Assignment On Income Tax Liability

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
References:...............................................................................................................................11

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Answer to question 1:
Sale of home:
The income tax liability of an individual usually takes into account the net capital
gains. On 20 sept 1985 the CGT began and carries the capital receipts in the tax base. Only
those assets that are purchased after this date is included into the tax base while the assets that
are purchased before this is not included in the tax base (Spence 2016). The purchased before
20/9/1985 is called as Pre-CGT asset and commonly it is exempted from tax.
Jasmine is selling the home in which she lived. She purchased the home in 1981 by
paying $40,000. But she is selling tit for $650,000. So it can be said that Jasmine’s home is a
pre-CGT asset because Jasmine has purchased in 1981 which is before the commencement of
CGT rule in 20/9/1985. The capital gains is exempted from the main home as the asset is a
pre-CGT asset and no tax is payable in this situation by Jasmine.
Sale of car:
Well-defined as one of the asset, under
“sec 108.20 (2)”, personal use asset that is
kept or used for private purpose includes the TV at home, private use mobile phone, private
use vehicle or a bicycle (Steyn et al. 2018). When there is a capital loss suffered from sale of
personal asset it is omitted in
“s.108.20 (1)”. Jasmine here acquired a car at a cost of $31,000
in 2011. Accordingly, within
“s.108.20 (2)”, car is a personal use asset.

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The calculation here portrays that Jasmine within
“sec.108.20 (1)” should disregard
the loss from car no matter whatever the price she has paid for acquiring it since capital loss
from personal asset is omitted in this provision.
Sale of cleaning business:
Four types of CGT concession might be considered available for the small business
when there is a disposal of the business assets (Stewart 2017). The concessions are;
 The 15-year exemption for those assets that are held under ownership for 15 years
 The 50 per cent reduction following the access of the 50% discount given the taxpayer
is considered eligible (Lignier and Evans 2014).
 The retirement concession as it helps the taxpayer in ignoring the capital gains till
$500,000 if the profits are utilized in connection with the retirement of taxpayer.
 The rollover relief deferring the capital gains on the active asset if the acquisition of
replacement asset is made.
The above given four concession is only allowed when the business has the turnover
of not more than $2 million or alternatively the assets in the business does not exceeds the net
value of $6 million (Freedman 2013). The taxpayer must note that the concession relating to
the small business entity is only available when the assets in the business is an active assets.

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The circumstances that has contributed to the scenario of Jasmine portrays that she is
retiring from her small business of cleaning that she has operated from a long time. Jasmine
has found a buyer that agreed to take up the assets for $65,000 and the goodwill of business
for $60,000. The taxpayer here Jasmine is considered qualified under
“Div 152” of the small
business concession regime because the net value of asset is not higher than $6 million and
the assets that she is selling is an active asset. The 15-year concession is allowed to Jasmine
under
“SubDiv 152-B” because she kept the asset under her ownership for 15 years and also
the minimum qualifying age of 55 years or more is also satisfied by Jasmine.
Sale of furniture:
The specific rule that is given in
“s.118-10 (3)” regarding the personal asset is that
when gains are reported by the taxpayer from the disposal of asset having cost of under
$10,000 then it should be disregarded (D'Ascenzo 2012). As Jasmine is selling all her
Australian assets, she sold the furniture for $5,000 but the actual cost of furniture stood
$2,000. The capital gains that she has earned from furniture is ignored because the cost of
asset is lower than first element cost base of $10,000.
Sale of paintings:

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Defined as asset in
“sec.108-10 (2)”, collectable involves the artwork, medals, rare
stamps, coins etc. If they are acquired for more than $500 then capital gains is taxed and any
loss is carried forward to next year under
“sec.108.10 (1)” (Evans et al. 2014).
Finally Jasmine lot of paintings and none of the paintings has the cost of higher than
$500. While Jasmine sold all the paintings and made $35,000. Accordingly Jasmine has sold
all the paintings for capital gains but not of her painting cost more than $500 so capital gains
is exempted
“sec.108.10 (1)”.
There was one painting that was purchased for $1,000 but the painting was disposed
for $5,000. A gain is made by jasmine from this transaction. Therefore, it will be taxed within
normal CGT rule.

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Answer to question 2:
Issues:
The problem that is taken in the existing case is related to the entitlement associated
depreciation of depreciating asset inside the
“Div 40 of the ITAA 97”.
Rule:
The specific provision enables an in individual taxpayer with the deduction based on
the period of time given that the expenditure is mostly happened for deriving a benefit. There
are three types of deductible capital expenses namely the depreciation deduction, capital
works deduction and the black expenditure. Within the negative limbs of
“sec.8-1(2)(a)” a
general deduction is not given to the taxpayer for the capital items (Burman 2014). This is
because upon purchasing the depreciating asset, it is treated as having capital in nature and no
deduction for the same is permitted inside
“sec.8.1”. Outgoings that happens on the plant and
equipment portrays the manner in which a business earns profit and the manner in which the
plant is used for deriving income. In
“FC of T v SunNewspaper [1938]” the income making
arrangement portrays that the outgoing occurred in regard to the business unit is regarded as
capital.
By focussing on the
“Div-40” when certain are employed in the production of income
the deductions relating to it is allowed to the taxpayers. As allowed in
“sec.40.25 (1)”
depreciation should not be interpreted as costs or charge and when an asset is purchased it is
termed as capital in nature so the provision of
“s.8.1” is not allowed to operate (Grudnoff
2015). While inside the
“sec.40-25(2)” the private use of the depreciating asset is simply
apportioned and only taxable purpose is included for depreciation under
“sec.40.25 (1)”. As
noted in the
“s.40.25 (1)” deduction may be allowed for claim only to the extent of falling

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value of
“depreciating asset”. As eminent deduction for depreciation is only permitted till
the projected useful life of the asset.
The rules of the depreciation is not applicable in some of the circumstances. These are
as follows;
a. Outgoings occurred on the capital works such as buildings
b. Car expenditure where the deduction is computed on the basis of the cents per
kilometre method (Twite 2014).
c. Depreciating asset that is used of installed within the residential rental property.
It is to be noted that inside
“sec.40.30 (1)” explanation amounting to depreciating
asset is given. An asset which only has estimated active life and also the asset is further likely
to decrease in price with the passage of time over its use. The definition does not takes into
the account the following assets;
 Land
 An item associated to the trading stock; or
 Certain forms of intangible assets, unless it is listed in the
“sec.40.30 (2)” such
as the in-house software, items associated to intellectual property.
The common items of depreciating asset includes the furniture, cars, machinery etc.
The taxpayers are required to note that the expression asset has no own definition and
consequently should be provided its ordinary meaning, based on the specific appropriateness
of the capital allowance provision (Evans et al. 2014). The ordinary meaning of the plant was
considered by court in
“France v Yarmouth [1987]”. Based on the ordinary sense plant
amounts to whatsoever apparatus that a business man make use of in conducting their
business.

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The cost of the depreciating asset mostly needs to be calculated and the rules
regarding the calculation of the cost of asset is listed in
“Subdiv. 40-C”. In most likely
situation the depreciation asset cost does not generally considers only the purchase price.
Apart from this there is also the incidental cost that is incurred at the time of delivery of asset
and the installation cost occurred in installing the asset (Marsden, Sadiq and Wilkins 2013).
There may be instances when some small expense may also happen or be incurred in
rearranging removing for accommodation of the new plant. Any such expenses incurred in
this respect is also added in the cost. The deprecating asset cost under
“sec.40.175” is
classified inside two elements. The specific rules is related to first element under
“sec.40-
180” that normally involves the purchase price. While
“sec.40.190” widely consists of the
delivery charge, installation charge and improvements made to the asset that are capital in
nature.
When it is noticed that a taxpayer is holding the asset then the decrease in worth
happens based on its start time. The start time of asset commonly involves the first use made
by taxpayer under
“sec.40.60 (1)”. The start time for decline in value happens when the
machine is also installed as all ready to use for producing income in business (Burkhauser,
Hahn and Wilkins 2015). It may also include the private purpose when the asset is used by
the taxpayer for non-taxable purpose and no deduction is permitted in this regard.
Application:
Referring to the rulings that is explained in context of the capital allowance regime,
the same has been applied in the given facts of John. The facts that is gained upon looking in
the case of John it is agreed that he is the producer of BMW vehicle parts. John arrived in
Germany to inspect about the computer numerical machine in the CNC machine factory. On
making the inspection about the machine he ultimately decided to purchase it. The purchase

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for the machinery stood $300,000. Upon purchasing the CNC machine, it is treated as having
capital in nature and no deduction for the machinery is permitted inside
“sec.8.1”. Referring
to
“FC of T v SunNewspaper [1938]” the CNC machine is an income making arrangement
that represents outgoing occurred in regard to the business unit and must be regarded as
capital outgoing.
John instead to emphasis on the Div-40 as deductions relating to it CNC is allowed in
“sec.40.25 (1)”. Noting the
“s.40.25 (1)” deduction may be allowed for claim only to the
extent of falling value of CNC machine. The CNC machine is meeting the definition of
depreciating asset within
“sec.40.30 (1)” because CNC only has estimated active life and it is
further likely to decrease in price with the passage of time over its use (Dabner 2015).
Referring
“France v Yarmouth [1987]” the CNC machine is an apparatus that John intends
to make use of in conducting his business activities.
To compute the cost of CNC machine for depreciation purpose
“Subdiv. 40-C” is
referred in case of John. The purchase price that John has paid for the machine is added in
first element cost base. John paid cost for installing the machine and also made a capital
improvement on it by further installing a guiding rod to extract better performance from the
machine. These cost will be added in the second element cost base with respect to
“sec.40.190”.
The cost base of CNC machine are as follows;

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It is necessary for John to know the start time as when he claim the deduction for the
decrease in value of the machine. Conferring the explanation of
“s.40.60 (1)” the start of the
CNC machine for decrease in worth is 15th January. John made the first use of machine from
that day onwards and he installed the CNC machine for producing his business earnings.
Conclusion:
The decrease in value of machine is allowable within
“sec.40.25 (1)” to John because
he installed it for business only and the start time for calculating depreciation is 15th January.

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References:
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
pp.181-205.
Burman, L., 2014. Taxing Capital Gains in Australia: Assessment and
Recommendations'. Australian Business Tax Reform in Retrospect and Prospect.
Dabner, J., 2015. Tax Simplification–An Accident Looking for a Place to
Happen?. Available at SSRN 2707910.
D'Ascenzo, M., 2012. Taxation Law Design. J. Austl. Tax'n, 5, p.34.
Evans, C., Hansford, A., Hasseldine, J., Lignier, P., Smulders, S. and Vaillancourt, F., 2014.
Small business and tax compliance costs: A cross-country study of managerial benefits and
tax concessions. eJTR, 12, p.453.
Evans, C., Hansford, A., Hasseldine, J., Lignier, P., Smulders, S. and Vaillancourt, F., 2014.
Small business and tax compliance costs: A cross-country study of managerial benefits and
tax concessions. eJTR, 12, p.453.
Freedman, J., 2013. Small business taxation: Policy issues and the UK. Taxing Small
Business: Developing Good Tax Policies, pp.13-43.
Grudnoff, M., 2015. Top gears: how negative gearing and the capital gains tax discount
benefit the top 10 per cent and drive up house prices.
Lignier, P. and Evans, C., 2014, August. The rise and rise of tax compliance costs for the
small business sector in Australia. In Australian Tax Forum (Vol. 27, No. 3, pp. 615-672).

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Marsden, S., Sadiq, K. and Wilkins, T., 2013. Small business entity tax concessions: Through
the eyes of the practitioner. Revenue Law Journal, 22(1), p.6731.
Spence, K., 2016. The evolution of corporate taxation-a work in progress. Austl. Tax F., 31,
p.481.
Stewart, M., 2017. Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development. In Taxation and Development-A Comparative Study (pp. 17-41). Springer,
Cham.
Steyn, T., Smulders, S., Stark, K. and Penning, I., 2018. Capital gains tax research: an initial
synthesis of the literature. eJTR, 16, p.278.
Twite, G., 2014. Capital structure choices and taxes: Evidence from the Australian dividend
imputation tax system. International Review of Finance, 2(4), pp.217-234.