77938 Taxation Law - Grade: B PDF

Preview

Summary

Assessment Task for Taxation Law...

Description

UTS:Law Assignment Cover Sheet for Online Submissions

Instructions for students: •

Please complete and include this cover sheet when submitting online assignment.

•

The cover sheet should become page 1 of your assignment – do NOT submit this coversheet as a separate document to your assignment.

•

Please note that by submitting this form you are agreeing to the following ACADEMIC HONESTY DECLARATION:

ACADEMIC HONESTY DECLARATION

•

I confirm that I am aware of the University rules regarding plagiarism and academic misconduct.

•

I confirm that this assignment is entirely my own work and I have not previously submitted any part of it for assessment at UTS or any other institution.

•

I confirm that I have read and understood the current version of the UTS:Law Guide to Written Communication.

STUDENT DETAILS (to be completed by student) Student Number:

Click or tap here to enter text.

Family Name:

Click or tap here to enter text.

Given Name(s):

Click or tap here to enter text.

Subject Number:

77938

Subject Name:

Introduction to Taxation Law

Subject Coordinator: Word Count:

1598

Date of Submission:

Click here to enter a date.

Taxation Law Research Assignment Is the $20,000 amount received for Jane’s work as a college teacher included in the taxpayer’s assessable income? Considering s6-5(1) of Income Tax Assessment Act 1997 (ITAA97), there must be a significant nexus between an amount received and an earning activity. Further to this, we can look at the case of FCT v Stone (2005)1, where further to the taxpayer’s primary employment of being a police officer, the taxpayer was deemed to be carrying on a business of professional athlete. Jane’s activities teaching at the community college hold similarities to this case as there is a direct link between Jane’s skill and the generating of income. In other words, Jane generates a direct income from personal exertion. It is highly likely the courts would find that the $20,000 Jane receives would be included as assessable income.

Is the $700 expense on Jane’s membership to the Association of Chartered Accountants ANZ deductible under s8-1. ITAA97? As s25-55(1) of ITAA97 allows for only a maximum deduction of $42, taxpayer’s aiming to deduct higher amounts must utilise s8-1 of ITAA97. Jane’s employment as an accountant has a significant nexus to her membership, satisfying s8-1(1)(a), and therefore it is highly likely that the courts would find that the expense is deductible.

Is the $500 expense on Jane’s annual subscription to the Australian Accounting Review Magazine deductible under s8-1. ITAA97? Again, the first positive limb of s8-1 allows for deductions on expenses incurred in gaining or producing your assessable income. As the subscription to the Australian Accounting Review Magazine has significant nexus to Jane’s employment as an accountant, there would be little contention in the courts for the $500 sum being deductible.

Is the $700 expense on “all black” clothing for client meetings deductible under s8-1, ITAA97 To determine whether Jane is eligible to any deductions on her all-black clothing, we refer to division 34 of ITAA97, which allows deductions for compulsory uniforms, protective clothing and occupation specific clothing. Although Jane’s workplace requires her to wear all black when meeting with clients. This does not satisfy the definition within the act which states that a uniform clearly distinguishes an employee as part of a business. As Jane’s black clothing can be worn on ordinary occasions, it is deemed to be of a private or domestic

1

FC of T v Stone (2009) HCA 22

nature. Therefore the $700 expense for black clothing will probably be found by the courts to not be deductible.

Is the $350 expense on a work lunch deductible under s8-1(1) ITAA97 For this issue, it is assumed that Jane pays for the $350 meal and is not reimbursed by her employer. Under s32-5 of ITAA97, a deduction is not available for entertainment. However, when considering s32-10 of ITAA97, business lunches are considered to be entertainment, and are tax deductible, even if business discussions do occur. Jane’s expense of $350 is likely to be considered by the courts to be deductible.

Are the heating and lighting costs of $500 tax deductible under s8-1(1) ITAA97 TR 93/302 indicates that taxpayers are generally entitled to a proportion of running expenses such as heating and electricity when a home office is used. With regards to interpreting both s8-1(1)(a) and (b), to constitute a deduction, the expense must be ‘incidental and relevant’ to the production of assessable income or hold the ‘essential character’ of an income producing expense (Woeller et al. 2018). It is indicated that Jane conducts some of her income making activities in the kitchen while housemates cook. The essential character of the expenditure in its entirety is of a private nature. Unless Jane tries to claim an almost insignificant portion of the $500, taking into the courts will most likely find that this is not deductible.

Is the travel expense of $2000 deductible under s25-100 Section 25-100 of ITAA97 deems that expenses incurred when travelling between two ‘workplaces’, which are defined as a place where an individual earns income as an employee, are tax deductible. We have previously determined that both Jane’s activities as an accountant in Sydney CBD (given in problem), and as an art teacher in Epping are deemed as assessable income. Therefore, Jane satisfies the provisions set out in s25-100. It is highly likely that the courts would find Jane’s $2000 travel expenses to be tax deductible.

Is the $30,000 and annual pass to the Art Gallery of NSW prize included in Jane’s assessable income? In most cases, prizes are not included in a taxpayer’s income (Moore v Griffiths)3 Prizes are also regarded to have the characteristics outlined by Parson’s Proposition number nine4, seen as mere windfall gain and therefore to not have characteristics of incom. However, if a

2

Australian Taxation Office, Income tax: deductions for home office expenses, TR 93/30, 6 April 2011 Moore v Griffiths (1972) 3 All ER 399 4 R.W. Parsons, Income Taxation in Australia (Faculty of Law University of Sydney

3

sufficient connection can be made between the circumstances leading to the prize award and the taxpayer’s incoming earning activities, the benefit can be considered as income (Kelly v FCT)5. Similar to the case of Kelly v FCT6, the award received for winning the competition, indicated to be specifically for art teachers, was incidental and relevant to Jane’s profession as an art teacher. Jane’s history of winning art competitions reinforces was also the deciding factor for her participation in the competition. As Jane is a regular participant of art competitions, winning them multiple times, these payments are not only a direct outcome of personal exertion, but regular. With regards to the annual pass to the Art Gallery of NSW, it is assumed that the pass has a cash value can be sold, and therefore the market value of the pass can be assessed as Jane’s taxable income. It is likely that the courts would find the $30,000 and market value of the annual pass to be part of Jane’s assessable income.

Is the negotiated separate sale of the antique tea set negligible under s108-10(1),(2)? Legislation on collectibles for this and is covered in s108-15 of ITAA97. This section deems a set of collectibles to be considered a single collectible when multiple transactions are made for the purpose of gaining an exemption as part of s108-10. Although Jane negotiates to sell the items separately, resulting in the individual prices of the items to fall below the $500 threshold. By having multiple transactions to the same buyer, there is an intention of taking advantage of the provisions set out in s108-10. Therefore, it is highly likely that the courts would find that Jane’s multiple transactions are partial transactions of a single collectible, meaning that there would be a capital gain of $670 ($1,800 cash sale - $1,130 original purchase cost)

Is the $40,000 expense on stamp duty, and the $100,000 expense on interest for Jane’s beach house deductible under s8-1(1)(b) In the case of Steele v FCT7, it was found that the interest paid on purchasing land was done so with the primary goal of acquiring an income producing capital asset. Therefore, the interest amount was to be deductible as it was deemed to be necessarily incurred for the purpose of gaining or producing an assessable income s8-1(1)(b). Section 8-1(2)(b) ITAA97 outlines that an outgoing is not deductible to the extent that it is of a private of domestic nature. In direct contrast to the Steele v FCT 8 case, Jane originally purchased the house with no intention of gaining or producing any assessable income. The home, however, is only made available to her relatives, satisfying the second negative limb of s8-1. If Jane were to take on 5

Kelly v FC of T 85 ATC 3283 Kelly v FC of T 85 ATC 3283 7 Steele v FC of T 99 ATC 4242; (1999) 197 CLR 459 8 Ibid

6

her uncle’s advice, the only deductibles she might be entitled to would be the cost of the advertisements in the newspaper. Had Jane followed through with her uncle’s advice, the courts would likely find that both expenses of $40,000 stamp duty and $100,000 interest would not be tax deductible.

Is the $40,000 spent on renovating the bathrooms and $20,000 for legal fees deductible under s8-1(1)(a) Referring to s8-1 of ITAA97, deductions are available for expenses incurred gaining or producing a taxable income. When considering the timing of these expenses in February 2020, these costs are neither incidental nor relevant to any of Jane’s income earning activities. Furthermore, regarding the $40,000 expense, when applying the Business Entity Test, we see that the expense is non-recurring, and a lump sum, indicating it to be a capital expense and therefore reflective of satisfying the first negative limb of s8-1 of ITAA97. It is likely that the courts would find both expenses of $40,000 on renovation, and $20,000 on legal fees to be non-deductible.

Is the $1,200,000 amount received for the sale of the house part of Jane’s assessable income? Under s108-5(1) of ITAA97, a property is considered to be a CGT asset. The sale of such asset falls under CGT Event A1. Although the property was used by Jane for a private or domestic nature in accommodating relatives, it was never Jane’s main residence and therefore there is no CGT exemption available to her. As we have found previously, none of the expenses Jane has made in relation to the beach house would likely be acceptable deductions, therefore the cost base would likely be $800,000. The courts would therefore likely find that Jane is accountable for $400,000 in net capital gains on the sale ($1,200,000 -$800,000)

Bibliography Articles, Books and Reports 1. Parsons R W, Income Taxation in Australia,Principles of Income, Deductibility and Tax Accounting 2. Woellner, Robin et al, Australian Taxation Law (Oxford University Press, 2020)

Cases 1. Kelly v FC of T 85 ATC 4283 2. Steele v DFC of T 99 ATC 424; 197 CLR 459 3. FC of T v Stone (2009) HCA 22

Legislation 1. Income Tax Assessment Act 1997...