mentioned under the “sec 25-35 of ITAA 1997” a debt is “written off” as a bad
assuming that the official accounts provide a suggestion that the amount will not be any
more recovered (Kenny & Devos, 2018). Provisions for doubtful debts that might be
recoverable cannot be considered as an allowable deduction. The debt ought to be “written
off” as a “bad debt” in the current “income year” and the amount is contained within in the
assessable earnings. The taxpayers are only permitted to claim deductions for bad debt
when an accrual method is followed by them.
Similarly, in case of Fincorp Ltd, the doubtful debts and estimated bad debts are not
permitted for deductions. While under “sec 25-35 ITAA 1997”, the bad debts amounting of
$17,000 that is written off by Fincorp Ltd in the financial year ended 30th June 2022 will be
allowable for tax deduction within “sec 25-35 ITAA 1997”.
4.
Calculation of Tax Liability
In the books of Andrew
For the year ended 30th June 2022
Particulars
Amount ($)

3. Amount ($)
Assessable Income
Net Rental Profit
7450
Bank Interest
580

4. Total Taxable Income
8030
Net Tax Payable
2609.75
As per the ATO, a person that is living out of Australia with income from Australian sources
may not be required to make application for TFN (Barkoczy, 2022). In other words, an
individual does not need to have TFN, if he or she is a foreign resident of Australia for tax
purpose and they only get interest, dividends or royalty payments from sources within
Australia.
In the current case of Andrew, he is a non-resident or foreign resident living outside
Australia. It is recommended to Andrew that he is not required to apply for TFN for tax
purpose since he has only received interest. While the rent cannot be considered as the
subject of withholding tax and the taxpayer is needed to have TFN and should pay income
tax on the basis non-resident rates.
5. As per the “sec 40-295 of ITAA 1997” the taxable income of taxpayer gets adjusted where
a balancing adjustment event takes place (Phillips, 2016). When the termination value is
greater than the adjustable cost, the difference gets contained within in the “assessable
income”. Whereas, when the termination worth is less than the “adjustable worth”, the
variance is allowed as deductions.
Calculation of Balancing Adjustment

5. In the Books of Theo
For the year ended 30th June 2022
Particulars
Amount ($)
Amount ($)
Decline in Value - Year 1
Base Value of Photocopier

6. 8700
Less: Decline in Value
4350
Closing Adjustable Value
4350
Decline in Value- Year 2

7. Opening Adjustable Value
4350
Less: Decline in Value
2175
Closing Adjustable Value
2175

8. Termination Value (30th June 2022)
3750
Adjustable Value
2175
Assessable Income
1575
As evident from the calculations done above, Theo reports purchasing photocopier for
$8,700 om 1st July 2020 and sold it for $3,750 on 30th June 2022. A balancing event
adjustment needs to be made by Theo under “sec 40-295”. The termination value of
photocopier ($3,750) is much greater than closing adjustable value ($2,175). Therefore, the
difference in amount of $1,575 must be included in his assessable income.

9. 6. Travel expense that is incurred throughout the course of work is allowable as deduction.
As noted in the case of “FCT v Wiener (1978)” the taxpayer in this case was teacher that was
employed by Education Department (Robin, 2021). The taxpayer was needed to teach amid
five different schools all through the week. The law court noted that the taxpayer’s
employment was itinerant in nature and the taxpayer was travelling to perform her
employment duties starting from the time when she left home till the moment she came
back (Hildreth & Richardson, 2019). The tax commissioner permitted deductions for travel
expenses incurred by taxpayer between schools and also for travel expense that is incurred
between home, first and last school that she attended every day.
In the current case Mary is employed as an accountant during day time and at night she
works as a part-time teacher in accounting studies. She reports incurring travel expense for
travel between her jobs by car and does not stops on the way. The travel made by Mary
should be classified as travel in the course of work. Referring to “FCT v Wiener (1978)” in
the current circumstances of Mary, the travel expense that is incurred by her for travelling
between her accounting job during and her part-time employment at night (Wollner et al.,
2020). The expense incurred by car is a permissible deduction within “sec 8-1 ITAA 1997”.
7.
Calculation of Balancing Adjustment
In the Books of Theo
For the year ended 30th June 2022
Particulars
Amount ($)

10. Amount ($)
Decline in Value - Year 1
Base Value of Van
77000
Days Held - 365 days

11. Days in Year - 365 days
Diminishing value rate (200%)
Estimated Life - 8 years
Less: Decline in Value

12. 19250
Closing Adjustable Value
57750
8. Self-assessment cannot be considered as a tax, in fact it is considered as the way of paying
tax. The idea concerning self-assessment is that an individual is considered accountable for
completing the tax return every year if they are needed to and for paying any amount of tax
that is due for that year (Payne, 2018). If an individual completes the self-assessment tax
return, he or she is needed to include all in their taxable income and also any amount of
capital gains. The taxpayer is permitted to claim tax allowance or deductions to which they
are considered entitled to while preparing their tax return. The information furnished by
taxpayer in tax return is used in calculating the tax return.
The income tax system of Australia works on self-assessment. This implies that ATO accepts
the information that an individual give is complete and accurate. This means that ATO will
review the information that is provided by taxpayers if it has reason to consider it
otherwise (Sadiq et al., 2018). The self-assessment system simply assigns responsibility on
taxpayers to make sure that their tax return and other types of tax forms adhere with tax
laws. The taxpayers should report all their assessable income and they can only claim
deductions and offsets to which they are considered entitled.
9. A progressive tax system is one where the average burden of tax increases with income.
Families that earn higher income are found paying uneven burden of tax share whereas
people that have low and mid income have small burden of tax. A progressive system of tax
can be referred as a “tax system” which increases rates as the chargeable income goes up
(Sawyer et al., 2021). The instances of “progressive tax system” comprise of “investment

13. income taxes”, tax on credit earned, income from “rental property” and “tax credits”. The
actual philosophy concerning the progressive tax system is that people that have higher
income can simply afford and must be anticipated to provide much greater share of public
services than those people that are able to pay less tax.
The income tax system of Australia is considered progressive in nature. It means that
people that have higher income are required to pay more amount of tax. An individual can
earn up to $18,200 in a financial year and are not required to pay tax. This is regarded as a
tax-free threshold and any income beyond this threshold attracts tax liability (Sadiq et al.,
2021). The lowest amount of tax rate is 19% and the highest amount of tax rate is 45%,
which is imposed only when income surpasses more than $180,000. A large number of
Australians are found to be placed under middle tax bracket.
10. A person that is considered as an Australian resident are considered subject to income
tax in Australia on worldwide basis. In other words, an individual tax resident of Australia is
considered taxable on income derived from both sources in Australia and from foreign as
well. As it is mentioned under “sec 6-5 (2) of ITAA 1997”, the assessable income of
Australian resident includes the “ordinary income” which is obtained from every sources
(Saad & Ariffin, 2019). Accordingly, under “sec 6-10 (4)” it states that the “assessable
income” of an Australian inhabitant involves the statutory income from all the sources.
A person that is an Australian occupant is held liable to pay tax on income and is
irrespective of sources. There are numerous exemptions as well such as income tax offsets
and specific rules relating to foreign income which might be available for income that are
sourced in foreign nation (Kiprotich, 2016). As quoted in “Nathan v FCT (1918)”, the source
relating to income is something that a practical person would take into account as the actual
source of income. It means that sources of income are dependent on individual facts.
Part B
Calculation of Tax Liability
In the books of Sam
For the year ended 30th June 2022

14. Particulars
Amount ($)
Amount ($)
Assessable Income
Professional Fees
240000
Sales of Superannuation Guides

15. 25000
Gross Salary from University
30000
Interest on Bank Deposits
5000
Rental Income

16. 20000
Profit on Sale of Office Equipment
2000
Gambling Wins
500000
Exempted Income
8000

17. Total Assessable Income
830000
Allowable Deductions
Office Rent
24000
Salary Paid to Employees

18. 50000
Purchase of New Calculator
290
Tax agent fees
1000
Rates on Investment Property
2000

19. Interest on Loan
15000
Cost of Replacing Roof Tiles
1000
Tax Loss (Deductible up to 8000)
8000

20. Total Allowable Deductions
101290
Total Taxable Income
728710
Tax on Taxable Income
298586.5

21. Add: Medicare Levy
14574.2
Add: Medicare Levy Surcharge
10930.65
Less: PAYG Tax Instalment
6000
Net Tax Payable

22. 318091.35
References:
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.
Barkoczy, S. (2022). Foundations of Taxation Law 2022. Cambridge University Press.
Hildreth, W. B., & Richardson, J. A. (2019). Economic principles of taxation. Taylor and
Francis.
Kenny, P., & Devos, K. (2018). Australian Small Business Taxation. LexisNexis.
Kiprotich, B. A. (2016). Principles of taxation. governance, 5(7), 341-352.
Payne, K. (2018). Taxation: Fix it up or trade up?. Company Director, 34(6), 52-53.
Phillips, B. (2016). Distributional modelling of proposed negative gearing and capital gains
taxation reform.
Robin, H. (2021). Australian Taxation Law 2021. OXFORD University Press.
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4.
Shome, P. (2021). Principles of Taxation. In Taxation History, Theory, Law and

23. Administration (pp. 53-61). Springer, Cham.
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