LAWS20060 Taxation Law

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LAWS20060 Taxation Law

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LAWS20060 Taxation Law

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Course Code: LAWS20060
University: Central Queensland University

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Country: Australia

Question 1
Advise your client on how the following items will be treated for tax purposes under Australian tax law:  i.Webjet frequent flyer points received by a business analyst employed by a large business consultancy firm in relation to work related travel paid for by the firm   ii.amounts received by a crane hire company from its customers for a damaged crane  iii.a free overseas holiday received by a nightclub manager from an alcohol supplier  iv.the return to its members of excess funds raised by a canoe club for the purchase of additional canoes  v.a payment made by a television station to an Australian footballer for being named the best and fairest in the AFL  vi.Expenses relating to a building qualification for a building apprentice    vii.Expenses relating to a short course in art management in the hope of becoming an art director  viii.Expenses relating to work make-up and work dresses   ix.Expenses relating to travel between home and office  x.Expenses relating to travel between one employer and another employer  Question 2: Manpreet is an international student studying an accounting degree at CQU, Sydney. She commenced her studies in term 1, 2016. In the 2016/2017 financial year she worked part time as an office assistant at an Accountant’s office to gain work experience in her chosen career and made $45,000 from that job. Manpreet also received $20,000 from her parents to assist her with her living expenses, and a $10,000 distribution from a trust account set up in India by her grandmother of which she paid $1,000 in foreign tax. She spent $18,500 on her studies, $2,000 on a computer and printer for educational purposes, and $500 on a new mobile which was required for work purposes.  Calculate Manpreet’s net tax payable for the 2016/2017 financial year, making reference to the taxation formula, the reasons for including or excluding specific items, your calculations, and the applicable tax law (sections of legislation and/or case law).

Answer to question 1:
Issue I:
The companies often provide reward to their consumers for showing loyalty. Whether the benefits received by consumers for showing loyalty are taxable or not is a matter to be discussed here. PS LA 2004/4 (GA) of practice statements by Law Administration will help us to understand the tax implications for consumer loyalty programs of companies and institutions that reward loyal consumers. The above practice statement, i.e. PS LA 2004/4 (GA), is to discuss the tax implications on consumer loyalty programs that reward consumers for their loyalties.
The views of Australian Tax Office on whether or not the rewards received by consumers for their loyalties are to be assessed as taxable income or fringe benefit are detailed in TR 1999/6 and TD 1999/34. The rulings in Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 ( Payne ) have also influenced the views to treat loyalty rewards. The general principles in relation to the consumer loyalty rewards benefits are mainly as following:

Rewards will be assessed as income in the hands of the recipients if it is shown that the reward is part of activity that contributes to the income earnings of the recipient provided that there is an established relationship between the recipient of rewards and the provider of reward and the reward is directly convertible into money or money’s worth.
According to section 21A of the ITAA 1936the taxpayer is carrying on a business and reasonably expected receive non-cash benefits from such business.

The reward received by a loyal consumer / customer would be included in the scope of fringe benefit tax under Fringe Benefits Tax Assessments Act, 1986 if there is an agreement between the employee and the employer to establish substantial connection between the employment and the reward.       
TR 1999/6:
The above ruling, i.e. TR 1999/6, is specifically on flight rewards that are extended to the loyal consumes by Airlines companies. The ruling provides that the rewards received from airlines companies are generally not taxable as income though fringe benefits tax can be imposed on the rewards if the following conditions are met:

There is a family connection between the employer and the employee and the flight rewards have been received by the employee in connection to the employment.
The flight rewards are provided to the employee under an arrangement.

The ruling further states that the rewards received by the frequent fliers from airlines companies will be subjected to income tax if the individual, who has received the reward, has rendered the services on the basis that there will be flight rewards entitlement that will accrue with the services and flight rewards are part of business expenditures of the employer.
Taking into consideration the discussion above it can be said that the Webjet frequent flier points received by the business analyst employed by a large business consultancy firm in relation to work related travel will neither be assessed as taxable income nor will FBT be imposed on such rewards.
Issue II:
In case of compensation received from the customers for damaged to a capital asset that has been damaged while services were rendered to such customers then such receipts will not be taxable in the hands of the recipient. However, following points are worth noting in this regard:

Firstly the asset should be a capital asset and should be in active use for business purpose of the recipient.
The amount has been received from a customer to whom services were rendered using such asset and the asset was damaged at that time.
The amount received has been used to repair the damaged part of the asset.
The asset is a depreciable asset and regular depreciation has been provided in the accounts in relation to such asset.

Thus, in case of amounts received by a Crane Hire Company for the damaged crane from its customers such amount will not be assessed as taxable income of the crane hire company provided the above conditions have been satisfied.
Issue III:
While discussing about the incomes that are not to be included in calculating the assessable incomes of tax payers in the country Australian Tax Office has broadly classified these incomes under exempt income, non-assessable non-exempt income and other amounts that are not to be included in calculating taxable income of an individual tax payer in the country. Gifts received from customers are not part of exempt income neither these are part of non-assessable non-exempt income. Gifts from customers to employees are part of other amounts that are not taxable. However, even under other amounts that are not taxable, ATO has specifically mentioned that rewards or small gifts such as cash gifts in birthdays and other small gifts.
The website has also specifically mentioned that only small gifts are to be excluded from calculating the taxable income of an individual thus, in case of large amount of cash gifts or gifts that can be converted into money or money’s worth directly is given to an employee by a customer then such amount will have to be included in calculating the taxable income of the recipient of such gifts.
Free overseas holiday packaged received by the nightclub manager from an alcohol supplier is not a small gift and also the fact that the gift has been provided by the supplier of alcohol is enough to include the amount of gifts in calculating the taxable income of the nightclub manager.
Issue IV:
The return to the member of a canoe club of additional funds that were raised for purchase of canoes will not be taxable in the hands of the recipient members since, the funds received by them were not income rather it’s the additional funds that were contributed by them to purchase canoes but not required as the funds collected were more than the requirements for such purchase.
Issue V:
TR 1999/17 has been made to deal with benefits received by sportsman due to involvement with sports. Any benefits received by a sportsman will be assessed as taxable income if such receipts are his income in the ordinary sense.
In this case the an Australian footballer has received certain payment from a television company for being the best and fairest player will be assessed as taxable income since a sportsman plays the game to perform to his highest level and in case any amounts are received for being the best then such receipts will be considered as income to such sportsman in ordinary sense.              
Issue VI:
TR 95/22 provides necessary ruling in relation to allowances, reimbursements etc. in relation to building employee. According to this ruling a building and construction employee includes the following:

Project manager and supervisor of a under construction building.
Labors working on construction of buildings.
Project manager to the construction site.
Carpenter including apprentice and trainees.
Joiner including apprentice and trainees.

Thus, expenses relation to a building qualification for a building apprentice as an apprentice has been defined as a building and construction worker for the purpose of reimbursements and other allowances.   
Issue VII:
Following expenses relating to short course in relation to an art to be an artist are allowed as deduction while computing the table income:

Course fees for such short course on art.
Training in different software and modules.
Cost of travelling to and from the course.
Recommended meal expenses.

It is to be noted that the above expenditures shall only be allowed as deduction if these expenses are related to such short course. Thus, even if any of the above expenditures are incurred but the same are not essential and necessary for such course then such expenditures shall not be allowed as deduction for taxation purposes.
Thus, the expenses in this case are allowed as deduction assuming that the short course related expenses are within the above ambit.
Issue VIII:
Performing artists related expenses are allowed as tax deduction as long as the individuals are recognized as performing artists. Performing artists are the following persons according to the ruling made by the Australian Taxation Office:

A person who is a musician will be considered as a performing artists.
An actor shall be considered as a performing artist.
A variety artist shall be a performing artist.
A singer shall be considered a performing artist.
A dancer as well as a circus performer shall also be regarded as performing artists.

In this case assuming that the expenses relating to work make up and work dresses are of performing artists then such expenses are allowed for tax deduction in computing taxable incomes of the performing artists.
Issue IX:
Generally the travel between the workplace and home is considered private travel though there are certain provisions that allow deductions for such travelling expenses. Provided the travel is strictly for official use and in case the travel is party official and partly private then only the part that is related to the official travel will be allowed as deduction.
Accordingly, in this case assuming the travel was strictly for work purpose the amount can be deducted while computing the taxable income.     
Issue X:
Expenses of travelling between two workplaces are allowed as tax deduction however, in case of travelling from one workplace under an employer to another workplace under a different employer then such expenses will not be allowed as tax deduction.
Hence, in this case expenses relating to travel between two employers are not allowed as tax deduction.
Answer to question 2:
Any person if has enrolled in any educational course in Australia and the course is of 6 months and more of duration then the student will be regarded as an Australian resident and will have to pay tax at normal rates as applicable to the citizens of the country. Since, Manpreet has enrolled into a course that supposed to last for more than six months she is an Australian resident for tax purposes and thus, liable to pay tax at normal rates as are applicable to any other citizens of the country. Accordingly. Let us calculate the taxable income of Manpreet first to assess her tax liability for the financial year 2016 /17. Based on the information provided about the incomes of Manpreet the assessable income of her for the financial year 2016/17 has been calculated in the following table keeping in mind the tax provisions of the country.
In Australia a resident individual will have to pay taxed according to the Income Tax Assessment Act 1997 if the assessable income a resident individual crosses the threshold limit of exemption. According to Income Tax Assessment Act, 1997 for the current financial year 2016-17 the threshold limit is $18200.00 in a year. Thus, those individuals with income less than or equal to $18200.00 for the current financial year will not have to pay any taxes to the Govt. of Australia. However, individuals with income in excess of $18200 in a year will be liable to pay taxes according to the rates provided in the Act.


 Amount ($)

 Amount ($)

 Amount ($)

 Salary from the work experience job of an accountant




 Living expenses received from parents  




 Less: Exemption of living income received from parents  




 Distribution from trust account in India  




 Gross Total Income  




 Less: Deductions:




 Educational expenses:  




 Expenses for studies  












 Work related deduction  








 Taxable income  


Table 1: Taxable Income
(Source: Created by Author)  
The tax rates in the country is as following for individuals considered as Australian residents:

For taxable income of $0.00 to $18200.00 an individual resident will not have to pay any tax thus, incomes up-to $18000.00 is tax free in the country for every individuals.
Taxable income between $18201.00 and $37000.00 will attract tax of 19c for each $1 over $18200.00
For individuals with income in excess of $37001.00 will have to pay tax $3572.00 plus 32.5 cents for each $1 in above of $37000.00 up-to $80000.00.
Those individuals with income in excess of $80000.00 will be required to pay $17547.00 plus 37 c for each $1 over $80000.00.

Since Manpreet is a normal resident for tax purposes in the country as the course she has enrolled in will last for more than 6 months the amount of tax she will have to pay on her assessable income is calculated in the table below:


 Amount ($)

 Up-to $18200.00


 From $18201.00 to $34000.00


Ally, M., Gardiner, M. and Lane, M., 2016. The potential impact of digital currencies on the Australian economy. arXiv preprint arXiv:1606.02462.
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Barone, A., 2015. A new economic theory of public support for the arts: evolution, Veblen and the predatory arts (Vol. 28). Routledge.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
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Burnett, C., 2015. Income according to ordinary concepts–the jurisprudence of Justice Graham Hill.
Dunne, J., Taylor, H., Batten, N. and Krapivensky, N., 2016. 2015 case review: High ATO success rate continues. Taxation in Australia, 50(10), p.609.
Dunne, J., Aldred, J., Gorton, T. and Taylor, H., 2015. 2014 cases show a continuing trend of high ATO success rate. Taxation in Australia, 50(1), p.20.
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Mayo, W., 2017. GAAP: An Analytical Study of Financial Accounting Standards (Doctoral dissertation, University of Mississippi).
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O’Keefe, W., 2017. A Comprehensive Review of Accounting through Case Studies (Doctoral dissertation, University of Mississippi).
Raftery, A., 2017. 101 Ways to Save Money on Your Tax-Legally! 2017-2018. John Wiley & Sons.
Shaw, S., 2016. Airline marketing and management. Routledge.
Staccione, A., 2017. Financial instruments for environmental risks and damage (Bachelor’s thesis, Università Ca’Foscari Venezia).

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