Core Tax Legislation And Study Guide Essay


Discuss about the Core Tax Legislation and Study Guide.



The existing case study is takes into the considerations the subject whether the or not selling of property would be held assessable under 6-5 of the ITAA 1997. The case study commences with Smith and Jones who are engaged in the activities developing property and used a block of land for sheep grazing (Barkoczy, 2016). As a result the business suffered from loss which led Smith and Jones to subdivide the land and selling it.

In order to determine the issue numerous laws have been considered which are stated below;

  1. Taxation ruling 92/3
  2. Ferguson v FC of T (1979);
  3. FC of T v St Hubert’s Island Pty Limited 78;
  4. Section 25 (1) of the ITAA 1997;
  5. Section 70-10 of the ITAA 1997;
  6. Division 70 of the ITAA 1997;
  7. Section 995-1 of the ITAA 1997;

As defined by the Australian taxation system the outcomes of dealing in property or land will be considered for assessment based on numerous segment of taxation law (Jones & Rhoades, 2013). There are two elements that are taken into the consideration at the time of determining the regimes of taxation namely the sale of property or land is applicable during the transaction together with the summary of the taxpayer. According to the general rule if the land is sold it will constitute the constituent of trading stock or revenue asset in nature. Therefore, disposal of land will be considered as an ordinary income. If a land is disposed in the form of capital asset in nature along with the income generated from such transaction, will give rise to CGT event and will be considered as capital gains tax (Miller & Oats, 2016).

As defined under division 70 of the ITAA 1997 if disposal of property Management constitute part of business that is associated to development then such property will be considered as trading stock. In the current case study the issue that has arise is ascertain whether the activity of property is associated with the developing business (Kotha & Jha, 2014). Section 995-1 of the ITAA 1997 defines business as the profession or trade that is carried with the objective of earning profit. Referring to the case of Ferguson v FC of T (1979) carrying of business activities with the objective of earning profit represents as the subject matter of fact (James, 2013). Furthermore, Section 70-10 of the Income Tax Assessment Act 1997 states trading stock as anything that is linked with process of manufacturing, purchasing or acquiring and holding land in the ordinary course of business.

As held in the case of “FC of T v St Hubert’s Island Pty Limited 78” land is regarded as the part of trading stock if the land is bought with the purpose of reselling the same (Sadiq et al., 2013). Hence it turns out to be fundamental in the ascertaining the purpose of acquiring the land. As it has been noticed in the current case, Smith and Jones are engaged in the business activities of property development. On considering the business nature, the block of land should be considered as inventory. Furthermore, on evaluating the present case it is understood that the block of land was initially used for grazing sheep and the land was also improved for the same purpose. Upon evaluating the existing scenario the particular block of land that was acquired could not be considered as land that was originally acquired for executing the business activities of trading stock.

The land that was bought by Smith and Jones was not primarily bought with the purpose of reselling it again however, the land was subsequently held for that same objective. As defined under the taxation rulings of 92/3 it lays down the guidance in ascertaining whether the revenue generated from the isolated transaction should be considered for assessment in the assessable income stated under section 25 (1) of the ITAA 1936 (Coleman et al., 2013). As stated under Para 6 of the taxation rulings 92/3 income, which is derived from the isolated transaction, should be regarded as ordinary income given that the original objective of the transaction was to derive profit. The taxation ruling of 92/3 states that the taxpayer enters into such transaction with the objective of generating profit in the ordinary business course (Burton & Sadiq, 2013). As defined under Para 7 of the rulings the original purpose of the taxpayer was to derive income and such income should be based on facts instead of being subjective.

As defined under Para 8 of the of the taxation rulings 92/3 the purpose of the taxpayer is not obligatory in determining the ultimate reason of entering into such transaction (Woellner et al., 2017). Hence, it is not obligatory for the taxpayer to have the original intention of generating profit at the time of acquiring land. In addition to this, Para 13 of the taxation rulings 92/3 defines certain criterion which is necessary to be adhered in ascertaining whether or not isolated transaction must be treated as ordinary income. As evident in the present study, the land was primarily purchased for grazing sheep. Since the business was suffering loss, the land was subdivided into blocks and was disposed to generate profit (Morgan et al., 2016). The profit earned from selling of land constitutes the element of isolated transactions and it must be included as ordinary income defined under section 6-5 of the ITAA 1997.

From the above study case, it is understood that transaction of selling Management land should be considered as isolated transaction defined under taxation rulings of 92/3. The income generated from the selling of land by Smith and Jones will be treated as ordinary income under section 6-5 of the ITAA 1997.

Statement showing Depreciation amount


Base Value

Days held

Effective life

Depreciation Amount


$ 1,00,000.00



$ 20,000.00

Equipment and Furniture

$ 1,50,000.00



$ 30,000.00

Security System

$ 30,000.00



$ 5,753.42


$ 60,000.00



$ 12,000.00


$ 67,753.42

Under the current case study, accrual method of accounting must be followed in assessing the taxation income. As defined under the Para 18 of the taxation rulings 98/1, earnings generated by the employer should be evaluated under the cash basis (Robin & Barkoczy et al., 2016). Para 20 of the taxation rulings 98/1 further lays down that cash basis method of earning should be regarded as suitable method.

Taxation rulings of 92/18 defines that bad debt allowed should be considered for deduction given the income given the income forms the part of assessable income (Barkoczy et al., 2016). The taxation rulings define that bad would not be allowed for deduction if the taxpayer follows the cash basis of accounting. If the bad debt is allowed as deduction then the recovery bad debt should be considered as taxable.

Travelling expenditure incurred from home to the place of work is regarded as private and deduction for travelling expenses cannot be claimed as deduction by the taxpayer.

As defined under section 25-75 of the ITAA 1997, an entity can claim for deduction for expenses incurred in rent and rates on the premises used for business activities.

Division 28 of the ITAA 1997 provides deductions for car expenditure. In the existing scenario, the expenses related to motor vehicle should be considered as deduction.

Depreciation in the current case study calculated under the straight-line method on assuming the effective life of the assets.

Reference list:

Barkoczy, S. (2016). Core tax legislation and study guide. OUP Catalogue.

Barkoczy, S., Nethercott, L., Devos, K., & Richardson, G. (2016). Foundations Student Tax Pack 3 2016. Oxford University Press Australia & New Zealand.

Burton, M., & Sadiq, K. (2013). Tax expenditure management: a critical assessment. Cambridge University Press.

Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., McLaren, J., ... & Sadiq, K. (2010). Principles of taxation law. THE AUSTRALIAN TAFE TEACHER.

James, S. (2013). The Economics of Taxation: Principles, Policy and Practice: 2013/14. Fiscal Publications.

Jones, S., & Rhoades-Catanach, S. (2013). Principles of Taxation for Business and Investment Planning, 2014 edition. McGraw-Hill Higher Education.

Kotha, A., & Jha, K. (2014). Taxation Law-Fall 2014.

Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.

Morgan, A., Mortimer, C., & Pinto, D. (2016). A practical introduction to Australian taxation law 2016.

Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al). (2016). Australian Taxation Law 2016. Oxford University Press.

Sadiq, K., Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., ... & Ting, A. (2012). Principles of taxation law 2012. Thomson Reuters.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2017). Australian Taxation Law 2017 27th edition. OUP Catalogue.

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