Taxation is imposed on the society so that the government is able to obtain funds in order to manage the society in an effective manner. In Australia the primary body which deals with issues related to taxation is the Australian tax office. The office also addresses issues in relation to aggressive Tax Planning globalization and the cash economy. The needs and expenditure of the society is taken into consideration by the tax office while determining the tax which is to be imposed.
The Australian taxation office regularly provides interpretive guidance in relation to taxation laws applicable in Australia which are known as ruling. Through such rulings advice is provided to the citizens in relation to taxation laws. The rulings make taxation laws simple and citizens can rely on them in case of a dispute.
The primary purpose of the Taxation Ruling 98/7 is to identify that goods in relation to packaging such as containers and labels in the possession of the wholesaler, retailer or manufacturer is a trading stock or not. The provisions of section 70-10 of the income tax assessment Act 1997 a simplified through this ruling as it provides circumstances in which goods held by the wholesaler retailer or manufacturer maybe a trading stock.
The provisions for deduction as provided through the ITAA 1997 are stated in division 416 and division 43 of the act.
The deduction of expenses from the income of a person which have been incurred in relation to legal compliance which are in relation to tax affairs or any other requirement related to tax is allowed under the provisions of section 25-5(1) of the ITAA. Further it has been provided by the section that penalty arising from subdivision 162 D of the GST act, General Interests charges, medical levy under the provisions of Bank Levy Act 2017 or getting valuation under section 31-15 or 30-212 are also to be deducted.
In the case of FC of T v Day 2008 ATC 20-064 it was ruled by the court at any expenses which have been borne by a person who is defending a legal claim filed by the employer of such person in relation to disciplinary proceedings is not of a private or domestic nature expense and cannot be regarded as an outgoing. Deductions will take place when section 8-1(1)(a) of the ITAA 1997 is satisfied as to the expenses which have been borne for gaining or producing an assessable income.
In the case of Federal Commissioner of Taxation v Wade – [1951] HCA 66 it had been ruled by the court that as trading stock is a revenue asset a compensation received against its loss would be treated as an income.
A person who has an assessable income of $75,000 will be tax at a rate of 32.5% over $37000 and 19% over $18200. Thus his total tax would be $3572+12350 which is $16012.
Net tax payable by a person is derived through the formula provided by section 4-10 of the ITAA. As per the formula the rate of tax is to be multiplied with the net assessable income and then deducted with any tax offsets.
Deductions in taxation refer to the amount which is to be deducted from the income of a person to determine the assessable income. Section 25-10 of the ITAA 1997 provides rules with respect to the situation where a repair initiated by a person are to be considered for the purpose of deduction.
When a repair of a roof is initiated whether the expenses incurred would be deducted or not depends upon the nature of the repair being capital or not. It has been provided by the judge in W. Thomas & Co. v Commissioner that roof repair is a capital expenditure. In this situation the contrary has been provided that the repair is done for maintenance. Thus as per the above section the $2400 expenses can be deducted.
The application of statutory as well as common law tests are done for the purpose of determining the residency status of a person for taxation in Australia. Section 6(1) of the ITAA 1986 provides definition of a person who is to be considered as an Australian Resident for Tax Purpose. The section states that the person is eligible for being taxed in Australia if his or her primary place of adobe is in Australia. Place of adobe signified place of residence. According to the facts of the case study Satya is now stating in Hong Kong as he has been transferred there before he could even complete a month as the resident of Australia. As per the domicile test he is not a resident as he does not have a place of adobe in Australia. In addition as per the 183 days test also he is not a resident for tax purpose as has only been in Australia for about a month. Further it has been provided through the case of IRCN v Lysaght [1928] that the frequency and regularity of visit is to be taken into consideration for determining residency status. However there have been no such visits by Satya and he is thus a non resident for tax purpose. Even when a person is not a resident for tax purpose in Australia they may be subjected to taxation in relation to those sources of income which are in Australia as provided through s6-5(3) of ITAA 97. In the given situation where it has been stated that Satya receives $40,000 worth rental income from his Australian property the amount would be treated as a taxable income for the year 2016/2017.
In this situation it has been provided that James has incurred expenses for traveling for an interview which accounts to $800. It has been stated by section 8.1 of the ITAA 97 for the purpose of being eligible to be deducted the expenses have to be incurred for gaining assessable income and not for private purpose. Here James is going to the interview for getting his assessable income and thus these expenses are to be deducted.
James has left Sydney for Canberra and has incurred $3000. Expensed which have been borne in relation to relocation due to change in workplace are not eligible to be deducted as per Tax Ruling TR 2017/D6. Thus these expenses cannot be eligible for deduction.
In then given situation James has used his private phone in non working hours for work purpose. Through the application of section 8.1 of the ITAA 97it can be stated that as James has used the phone for work purpose the expenses are to be deducted so the amount of $700 would be deductible under from his assessable income.
James has consumed meals from the canteen for $1000. Only when there has been an overnight stay can an employee claim deduction for expenses incurred for meals in relation to work as per Taxation Ruling 2017/D6. He has not stated overnight and the expenses are not liable to be deducted.
In this situation James has incurred expenses for the purpose of being travelling between his house and workplace which are of a value of $480. It has been provided by the ATO through TR 2017/D6 that expenses which the employees have borne for travelling between his house and workplace cannot be deducted. Thus the value of $480 incurred by James cannot be deducted.
|
Deductions from assessable income for the year 2016/17 for James |
||
|
PARTICULARS |
SECTION |
AMOUNT |
|
TRAVELLING COST FOR INTERVIEW |
Section 8.1 ITAA 97 |
$800 |
|
PHONE CALLS MADE FOR WORK |
Section 8.1 ITAA 97 |
$700 |
|
TOTAL DEDUCTIONS |
$1,500 |
References
Blakelock, Sarah, and Peter King. “Taxation law: The advance of ATO data matching.” Proctor, The 37.6 (2017): 18.
Brent v. Federal Commissioner of Taxation (1971) 125 CLR 418
Christie, Michael. “Principles of Taxation Law 2015.” (2015): 814-816.
Federal Commissioner of Taxation v Wade – [1951] HCA 66
Federal Commissioner of Taxation v. Stone (2005) 222 CLR 289
Ferguson v. Federal Commissioner of Taxation [1979] FCA 29 79 ATC 4261 9 ATR 873
Ho, Chi Ming, and Edward BW Tong. PBE.: Business Law and Taxation. Paper IV. Pearson Education Asia Limited, 2014.
Income Tax Assessment Act 1986 (Cth)
Income Tax Assessment Act 1997 (Cth)
IRC v Lysaght [1928] AC 234
Kelly v. FC of T (1985) 80 FLR 155
Lurcott v. Wakely & Wheeler [1911] 1 KB 905
ROBIN & BARKOCZY WOELLNER (STEPHEN & MURPHY, SHIRLEY ET AL.). AUSTRALIAN TAXATION LAW 2018. OXFORD University Press, 2018.
Scholes, Myron S. Taxes and business strategy. Prentice Hall, 2015.
STEPHEN. BARKOCZY. FOUNDATIONS OF TAXATION LAW, 2018. OXFORD University Press, 2018.
Taxation Ruling 97/23
Taxation Ruling TR 2017/D6
W Thomas and Co Pty Ltd v Federal Commissioner of Taxation – [1965] HCA 54
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