Timber Disposal & Taxation in Australia

This assignment analyzes the taxation implications of disposing of standing timber in Australia under different scenarios. It explores Taxation Ruling 95/6, specifically points 25 and relevant sections regarding assessable income from timber sales. The analysis considers two situations: selling standing timber at $1000 per 100 meters and granting a lodging company the right to remove timber for a lump sum payment of $50,000. It concludes by applying the relevant tax provisions under section 36(1) and section 25(1) to each scenario.

Assessment Task 2

TABLE OF CONTENTS
Part 1..........................................................................................................................................3
Facts of the case.....................................................................................................................3
Provisions and Regulations relating to capital gain...............................................................3
Conclusion..............................................................................................................................3
Part 2..........................................................................................................................................5
Facts of the case.....................................................................................................................5
Provisions and Regulations....................................................................................................5
Conclusion..............................................................................................................................5
Part 3..........................................................................................................................................6
Facts of the case.....................................................................................................................6
Provisions and Regulations....................................................................................................6
Conclusion..............................................................................................................................7
Part 4..........................................................................................................................................7
Facts of the case.....................................................................................................................7
Provisions and Regulations....................................................................................................7
Conclusion..............................................................................................................................8
References..................................................................................................................................8
Part 5..........................................................................................................................................8
Facts of the case.....................................................................................................................8
Provisions and Regulations....................................................................................................8
Conclusion..............................................................................................................................9

PART 1
Facts of the case
In accordance with the information provided Eric has purchased the assets specified below in
last twelve months:
Particular Amount in $
An antique vase 2000
An antique chair 3000
Home sound system 12000
Painting 9000
Share of listed company 5000
The above mention assets were sold by Eric last week in the following manner: antique vase:
$3000; sound system $11000, painting for $1000; antique chair for $3000 and shares of the
listed company for $20000. Further net capital gain or loss is to be ascertained for above
transactions.
Provisions and Regulations relating to capital gain
According to Alpanda and Zubairy (2016), holding period plays the significant role in
ascertaining the capital gain tax liability for an assessee. As per the provisions of Australian
taxation; in case an asset is held for more than the period of twelve months than discounting
or indexation method is applied for ascertaining capital gain profit or loss on sale of the asset.
However, in case the asset is held for a period of fewer than twelve months than other method
is applied for ascertaining capital gain or loss (AO, 2015). Computation of gain or loss in
other method is ascertained by reducing purchase cost from selling price, and in case any loss
arises than the same can be adjusted from a gain of other similar transactions.
Conclusion
In the present case, as it has been specified that Eric has held assets for a period less than
twelve months; thus computation of capital gain will be done in accordance with other
method. As per Arnold, Bateman, Ferguson and Raftery (2014), calculation of capital gain or
loss will be performed in the following manner:

Antique Vase
Gain = Selling price – acquisition cost
=$3000-$2000
=$1000
Antique Chair
Gain = Selling price – acquisition cost
= $1000-$3000
= - $2000
Home sound system
Gain = Selling price – acquisition cost
= $11000-$12000
= - $1000
Painting
Gain = Selling price – acquisition cost
=$1000-$9000
= - $8000
Share of listed company
Gain = Selling price – acquisition cost
= $20000 -$5000
= $15000
Total capital gain
= $1000+ ($2000) + ($1000) + ($8000) + $15000
= $ 5000

Thus, from above calculation, it can be calculated that for above transaction net taxable
amount of capital gain for Eric relating to specified transactions is $ 5000 (Bankman,
Shaviro, Stark and Kleinbard, 2017).
PART 2
Facts of the case
A three-year loan has been provided by the Brain as part of his remuneration package of
amounting $ 1 million at a special interest rate of 1% per annum payable in instalments. The
loan was provided in the year 2016. However, forty percent of the provided funds were
applied for income-producing purposes and for accomplishing the obligation regarding
interest payments.
Provisions and Regulations
The provision relating to fringe benefits tax: In accordance with the specified provisions in
case of a transaction relating to the loan, fringe benefit takes place in less interest or no
interest in comparison to statutory rate has been charged by the lender. The taxable amount of
fringe benefit is ascertained by the determining the difference between interest rate at which
loan is provided and statutory rate of interest. The existing statutory rate has been specified
below:
Statutory Interest Rate for the year ended 31st March 2017 5.65%
Statutory Interest Rate for the year ended 31st March 2016 5.65%
Conclusion
In the present scenario, it has been specified that loan has been provided to brain @ 1%;
however statutory rate for the same period is 5.75%. Thus, as the loan has been provided at
an interest rate which is lower than existing statutory rate (Barkoczy, 2016); the difference
will be taxable as a fringe benefit.
Calculation of taxable amount
Interest as per statutory rate - Actual interest payable * % of amount allocated for producing
income
= $1 million *5.75% - $ 1 million *1% *40%

= ($ 56500 - $ 10000) *40%
=$18600
Further, in case, the interest was paid at the year-end; then there would have been no change
in the taxable amount of fringe benefit as the manner in which interest is paid (i.e. whether
monthly or quarterly) does not have any effect on the taxable amount of fringe benefit
(Barkoczy, 2017.).
However, in case of bank releases the whole amount of tax liability than the whole interest
would have been charged as a taxable fringe benefit. As per the words of Blakelock and King
2017, the reason behind this is that when no interest has been charged by the lender; no
deduction is allowed.
PART 3
Facts of the case
Jack and Jill who are husband and wife have borrowed money for purchasing a rental
property as joint tenants. A written agreement has been signed by both of them and according
to same Jack is entitled to 10% of the profits and Jill is entitled to 90% of profits. However,
in case any loss jack will be entitled to all losses. Last year a loss of $ 10000 had occurred.
The manner of allocating loss has to be ascertained for taxation purpose. Further, if the
property is sold than the manner of determining a capital gain or capital loss is also required
to be provided.
Provisions and Regulations
According to the words of Bloom, (2015), TR 93 /32 deals with transactions relating to rental
property; the specified ruling explains the basis on whose accordance the division of net
income or loss from rental property between co-owners is acceptable for income tax
purposes. Further, the activities which are not considered as carrying business are also
explained in this ruling.
Income Tax Assessment Act specifies partnership as a group or association of person
carrying on business as a partner of receiving income jointly but does not include the
company. However, it is necessary to ascertain whether a partnership exists as a general law
for the significance of taxation purpose (Tax Ruling TR 93/32). A decision was held in case

of McDonald’s case at ATR p 967, ATC p 4550 that no partnership existed as the agreement
which was made for partnership entitled him to claim loss incurred in the business. The facts
of the present case are similar to McDonald case in which taxpayer and his wife were legally
and beneficially joint tenants. Further, it was provided that profits will be distributed in the
ratio of 25: 75 and in case any loss occurs then the same will be borne by Mr McDonald
(Braverman, Marsden and Sadiq, 2015). However, it was concluded by the court that loss and
profits would be borne equally by both the partners for income tax purposes even though the
partnership agreement states different ratio relating to the allocation of profit and loss.
Conclusion
In present scenario the partnership agreement provides following profit and loss sharing
ratios:
Jack Jill
Profit 90% 10%
Loss 100% 0
As renting of single premises cannot be said as operating business; thus Jack and Jill cannot
be regarded as co-partners under general law. As per the views of Halberda (2014), income
and loss relating to rental property should be allocated equally between both of the partners
for income tax purposes. Hence, partnership agreement will have no effect for income tax
purposes, and Jack will be able to claim 50% loss relating to the rental property. As the
decision provided in McDonald case will be applied in present scenario and equal profit and
loss will be provided to Jack and Jill for taxation purpose. In case the property is sold in
future than capital gain or capital loss will be equally allocated to Jack and Jill for income tax
purposes.
PART 4
Facts of the case
Case Law: Duke of Westminster v CIR 19 TC 490. In specified case, Duke promised to pay
his servants additional amount to his servant in case if he provides additional services. The
specified promise for written in the form of agreement. Further, no payment was made to the
servant, but Duke received an additional deduction for taxation purpose.

Provisions and Regulations
Previous year provision has been formulated by the constitution in order to assess the scheme
which can result into tax evasion (Harding, 2013). Further, it was concluded in a settlement
that the specified kind of ruling serves as an originator for developing new provisions rather
that assessing existing rulings.
The case of Duke Westminster was resolved by Lord Wilberforce which concluded that the
ruling of the specified case restrained the court from assessing actual transaction to allege
basic nature of transactions. Thus, it was specified that legal nature of transactions should be
ascertained and in case a variety of transactions are available than the same is required to be
assessed by legal authorities (Woellner and et al. 2016). It can be concluded that the scheme
was aimed at avoiding tax liability and as no commercial justification was available, it was
followed for a long time.
Conclusion
Presently, regulations have been established in order to assess other schemes which may lead
to encourage tax evasion methods. Thus, presently current ruling is emphasized more in
comparison to previous provisions which has faded the major impact of specified case law.
PART 5
Facts of the case
A large piece of land of pine trees is owned by Bill. Bill wishes to use the land for grazing
sheep and for the same land requires being cleared out. Further, he comes to know that a
logging company provides him offer of $1000 for each 100-meter land. The other option
available to him is to receive a lump sum payment of $ 50000 for granting lodging company
right for removing the required quantum of timber from land.
Provisions and Regulations
Taxation Ruling 95/6 specifies the provision relating to taxation of receipts obtained from the
sale of timber constituting assessable income. The taxpayer engaged in forest industry or not
both are covered under this provision. In accordance with provision specified in point 25
taxpayer runs the forest operations might sale the standing the timber by providing the right
to an individual or in some other manner. The specified income is taxable under subsection

25 (1) of specified taxation ruling. Further, royalty relating to same will also be considered as
income and taxed as similar provisions.
Applicability and Conclusion
From above provisions, it can be concluded that in the first scenario when standing timber is
disposed and sold for $1000 per 100 meter which is not ordinary course business will be
taxed under section 36 (1). In the second case when he received lump sum income for selling
rights relating to disposing of timber the same will be assessed under section 25 (1).

REFERENCES
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