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Assessment 1 of Blo2206 Taxation Law and Practice

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Assessment 1 of BLO2206 Taxation Law and Practice

Topic:Distinguishing a hobby from a business, explaining how legislation and case laws determines whether an activity is a business or hobby. Further to make a comment on the impact of a determination by the ATO on whether a taxpayer’s activity is actually a business.

Distinguishing a Business from a Hobby

Activities are classified in terms of a business or a hobby and it is important that the two are separated. The difference depends on whether the activity is being carried for tax purposes or not. It is of great importance for the taxpayer to take into a consideration whether an activity they are involved in is for commercial purposes or whether it is situated in an …show more content…

On issues of assets which are owned by the taxpayer all the assets are taxable except the assets that were acquired before the Capital Gains Act was included in the Australian Taxation Office’s constitution and the personal use assets that includes the taxpayer’s house and other valuables.
The Leading cases
One of the leading cases was in the case between player and Ors versus FCT. In this case the plaintiff filed a case for the court to find out if the deductions made were falling under section 51(1) (b) of the Income Tax Assessment Act 1936 and also to determine if the tax benefits were obtained by the applicants concerning their business as per the Act. The tribunal in charge of the case gave a ruling in favor of the deductions and it was decided that the deductions were in order according to the law.
The other case was FCT vs. Lenzo in the year 2008. Where the courts had allowed the commissioners appeal from the decision under which it was held that pt IVA did not apply to the deductions as claimed by the taxpayer in relation to his investment in a sandalwood plantation project in Western Australia. The court had found out that in the previous decision much emphasis was placed on the genuine commercial nature of the project and did not consider whether there was a dominant purpose of obtaining a tax benefit. The court held that the structure of the scheme was only to maximize and bring forward tax

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