Tax Law

Name
Instructor
Course
Date
Tax Law
Question 2
The primary taxes which are levied under the Australian laws are the income taxes which includes the capital gains tax, withholding taxes, and taxes for the services and goods. The central tax legislation governing the taxation of trade activities are the Income Assessment Act of 1936 and the Income Assessment Act of 1997 as amended. For the tax purposes, individuals resident in Australia if they are domiciled in Australia, has spent more than half of the year in the country unless the commissioner of tax is satisfied that the individual is domiciled outside the country.
In the present case, John is a self-employed architect who bought the house because it had a room which could be modified for use in architecture business. However, the room made up only 15% of the whole house. In essence, although John is entitled to pay taxes for his income, he is eligible to deductions of the expenditures incurred in the production of income. The expenses that are deducted from his income must be wholly and exclusively incurred in the production of income.
The question of what is wholly and exclusive has been considered in several cases. In the case of Prince V Mapps, the court stated that the phrase entirely and exclusively means that the expenditure is only for the particular business. The court went on to state that if the expenditure was partly for business and partly for private or domestic purposes, then it will not meet the wholly and exclusive test.

The implications are that of the expenditure has any element of private or leisure; then it is blocked in entirety. In the case of Mallalieu v Drummond, the court held that the expense which had both professional and non-professional element was not applied exclusively in the generation of income. In section 16(1) of the “Income Assessment Act,” revenue expenditure is only allowed when it is used solely income generation. Thus, for any expenditure to be allowed, then it must be provided expressly under the law.
John bought the house because 15% of its which was a single room could be used for the architectural business. In this regard, the expenditure which he incurred was not exclusively for the income generation. On this basis, it does not form part of the expenditure which can be deducted in his taxable income because part of it was for his private purposes. After purchasing the house, he had to build install a new door, which enabled clients to enter the room without going through the main living area.
Further, John incurred cost in the payment of fines to the authorities for not acquiring a permit to install the door as well as the cost incurred in acquiring a better carpet for the room. John has also bought a desk and kept it in the room which he uses for his work. This desk appears to be in use for private purposes and not in the production of income and therefore makes the whole expenditure incurred in the modification of the room not to qualify for deductions. John has a car which he uses 72% for the work purposes; therefore, the expenditure in the car has a private element, and it is not solely for the generation of income. My advice to John is that he is not going to get any deductions on the transactions when computing his taxable income. In May 2018 John sold the house for $1,855,000 and the antique desk for $3,850. The buyer of the house will pay real property tax. He will pay his income tax from the income with the income from the sales included.
Bibliography
Income Assessment Act of 1997. Australian Government. Retrieved from; https://www.legislation.gov.au/Details/C2017C00282 (Accessed, October 1, 2018)
Mallalieu v Drummond (H.M. Inspector of Taxes). 1983 BTC 39. Retrieved from: https://library.croneri.co.uk/cch_uk/btc/1983-btc-39 (Accessed, October 1, 2018)
Prince v Mapp (H.M. Inspector of Taxes) (1) (1967-71) 46 TC 169. Retrieved from: https://library.croneri.co.uk/cch_uk/btc/46-tc-169. Accessed, October 1, 2018)