Evolution of ATO Compliance Model †Free Samples to Students

Question: Discuss about the Evolution of ATO Compliance Model. Answer: Introduction: The present case study raises the issue relating to whether or not the sale of property can be held taxable under defined under section 6-5 of the Income tax assessment act 1997 (Barkoczy 2016). The existing issue is associated with Smith and Jones who are engaged in the business activities of development of property and also used the block of land for sheep grazing. Upon assessment, it is discovered that the business resulted in loss, which led the taxpayer to subdivide the land and selling the same. Application: The consequences of transacting in property or land will be taken into the considerations for assessment defined under several different portions of taxation law (Anderson, Dickfos and Brown 2016). There are two elements that have been taken into the considerations while determining the regimes of taxation, which is application on the disposal of sale or property or land, represents the nature of the dealings together with the taxpayers summary. According to the general rule selling of land forms the part of the trading stock or revenue asset in nature and such selling of land will be considered as the ordinary income. Conversely, if the land is disposed it is considered in the form of capital asset and the revenues that is generated from the selling of land forms the part of the capital gains tax for treatment (Brooks 2016). Division 70 of the ITAA 1997 defines that if the selling of property forms the part of business that is associated with the development then such kind of property will be considered as trading stock. Therefore, the issue that has arisen in this context is to determine whether the business activities of property is related to development (James 2016). As defined under section 995-1 of the Income Tax Assessment Act 1997 business is defined as the profession or trade carried out with the purpose of profit. As defined under the case of Ferguson v FC of T (1979) whether the business that is executed symbolizes as the subject matter related to fact. Furthermore, section 70-10 of the Income Tax Assessment Act 1997, states trading stock that is associated with the manufacturing, purchasing, acquiring or holding anything during the ordinary course of business (Braithwaite and Braithwaite 2016). As defined under the case of FC of T v St Huberts Island Pty Limited 78 land can be regarded as the part of trading stock if the same is acquired with the purpose of reselling it again (King 2016.). Hence, it forms obligatory in ascertaining the purpose of property development. On viewing the business nature, the block of land can be treated in the form of inventory. On the other hand, on evaluating the current scenario it is ascertained that the taxpayer with the objective of sheep grazing primarily used the block of land and the land was improved for that same objective. On analysing the current situation, it is understood that the particular block of land could not be treated as land that was primarily acquired with the objective of carrying trading stock (Jones 2016). It is noteworthy to denote that the land not acquired by Smith and Jones with the objective of reselling it, subsequently the land was held for that same purpose. As stated under the taxation rulings of 92/3 it lays down the guidance in determining the whether the income generated from selling of Isolated transaction should be held for assessment at the time of determining the assessable income defined under section 25 (1) of the ITAA 1936 (Long, Campbell and Kelshaw 2016). Furthermore, Para 6 of the taxation rulings 92/3 states that income that is derived from the isolated transaction should be considered as ordinary income given that the primary intention of selling such land was to derive profit during the ordinary course of business. Para 7 of the taxation rulings 92/3 provides th at the original purpose of the taxpayer should be to derive profit on the basis of facts and it should not be subjective. As defined under the Para 8 of the taxation rulings 92/3 the primary purpose of the generating profit does not need to be the ultimate reason of entering into the transaction (Morgan, Mortimer and Pinto 2016). Hence, it forms essential to possess the objective of making profit at the time of acquiring land. As defined under Para 13 of the taxation rulings 92/3 there are certain kinds of criterion that needs to be met in order to determine whether or not the isolated transaction should be taken into the considerations under the heads of ordinary income. As evident from the following case study that Smith and Jones acquired land with the objective of carrying out the objective of sheep grazing. On suffering loss in their business they undertook the decision of subdividing the block of land to generate profit. Therefore, the profit that is generated from the business activities would be considered as isolated transactions and will be included for assessment as ordinary income under sect ion 6-5 of the ITAA 1997 (Robin, Barkoczy and Woellner 2016). Conclusion: To conclude with as defined under the taxation rulings of 92/3 it is found that the business transaction of selling land will be held for assessment under the heads of isolated transaction. Therefore, the sum of income that is generated from such kinds of transaction should be treated under the heads of ordinary income under section 6-5 of the ITAA 1997. According to the Para 18 of the taxation rulings 98/1 income generated by the employer should be held under the cash basis. On the other hand, Para 20 states that earning method is the most suitable method for determining the income generated by the business (Russell 2016). Therefore, as evident from the current case accrual method of accounting must be used in the determining the taxable income. The taxation rulings of 92/18 states that bad debt should be treated in the form of deductions given that the income is included in the assessable income. according to the taxation rulings of 92/18 bad debt should not be considered for deduction if accounting for cash basis is followed (Woellner et al. 2016). On allowing the bad debt for deduction then the recovery of bad debt should be treated as taxable. Travelling to workplace from home should be regarded as private and the taxpayer cannot claim deduction for the expenditure incurred for the same. As defined under section 25-75 of the Income Tax Assessment Act 1997, an organisation cannot deduct the sum that is paid as rent and rates on the premises used for business purpose. As stated under Division 28 of the ITAA 1997, an organisation can claim for deduction for the sum paid relating to rent and rates on the premises used for business activities. Reference list: Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?.INSOLVENCY LAW JOURNAL,24(2), pp.127-140. Barkoczy, S., 2016. Foundations of Taxation Law 2016.OUP Catalogue. Braithwaite, V. and Braithwaite, J., 2016. Managing taxation compliance: The evolution of the ATO Compliance Model. Brooks, M., 2016.The long arm provisions of capital gain tax: An analysis of the capital gains tax consequences on the indirect disposal of immovable property by non-residents in selected African Countries(Doctoral dissertation, University of Cape Town). James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics.International Journal of Critical Accounting,8(5-6), pp.345-362. Jones, D., 2016. Capital gains tax: The rise of market value?.Taxation in Australia,51(2), p.67. King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2.Taxation in Australia,51(1), p.12. Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in Australia.St Mark's Review, (235), p.94. Morgan, A., Mortimer, C. and Pinto, D., 2016. A practical introduction to Australian taxation law 2016. Robin BarkoczyWoellner (Stephen Murphy, Shirley Et Al), 2016.Australian Taxation Law 2016. Oxford University Press. Russell, T., 2016. Trust beneficiaries and exemptions from CGT: reflections on the Oswal litigation.Taxation in Australia,51(6), p.296. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016.OUP Catalogue.