Tax Obligations for Subdividing and Selling Land

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Running Head: LAW 504
Law 504
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LAW 504
Issue
Through compensation, Our Earth Pty Ltd had received some capital gains. Some
amounts that were payable to the company by coffee bean party ltd were capital gains, though
the company may have incurred a loss due to the patent infringement interests received from the
paid money for damages and the refurbishment of the legal fees are in a way a gain to the
company. Our Earth Pty Ltd should expect to face some tax obligations resulting from the
compensation transactions. If the company fails to plan forward, this might lead to the spread of
the tax obligation to her shareholders. In case there exists no truism that Our Earth Pty Ltd did
not undergo any loss the amount received will be valid for taxation.
Law
Compensations received from damages, and other infringement incidents can be assessed
as ordinary income or even as statutory income. This can be found under Div 6 which is located
in (income tax assessment act 1997) (ITAA97). Legislative gains according to this act refer to the
capital gains received by a company, (ETPS) the eligible termination payments as well as
insurance for assessable loss incomes, recoupment assessable, and finally the employment
allowances (Marshall, 2014). In every case of compensation, it requires to consider whether any
concession exception may apply, in cases where the recipient is assessable in more than one
provision, there is a need for the introduction of an anti-overlap regulation. Compensation
payments may be subject to deductions under the (DIV8) deductions as well as the capital
expenditure (s40-80) of ITAA97.
There is a fundamental principle of the damages assessment which states that such
amount of money should be awarded to the injured party by the tribunal to help in regaining the

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LAW 504
state of the company is the party had not incurred any injuries in her incomes and operations.
The second principle states that all the damages are to be assessed once by reference in liaising
wi9th the probability which is available and has been proved. The above principles narrow down
to form several taxation rules to apply to the compensated damages.
Rule number one states that;
In cases where the award of damage compensation is taken in to account and the
defendant is found to have a wrongful conduct such as, deducting, inflating, delaying or
hastening the plaintiff tax borne incidence, the taxation is concerned as irrelevant to the damage
to be compensated (Kur & Mizaras, (Eds.). 2011). Therefore there exists no adjustment in the
amount to be paid due to modification of taxation. This is called for during incidents when the
damages and what is to be compensated will or would be taxable, moreover cases where
statutory compensation rights are to apply to the net after the tax amount.
Rule number two states that;
In case the defendants’ actions are found to have an impact, for example, altering the
incidences of taxation which is subjective to remoteness, the altered taxation incidence becomes
an appropriate damages assessment. This is because those actions have resulted in a loss in the
taxation process. The adjusted prevalence would be liable to taxation and the loss incurred would
have been income which would be subject to tax and the damages couldn’t have occurred (Kur &
Mizaras, (Eds.). 2011).

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LAW 504
Rule number three states that;
For it to be determined whether the actions of the defendants affect the liability to tax of
the plaintiff, tax computation for the period of the damage that the plaintiff would have been
taxed should be conducted (Kur & Mizaras, (Eds.). 2011). Furthermore, the computation of what
the plaintiff is expected to be imposed on the damages also should be done.
Quid pro quo or the replacement or the hole principle refers to the questioning of the
reason or the accounts to which the compensation was made. This is the inquiry whether the
settlement was made to income account or the capital account which includes lost wages or the
loss of profit (Ginsburg & Fraser, 2010). In case the compensation was made to damage
concerned with income, ordinary concept, ITAA97 s6-5 will have to apply. This principle is
overridden by other factors which may include; for example, if the compensation constitutes
income gains due to periodic payment which are not associated with installments of a large
amount of money (Beltrametti, 2009). According to ITAA97, ss20-35, 20-20 and 20-40 states
that outgoings are not to be subject to deductions as they are not categorized as general
deductions as they do not follow the reception of deductible compensations.
After the settlement of a patent infringement case is resolved either by an agreement or
through the judgmental ruling, the infringer is responsible for compensation. The attention arises
to the infringer tax deductions and also the winner is also subject to the income tax liability of
the received payment. Tax considerations are put in place to govern the taxation and the state of
the compensated sum whether it is income or capital gain. Tax choices are available during the
period of deferred payments. The IRS issued a patent litigation settlement ruling which is to
affect major taxpayers who provide deferred compensation (Jones, 2016). The decision states