Australian Taxation Law Customs Duties

Question: Discuss about theAustralian Taxation Lawfor Customs Duties. Answer: Significance of Cases in the Development of Australian Tax Law In the ancient past, the Australian taxation system was based on the excise and customs duties. Gradually, the state governments in Australia introduced state income tax and then in early nineties, the Australian federal government introduced federal income tax. The coverage of types of transactions under income tax was limited in the early years of application of income tax. Further, the definition of income given under the taxation laws was also narrow and conflicting. Since the year 1915[1], the government of Australia has carried out developments at large scale in the area of income tax. The definition of income has undergone changes several times since the introduction of income tax regime. Before the year 1985, the capital gains tax was not introduced, which laid to conflicting issues in levying income tax on the commercial transactions. Since, the capital gains tax was not applicable; therefore, the taxation authorities had to make a rigorous exercise in deciding as to whether the profits earned on sale of land and properties are to be taxed as income or to be considered as capital receipt and hence no tax to be levied. Until the introduction of legal provisions on capital gains tax, the case laws pave the way for the taxation authorities in deciding as to which income is to be treated as profits chargeable to tax and which will be considered as capital receipt not assessable under income tax laws. Few of the prominent cases clarifying such issues are being discussed as under: Californian Copper Syndicate v Harris (1904) 5 TC 159 In the case of Californian Copper Syndicate v Harris (1904)[2] the issue of taxation of the profits on sales of land was taken up. The taxpayer company sold a piece of land acquired for mining and mineral extraction purpose in exchange of shares. The issue arose that whether the profit earned on such sale transaction should be taxed as income or be deemed as mere capital receipts and not to be taxed hence. At that time when this case was taken up, the capital gains tax was not in the legal system of Australian taxation. Therefore, if the transaction did not satisfy the conditions of the income, the profit was not taxable at all. The conflict as regard taxation of profits was mostly in the cases involving transactions of purchase and sale of land. In this case, the court observed that in order to conclude that the profit is taxable as income, it is essential to make sure that the land was used in business with the explicit or implicit intention to make profit. Thus, the existence of profit motive is critical to bring the profits earned on sale of land under the ambit of tax. Further, another principle was laid in this case which assists in determination of the fact that whether the taxpayer had profit motive or not. The determination of profit motive is to be looked in the light of various dimensions. The court put down out that no single factor could be fixed to determine the profit motive of the taxpayer. This case law provided direction to the taxation authorities to for determination of the profit motive of the taxpayer. Therefore, in this way, the case of Californian Copper Syndicate v Harri helped in administration of the income tax laws in Australia. This case law provided a solid foundation to the taxation authorities to finalize the cases involving conflicts at the very first stage without going through the time consuming litigation process. Whitfords Beach Pty Ltd v FCT 82 ATC 4031 This case also came in front of the honorable judges of the court before the promulgation of the capital gains tax by the Australian government. The issue involved in this case was also the same as attained in the case of Californian Copper Syndicate v Harri. However, the circumstances of the case were different this time. In fact, this time the major issue was whether the isolated transaction done by a taxpayer falls under the ambit of transactions in the ordinary course of business. After considering all the facts and evidences of the case, the court gave its judgment making it clear as crystal that the isolated transactions if carried with the profit motive would be liable to tax. The decision in this case further clarified the conflicting issues in the taxation of profits. The judgment of this case provided a foundation for tax ruling TR 92/3[3]. The Australian taxation authorities issued TR 92/3 to provide rules in regard to taxation of the profits earned on the isolated transactions. The ruling TR 92/3 provided proper explanation on the isolated transactions and the tax consequences of those transactions. Further, the ruling comprehensively clarified as to which type of transactions will fall under the isolated transactions category and which types of transactions will be covered under the tax net. Further, the landmark decisions in the case like Whitfords Beach Pty Ltd v FCT also pave the way of promulgation of the capital gains tax in Australia. Myer Emporium Pty Ltd v FCT 87 ATC 4363 The high court of Australia pronounced its decision in the case of Myer Emporium Pty Ltd v FCT in the year 1987[4]. In this case, the decision of the court further clarified the law regarding taxation of the profits derived from business activities. The court undertook comprehensive discussion on the nature of revenues and capital receipts. It was later on claimed that the decision in this case widened the scope of income which helped the income tax authorities in levying tax on the commercial transactions with more clarity. There was not any proper definition of the term income in the income tax assessment act 1936. The absence of proper definition of income laid many conflicts in regard to taxation of the profits earned from the isolated transactions. The main reason of conflict was difference in taxation of the capital and revenues receipts. The revenues receipts or profits were liable to tax while the money receipts of capital nature were not liable to tax until the promulgation of the capital gains tax. In the absence of proper definition of income it was quite contradictory to decide as to which receipts are of revenue nature and which are of capital nature. Further, the provisions of income tax assessment act 1997 were also not clear in regard to definition of income. There is a very casual definition of income given in section 6-5(1) of the income tax assessment act 1997. This section provides that the assessable income means the income in ordinary sense. There are no further clarifications and explanations on the term ordinary income. Thus, the clarification in regard to the term, income is not sufficient in the income tax assessment acts. Therefore, the case of Myer Emporium Pty Ltd v FCT assumes importance in the area of defining the term income neatly. Introduction of the Capital Gains Tax and Its Impact on the Landmark Cases The capital gains tax was introduced in Australia in the year 1985[5] with the primary of objectives bringing the profits on sale of capital assets like property under the tax net. Prior to the year 1985 when the capital gains tax was not introduced, the conflicts in taxation in regard to levy of tax on the profits earned on sale of capital assets were common. The capital receipts were not taxable prior to introduction of capital gains tax therefore the taxpayer were used to claim the sale of assets like land as capital receipts to escape from tax. The conflicts between the tax authorities and the taxpayers were observed on several grounds which gave rise to litigations. Thus, prior to introduction of the capital gains tax, the conflicts between the tax authorities and the tax payers were used to resolve through litigation process. There many cases such as Californian Copper Syndicate v Harris (1904) 5 TC 159, Whitfords Beach Pty Ltd v FCT 82 ATC 4031, and Myer Emporium Pty Ltd v FCT 87 ATC 4363, which have been referred since years to resolve the conflicts. These cases provide comprehensive explanations in regard to taxation of land and other capital assets. However, after introduction of the capital gains tax the application of these cases has been limited. The income tax assessment act 1997 provides a thorough coverage of the capital gains tax. The provisions of capital gains are contained in chapter-3 of income tax assessment act 1997[6]. This chapter covers definitions, explanations, and allied matters as regard capital gains tax in a great detail so that the likelihood of conflicts could be diminished. However, it should be noted that though th e application of case laws as discussed above is limited after introduction of capital gains tax, but still the principles laid down in these cases holds importance in laying the foundation of the law and carrying the objectives of law forward.