HA3042 Taxation Law: Case Study Analysis

HA3042 Taxation Law
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Contents
Question 1.............................................................................................................................................4
Question 2.............................................................................................................................................5
Question 3.............................................................................................................................................5
Question 4.............................................................................................................................................6
a. Determine Scott’s net capital gain or net capital loss for the year ended 30 June of the current
tax year..............................................................................................................................................6
b. How would your answer to (a) differ if Scott sold the property to his daughter for $200,000?. 7
c. How would your answer to (a) differ if the owner of the property was a company instead of an
individual?.........................................................................................................................................7
References.............................................................................................................................................8
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Question 1
Brief of the case : - the case basically relating on the question as to whether the amount
received from story writing, sale of manuscript and photograph would be considered as
income from personal exertion or not ?
What does the law says: - As per Australian tax laws, income from personal exertion include
income received as salary, pension, wages, bonus, superannuation allowance, retiring
gratuities and other retirement benefits. The allowances as well as gratuities collected in the
capability of the employee, or connecting to any services provided in the course of the
business run by the tax payer.
In the present case, even though Hillary is not a permanent story writer, however she has
received an offer from a Daily Terror (A news paper). She has written her story for the news
paper and received $10,000 for the same.
According to section 8-1 of income tax assessment act 1997, In this particular case, she has
written her life story without the help of ghost writer (i.e as per the terms and conditions of
agreement) and accordingly received the payment. So it is definitely an income from personal
exertion. Therefore it will be assessed as an ordinary income.
As far as income from sale of manuscript of her story to the Mitchell library for the amount
of $5,000 and sale of her mountaineering photographs is concerned, since this income is
considered as ordinary income, so it will be taxable as income from capital gains. She does
not have to pay income tax as per ordinary income taxation law.
In second case, if she writes the story for her own satisfaction and then decides to sell her
story to the news paper Daily Terror, then the income arising to her shall not be considered as
ordinary income rather it will be taxable as income from capital gains even though the daily
terror offers the same amount to her. Accordingly tax provisions relating to capital gain
taxation shall apply. So, in the first case income from story writing will be considered as
ordinary income and income from sale of manuscript and photograph will be taxable as
capital gain.
And in the second case entire income shall be taxable as capital gain.
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