Taxation Law Assignment Three Case Scenarios
Task: Write a taxation law assignment using IRAC format considering the taxation principles and planning using relevant case laws and sections of ITAA legislations
Question 1 of taxation law assignment
Is amount received as mid-year vacation work and the leather briefcase received will be included in assessable income.
The amount received as mid-year vacation work can be referred to as stipend, which is a payment made by trainee or person who is a learner. As per section 10 (16) of the Income Tax act,the stipend is considered as exempt income. Further non-monetary prizes are regarded as other amounts which are not taxable, and the individual does not require declaring the same in assessable income (ATO: Prizes, 2019).
As the bag received in the prize is the non-monetary prize. Thus same will not be declared in assessable income as per Australian Taxation provisions. Further, it is also stated in the taxation law assignment that the amount received while working at KPMG as a trainee would be considered as stipend and will be considered as exempt income.
The leather briefcase received as the prize will not be considered as part of assessable income and the amount received by working at KPMG, i.e. $4000 will be part of assessable income but as exempt income.
The issue in the given case is related to the inclusion of prize money in the assessable income of the person named as William.
As per Income Tax Assessment Act 1997, assessable income includes of any amount, which is ordinary income as given in Section 6.5 of the cited Act, and statutory income as explained in section 10.5 of the Act. Moreover, the assessable income consists of receipt from trading with non-members and revenue generated from the sources outside the business. Further, a receipt that is included in the assessableincome total annual value of non-cash gifts is more than $300 received in payment for products and services offered by the organization. Usually, rewards or gifts received on some particular occasion like on a birthday or a marriage from relatives because of love is not included in the assessable income. However, if it is received concerning business activities or in connection with earning generation activities, then in such case,rewards and gifts would be included (Burton, 2018).
In the given case scenario of taxation law assignment, it has been observed that William won a prize, valued of $5000 from the supplier because of selling of significant quantity of goods.
Value of prize money should be included in the assessable income of William because it is received in connection with business activities.
Is payment made by the employee for flyer benefit point accumulated at personal airline club membership on work-related flights part of assessable income?
Following provisions of Australian Taxation office, travel allowance comprises payment made to the employee for covering accommodation, food as well as incidental expenses which are incurred. In contrast, they travel home in the course of duties (ATO: Travel Allowances, 2019). The specified travelling allowances are taxed as salary unless an exception is applied to same.
In the present case payment of $2000 has been made for flyer benefit points collected in context with work-related flights which can be considered as incidental expenses to travel allowances.
The payment of $2000 will be considered as part of the assessable income of an employee.
The issue in the given case of taxation law assignment is related to whether $2000 received by professional footballer through Television Company is included in the assessable income.
Taxation Ruling 1999/17 specifies provision in context with the receipt and other benefits attained by sportspeople from involvement in sport. The ruling is an application to individuals who have achieved benefit for being part of the sport as a player or coach or referee. The provision asserts that payment or benefit received by sportsperson is assessable income in case assessable income is income in a general sense. Moreover, in case the amount or service through the operation of a provision of tax will be part of assessable income. The specified assessable income in the above stated taxation ruling is as follows:
- Payment received in connection with employment
- Payment or benefit received in connection with the service provided.
- The amount received along with benefit comprising prizes for carrying business of participating in sport (Taxation Ruling 1999/17, 2019).
Further section 12 of specified ruling asserts that payment made as voluntary payments will also be considered as assessable income in the ordinary sense. Even voluntary payment of occasional nature would be regarded as part of the assessable income as per section 13 of TR 1999/17.
The payment of $20000 received by professional footballer can be specified as voluntary payment of occasional nature. As it has been received for being the most valuable player in the national football competition, thus same would be considered as part of assessable income.
Receipt of $20000 would be part of assessable income of professional footballer.
Is payment made as Work safe compensation for a specific period every week would be part of assessable income?
Following section 59-30 (3) of ITAA 1997 in the present case of taxation law assignment, the nature of compensation made with not change when such payment is considered in calculating damage amount. Thus, it is necessary to held tax from weekly compensation payments (Taxation on benefits payments, 2019).
In the specified scenario, the tax will be withheld as the decision was provided in case of Fox v Wood in which specified claims regarding tax were established.
The amount received as safe work compensation every week would be part of assessable income.
An issue in the present case scenario is related to the treatment of money involved in the sale of townhouses by Travis.
As per the ITAA 1997, there are usually three probable income tax regimes that could be applied to levy a tax on the proceeds from property development projects such as the sale of trading stock, profit-making scheme, and capital gain as per provisions of capital gain tax. As per Australian Taxation Authorities, if the land is purchased with the intention of the sale in the usual course of business, then it is considered as trading stock (Mayo, 2018). This consists of a single acquisition of land, and it is not essential that there must be a repetitive acquisition of land. Moreover, the land is also considered as trading stock, even if it is not acquired with the purpose of sale in the ordinary course of business, but afterwards held this purpose. In the legal case, FCT v Huberts Island Pty Ltd, it was held that land could be considered as trading stock if it was regarded to be running on a business in the course of which land has been purchased for development and sale.
Moreover, as per TD 92/124, it has been stated by ATO that land would be considered as trading stock for the taxation under income tax where it is purchased with the purpose of resale and business activities that consists dealing in the land has started (Freundenberg, and Minas, 2018). It is significant to note that, if the land was initially acquired as a capital asset and subsequently held as trading stock, then in such case notional sale is deemed to be taken place. Further, on this fictitious sale there would be a capital gain if the market value of the property is more than its cost base. The implementation of the provision of trading stock is based on whether the business of land development and property is being carried on, which is considered by facts involved in the question. Apart from this, if the land is not considered as trading stock, then profit from the sale of the land included in the assessable income if the primary purpose of the owner of the earth to enter into the transaction was to generate earnings or gain, or the transaction was initiated into and gain caused during of running of business activities, for running business operations, or commercial activities (Krever, and Sadiq, 2019). In this, ATO usually considers that, at the time of acquisition of land, the intention of profit-making should be present.
In the given case scenario of taxation law assignment, it can be noted that Tavis was a builder and acquired a block of land intending to hold it for two years and then sell it at a profit margin. However, because of lack of demand of buyer, he made construction on this land and leased it to the tenant in 2018, and afterwards, in 2020, townhouses were sold by Tavis. It can be identified that land was acquired with the intention of the generation of profit. In this situation, proceeds from such development of property are regarded as disposal of selling of trading stock because of the activities conducted by Tavis are similar to other property development projects. In this, deduction in the relation of the purchase and cost of development could be deferred until landowner sells the land.
Based on the above aspects provided in this taxation law assignment, it can be concluded that receipt from the lease is considered as ordinary income of Tavis. Further, on the sale of land that was trading stock, the proceeds from the sale areassessable income. Profit on sale of such townhouses is considered as ordinary income and not capital gain and connected cost are eligible for deduction.
In the given case scenario, the issue is related to the determination of the residential status of Sonia for the year ended in 2020.
Some distinct tests are used by ATO to assess whether an individual is a resident of Australia for income tax. These consists of – The Reside Test: If a person is residing in Australia, then he/she is considered as resident of the country. There are various factors which are taken into account for determination of this test, such as living arrangement, business, bank accounts, and some others (Burton, 2018).
If the person is not satisfied above criteria of residential status, then they are required to fulfil following one of the tests to classify as a resident of Australia for the income tax purpose.
The Domicile Test: If the domicile of the person is situated in Australia, then they are considered as an Australian resident for income tax (Dirkis, 2020).
The 183-Days Test: In order to satisfy this test, it is required that person should be present in Australia for a minimum of 183 days wither continuous manner or in parts.
The Superannuation test: This test is mainly for employees of the Australian government who work in overseas at Australian post are considered as an Australian resident for income tax (Blissenden, and Kenny, 2019).
In the legal case, Koitaki Para Rubber Estates Limited v FCT, it was held by the court, that usual place of residence of a person is determined by considering of the place where he/she usually eat, sleep, or reside. Although, section 6 of the ITAA 1997, expanded definition of a resident by consideringdomicile test and permanent place of residence. In the legal case, Harding v FCT, the court held that person is regarded as a resident of Australia under domicile test. It is because a person has a domicile in Australia such that they have not been went to another country intending to remain there in a permanentmanner (Jones, 2018).
In the present case scenario, Sonia was engaged in work at Vietnam for 18 months in July 2018. By considering the overall situation of case scenario, it can be stated that, as per reside test, she was not considered as resident of Australia because usually, she lived in Vietnam for employment. Although, based on domicile test, she is an Australian resident because she maintained a residence in Australia. Along with this, she also stored furniture, motor vehicle, and bank account in Australia. Moreover, at Vietnam, she resides at an apartment provided by the company, and it is not considered as a permanent place of residence.
Based onthe above aspects presented in the taxation law assignment, it has been concluded that, for the year ended 2020, Sonia is considered as resident of Australia under domicile test.
ATO: Prizes. 2019. (Online). Available through
ATO: Travel Allowances. 2019. (Online). taxation law assignmentAvailable through
Australian Taxation Office, 2020.(Online).Available through https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/#:~:text=You're%20an%20Australian%20resident,your%20permanent%20home%20by%20law. [Accessed on 08 September 2020]
Blissenden, M. and Kenny, P., 2019. Residence tests for individuals: Impact of the Harding decision. Taxation in Australia, 54(6), p.302.
Burton, M., 2018.Extending the tax expenditure concept in Australia. Austl. Tax F., 33, p.281. Dirkis, M., 2020. Moving to a More'Certain'Test for Tax Residence in Australia: Lessons for Canada?. Canadian Tax Journal/Revue fiscalecanadienne, 68(1), pp.143-168.
Freundenberg, B. and Minas, J., 2018. Reforming Australia's 50 per cent capital gains tax discount incrementally. eJTR, 16, p.317.
Jones, D., 2018. Complexity of tax residency attracts review. Taxation in Australia, 53(6), p.296.
Krever, R. and Sadiq, K., 2019. Non-residents and capital gains tax in Australia. Canadian Tax Journal, 67(1), pp.1-22.
Mayo, W., 2018.Time to upgrade Australia's company tax system from imputation to integration. Austl. Tax F., 33, p.753.
Taxation on benefits payments. 2019. (Online).taxation law assignment Available through