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HI6028 Australian Income Tax System: Taxation Theory And Law Tutorial Questions Assessment Answer

Assessment Task – Tutorial Questions

Unit Code: HI6028

Unit Name: Taxation Theory, Practice & Law

Assignment: Tutorial Questions

Weighting: 50%

Total Assignment Marks: 50 Marks

Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit

Unit Learning Outcomes Assessed:

  1. Demonstrate an understanding of the Australian income tax system, the concepts of income and deductions, taxation of company, GST, general anti-avoidance provisions and income tax administration, partnership
  2. Identify and critically analyse taxation issues;
  3. Interpret the relevant taxation legislations and case law;
  4. Apply taxation principles to real life problems.

The questions to be answered are;

Question 1 - Week 2 (7 marks)

Pablo is a Portuguese resident employed by a Portuguese company. He is sent to Australia to work on a short- term project to assist with the establishment of a branch office of the company in Australia. Pablo works in Australia for one month. Throughout this period, his salary was paid into his Portuguese bank account. During the year, he earned the equivalent of A$120,000 from his employment. Does Pablo have to pay Australian tax on any of his salary?

Question 2 - Week 3 (7 marks)

Explain the respective outcomes reached by the courts in the following case involving sales of land: Californian Copper Syndicate Ltd v Harris

Question 3 - Week 9 (7 marks)

Surfs Up P/L is a national retailer that sells a range of surfing and water sports equipment (surfboards, clothing, etc.) with an annual turnover of $60 million. Surfs Up purchases “Billapro” surfboards for $440 each from Billapong P/L, a large manufacturer of surfboards located at Gold Coast with an annual turnover of around $45 million, this was their only sale for the month. Surfs Up plans to sell the Surfboards at a 200% mark-up to its customers. In October last year it purchased 370 surfboards but a couple of months later (December) they discovered that 14 of the surfboards were faulty and subsequently returned these faulty surfboards to the manufacturer, obtaining a full refund. Assume both apply the accrual method of accounting.


Explain the GST consequences of this arrangement for both companies.

Question 4 - Week 10 (11 marks)

Melbourne Awesome Ltd supplies a wide range of folding bicycles. Melbourne Awesome Ltd derives Australian sourced income for the current tax year comprising net income from trading of $80,000, franked distribution from public companies amounting to $28,000, (carrying an imputation credit of $12,000), unfranked distributions from resident private companies amounting to $25,000 and rental income of $5,500. Melbourne Awesome Ltd also have total deductions (Business Expenses) totaling $55,000.


Calculate the net tax payable by Melbourne Awesome Ltd for the year ended 30 June 2019. (Assume company tax rate is 30%)

Question 5 - Week 11 (7 marks)

Discuss the ATO’s ‘Test Case Litigation Program’

Question 6 - Week 12 (11 marks)




According to a given case study, Pablo is a resident of Portugal and working for a Portuguese organization but transferred to an Australian organization only for the short term. Thus, Pablo has worked there for at least one month, but his salary has been paid in a Portuguese bank account, which is equivalent to almost AUS$120000. In this case, a legal issue raised that whether Pablo is liable for paying tax to the Australian government or not. It means that whether Pablo is considered a tax resident of Australia (Lanis & Richardson(2013)

           As per the Australian tax law, an individual need to fulfil or pass the three significant conditions for understanding the tax residency such as; 

  • Domiciling rule; In this provision, an individual need to be a permanent resident of the Australian nation to become liable for paying tax or to be considered as a tax resident. 
  • 183 Day Test; As per this norm, a person who is living in Australia at least for 183 days or more than he/she is going to liable for the tax. It means that an individual need to complete the tax period of 183 days to become a tax residency in Australia (Weisbach(2013)
  • The Commonwealth superannuation test; If a person is a part of a member of CSS and PSS strategy, he/she is liable for tax in Australia and count as tax residency of a country. 

           By analysing these above provisions of Australian tax laws, it has been understood that Pablo is not fitted on any of the above domicile conditions. Pablo has worked only for one month in an Australian company, which proves that he has not completed the test of 183 days and not working as a member of the CSS as well as the PSS scheme. Therefore, the above norms prove that Pablo is not responsible for paying taxes to the Australian government (Best and et. Al., (2015)


In the given case scenario, Californian copper syndicate organization which indulge in the operation of mines and various other associated business. This firm obtained few mines for accomplishing business operations. Furthermore, the business hasn't worked on the mines and sold it to another organization in order to enjoy the capital appreciation on mines' value (McGuireOmer & Wang, (2012)

           The legal issue raised in this case when the firm has resisted that value of mines has been maximized, and its selling is only the reformation in the book investment. Along with this, it believes that working accomplished on mines as a working business is not a part of earnings due to which firm is not liable to pay tax to the Australian government. On the contrary to this, the officer of income tax is contending that the stated amount is known as business income because it's a part of organizational activities, and it will have considered as an entity earning. Moreover, it is also known as business activities and adventure in the transactions (Luttmer & Singhal(2014)

           By considering the legal laws, the honourable judge has outlined that any transaction that falls under taxability needs to be a part of business activity and involves the adventures. These transactions are usually incorporate under business, whereas the only maximization of investment value and reformation in various investments is not considered as taxable income but its only profit. As per the current scenario, mines are brought by a Californian organization with the motive of generating profit due to which it includes under the overall business earnings of an entity. Thus, a Californian organization will surely have considered or liable for tax on this profit towards the government (Lanis & Richardson, (2012).  


In this scenario, two firms are involved; one is Surf up P/I, and another one is Billabong p/I in which surfs up has purchased few surfing boards from Billabong p/I organization at $440, but few surfing boards were returned by Surf up p/I due to the defective issue. Thus, the main problem which needs to measure in this case is the consequences of tax for both the companies. 

Consequences on Surfs up P/I

           According to this case, Surf up P/I is a purchaser of the surfing board, but this firm has returned almost 14 of the board to the seller. However, the main objective of Surf up P/I organization to re-sale the surfing board to final consumers on almost 50% mark up of company purchase from Billabong P/I. Surf up has brought the surfing boards from Billabong at almost $440 in which the GST amount has been included, which is around $40. Therefore, this amount has already included the GST for the buyer of an organization and can be set off with the output of an entity's tax whenever the company will further sell the products (Palil & Mustapha(2011)

           A few days later, surf ups P/I have returned the few of surfing board to billabong p/I. Therefore, on this purchase return, the input credit of GST is going to be reversed as per suitable GST law. It means that the deduction of input balance is essential in the available month of return, including GST on returned items. 

Consequences on Billabong P/I 

Billabong P/I is surfing board company who has sold the goods to the surf up P/I in that month when sales have been already accomplished and firm have to pay few output tax liabilities including GST to tax officer. According to legal norms, whenever seller or an individual received the returned products as a sales return then in these kind of cases receiver needs to minimize the output tax liability of that particular month. Therefore, legal law states that Billabong needs to reduce its output tax liability for that month in which returned goods has been received back by company. Whereas if there is absence of any tax liability in that specific month then the firm needs to carry forward this advantage (Coulton & Ruddock, (2011).  


Income tax payable is a concept that is given to an organization as a liability by governing authorities on their monthly income wherever a firm or an individual operates. Mainly, the amount of liability depends upon its profitability while a specified time period and applicable on the basis of tax rates. It’s an indispensable amount for every organization because Tax is charged by the country's government from every individual to enhance the nation with outstanding facilities (Barbuta-Misu(2011). According to a given case study, Melbourne Awesome Ltd organization is supplying a broad range of folding bicycles. Thus, this case's main objective is to identify the Tax payable income of Melbourne by calculating with the help of various suitable formulas. 

Net income from trading
$ 80000
Franked Dividend
$ 28000
Unfranked Dividend
$ 25000
Rental Income
$ 5500

Less: Deduction
$ 55000
Taxable Income
$ 83500
Tax on taxable income
$ 25050
Less: Credit of franked dividend
$ 12000
Net tax payable
$ 13050

According to the above calculating, it has been identified that after deducting various income and expenses, almost $13050 is net tax payable of Melbourne Ltd company which firm needs to pay at the end of financial year or month. 


ATO test case litigation program is a popular event conducted by the Australian government's tax officer's, and authorities launch this program for providing financial assistance to the requisite people who need advice on law matters. In this event, the main department is supporting assess of a program in meeting all the legitimate costs of few legal expenses. Assess requisite to fulfil the essential criterion for obtaining advantages under said event (Palil and et. Al., (2013). Therefore, to get selected, a certain criterion which needs to satisfy by a person and meet the necessary conditions such as; 

  • Whenever the subject matter of case requisite the answer to legal queries like; how the legal laws are operating or working in practice. 
  • The case is related to the public interest, and the user of the law might be a part of society for many years. 

Therefore, the test case litigation program offers the final help to taxpayers for helping them and reasonable litigation expenses for ATO-law-associated judgments that fulfil the particular funding criterion or expectations. Uncertainty or contention on a law's working indicates that law is ambiguous with minor or absence of any judicial clarification on a particular issue. It will not base on conflicts which rely on queries of facts (KamleitnerKorunka & Kirchler, (2012). Additionally, for meeting the criterion of funding, the case needs to have either; 

  • Important to a substantial portion of the public, 
  • Essential commercial implications for the sector. 

It signifies that there are various taxpayers who get influenced, industry, and community perspectives that the problem is uncertain or antagonistic. When there is a need for application, it's important for the case to meet the program's criterion and expectations with the use of test case funding application form. Applications are seen by a panel that consists of three extrinsic specialists and two other senior executives of the ATO program. For applying to Test Litigation Program, it is essential to give respect to the member of the program via respectful words such as; 

Test Case Litigation Program

Australian Taxation Office

GDO BOX 0000

Sydney NSW

It’s a greeting text which needs to be considered by every individual who is applying on Test litigation program for gaining experts attention. 


a) Net Income of Partnership organization- As per the scenario of Richard, Tract and their daughter named as Alice has initiated the company in partnership denoted as “Alice’s gift shop”. As a result, three of them has created a partnership contract by including all the necessary terms and considerations. 

Net income of Partnership firm

Amount ($)

Cost of goods sold
Interest on capital paid to Richard and Tracy
Lease payments on car (7000*80%)
Other deductible operating expenses

Net income of partnership firm

According to the above calculations, contributions of salary and superannuation is not going to subtract from the net earnings of this partnership organization. 

b) Distribution of net income- 

Allocation on net income


Share in the net income of partnership firm [($82,400- $25,000 - $6,000)] / 3
Salary paid to Alice
Superannuation contribution
Interest on capital

Total share

c) Referred case law- As per the calculations accomplished in above scenario, “Scott v. Federal Commissioner of Taxation” case law is appropriate on this situation. According to the Scott case, salary which is paid to all the partners is not going to allowable expense while calculating overall income for partnership entity. It means that partner is paying salary to themselves because they believe that he/she is one of the member who owning the partnership business. In this case, partners are performing as an agent of an organization instead of employee who is having an authority to obtain salary. Just like this, the superannuation contribution will also not have deducted from the net income of partnership entity. Moreover, ITAA act also indicates that partnership firm is always considered as separate legal business whereas its partners need to file a return on income tax department. 

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