Taxation Law

This document discusses various issues and rules related to Taxation Law. It covers topics such as Capital Gain Tax, income from personal exertion, and the effect of arrangements on assessable income. The document provides analysis, application of rules, and conclusions for each issue. It also includes references for further reading.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Question No 1............................................................................................................................2
Issue........................................................................................................................................2
Rules:......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................5
Question No 2:...........................................................................................................................5
Issues:.....................................................................................................................................5
Rules.......................................................................................................................................5
Application:............................................................................................................................6
Conclusion:............................................................................................................................7
Question No 3:...........................................................................................................................7
Issues:.....................................................................................................................................7
Rule:.......................................................................................................................................7
Application:............................................................................................................................8
Conclusion:............................................................................................................................8
References:.................................................................................................................................9

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Question No 1
Issue
The issue to be analyzed in this assignment is the Capital Gain Tax results arising out
of the transactions made by client Helen, a fashion designer to collect fund for her business
by selling her assets.
 She had an antique painting which her father purchased in month February of 1985 at
the cost of 4000$. She sold it for 12000 dollar on December 1st of 2018.
 She had bought a historical structure for 5500 dollar which she sold at 6000 dollar on
1st January 2018.
 She sold a piece of antique jewellery for 13000 dollar on March 20 of 2018, which
she bought for 14000 dollar on October of 1987.
 Helen got a picture which her mother bought in March of 1987 at 470 $. She sold it
on July 1st of 2018 for 5000 $.
Rules:
Section 102.20 contained in Income Tax Assessment Act 1997 depicts that capital
gain or loss can only be made on the occurrence of CGT event and such gain or loss is
incurred when that CGT event occurred. Section 104.10 contained in Sub division 104-A
states that when a CGT asset is disposed of then an event of CGT A1 occurs. Such a disposal
of CGT asset occurs when there occurs a transfer of ownership from one to another occurs. It
can be by operation of law or by any other act or event. It further elaborates that this change
of ownership does not happen if the transferor though ceases to be the legal owner of such
asset but continue to the beneficial owner of that asset. Any type of capital gain or loss will
only be considered if the asset is acquired after 20th September of 1985.

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Section 108.10 provides for that the losses from the collectables can be set aside only
by gains from collectables. In sub section 2 of the said section, collectible is defined as any
artwork, jewellery, antique, rare folio and other things of similar nature that are used or
preserved for using or enjoying it personally. Collectibles can also be an interest in any of the
above mentioned things or a debt from that thing or even a right to acquire any of those
things. Subsection (1) of this section states that while calculating the net capital gain or loss
for any particular income year, capital loss arising out of collectables can be used for
reducing the capital gains from the collectables. However, losses from the collectables can be
used only be used to reduce capital gain of amount greater than 500 $.
According to section 118.10, a capital gain or loss made from a collectable will be
considered only if the 1st element of its cost base or the 1st element of its cost for a
depreciating asset is more than 500 dollars. Section 110.10 states that any collectible below
the mentioned amount will not be considered.
According to section 108.10, any kind of CGT loss that is being incurred by anyone
by sale of collectible is to be considered as an offset in relation to any kind of CGT gain that
has been attached to any person only for selling of another kind of collectible. This loss can
not be regarded an offset for other type of CGT gain.
Section 108.20 of said Act losses out of a personal asset shall not be regarded. For
calculating the net capital gain or loss for a year, any type of capital loss arising out of an
asset for personal use shall not be included. In this section, what comprises of a personal use
asset is elaborately discussed. Moreover, there lies an exemption for a personal usable asset
that is being acquired for 10,000 dollars or less.

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Application:
The 1st transaction of Helen includes the selling of an antique painting for 12,000
dollar on 1st of December 2018. This painting was brought by her father on February of 1985
for 4000 dollars. This transaction by Helen will be regarded as an exemption from CGT gain
as CGT can be applied to the CGT assets that are acquired after 20th September 1985. An
asset that is being acquired before this date willnot be considered under CGT and thus this
transaction of Helen will be exempted.
The 2nd transaction involved the selling of a historic sculpture on January 1st 2018 for
$ 6000. She purchased it December 1993 at the price of 5500 $. This transaction will be
taxable according to section 118.10 (1) as a capital asset as the sculpture was acquired for an
amount exceeding 500 $. Under section 100.10, any collectible below the said amount will be
considered as an exemption.
In the 3rd transaction made by Helen, a jewellery bought at 14000 $ on October of
1987 was sold for 13000 $ on 20.03.2018. This transaction will be an offset to any CGT gain
that is being subjected to person in relation to sale of any other collectible. The loss incurred
in this transaction cannot be considered as an offset to other CGT gain. Thus, this will be
considered like an offset against the CGT gain incurred from selling of sculpture in the 2nd
transaction.
In the last transaction, Helen made a sale of a picture on 01.007.2018 at the price of
5000 $. This painting was brought by her mother for 470 dollar on March of 1987. It will be
regarded as a CGT asset utilised for personal purposes as per section 108.20 of the said Act.
As per this section, a CGT asset for personal usage will be considered as an exemption from
taxation if its valuation is not exceeding 10000 $. The picture cost is less than 10000dollar;
thus it will be exempted from taxation.

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Conclusion:
Thus from the discussion made above, following will be held in the four transactions
of Helen.
 The transaction involving the antique impressionism painting will be considered as an
exemption from CGT gain.
 The 2nd transaction will be taxable as a capital asset under s. 118.10(1) of the said
Act..
 The third transaction will be an offset in relation to CGT gain that has been accrued to
a person by the sale of another collectible.
 The final transaction will be considered as an exclusion from tax under CGT as the
transaction involved CGT assets used for personal usage as per s. 108.20 of the Act
since the price of the picture is less than 10000 $.
Question No 2:
Issues:
The issues to be determined here is whether the payments made to Barbara can be
regarded as incomes from her personal exertion. Another issue to be decided whether there
will be any difference if she wrote the economics book in her spare time before making
contract.
Rules
The Income Tax Assessment Act 1936 provides the provision of income from or
derived from personal exertion in its interpretation clause in section 6. This includes income
comprising of salary, wages, fees, commissions, earnings and others received by an
employee. It also includes income out of a business carried on by a taxpayer alone or in
partnership with other. It also includes an amount that is being included in the taxpayer’s

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assessable income. In order to bring any income under the scope of this section, there must be
a proximate relation between the income of a taxpayer and his personal exertion as observed
in the decision given in Blank v Federal Commissioner of Taxation [2015] FCAFC 154 2015
ATC 20-536 case.
As per section 6.5 of the Income Tax Assessment Act 1997, an assessable income
includes income as per ordinary meaning and such income is known as ordinary income. For
a resident of Australia, the assessable income comprises of ordinary income that he derives in
a direct or indirect manner from all the sources in a particular income year whether working
inside or out of the country.
In general, copyright is regarded as a CGT asset for taxation. The income from the
sale of such copyright will be treated as a CGT gain also. But in the contrary, if such
copyright is being sold for incurring profit, it will amount to an ordinary income. It was
observed in the case of Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982]
HCA 8. (1982) 150 CLR 355; 56 ALJR 240.
Application:
In the given scenario, Barbara was offered by the Eco Books Limited to write a book
about economics for 13000 $. She accepted the offer and wrote a book named ‘Principles of
Economics’. This will be considered as an income earned from personal exertion as per
section 6 of the said Act.
She further assigned a copyright for the book to the Eco Books company for 13400
dollars. This will be regarded as CGT asset for taxation purpose. She was paid when the book
was published. It is treated as CGT gain.

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She further made a sell of the manuscript of the same book to the library of Eco
Books company at 4350 dollars. Further she received 3200 $ for interview manuscripts. All
these will be considered as income out of personal exertion under section 6 of the said Act.
However, the tax consequences from the sale of book will be treated under section 6
of the Act even if the book would have been written by Barbara during her free time which
she decided to sell later on.
Conclusion:
From the above discussion, it can be said that in both the situations, the income will
be regarded as that from personal exertion.
Question No 3:
Issues:
The issue here is analyse the effect of the arrangement as given in the present case on
the Patrick’s assessable income.
Rule:
An individual to consider any receipt to be an income is required to prove making
gain in the income earned. This type of observation was made in English case of Hochstrasser
v Mayes (1960).
A receipt incurred by an individual has top be considered as an income after applying
all the rules in relation to the taxable income of any person. This type of observation was seen
in the decision given by Jordan CJ in the Scott v Commissioner of Taxation (NSW) 1935 35
SR NSW 215 at 219 case. In addition to this, the court stated that the income is to be
analysed by complying the relevant conditions where the taxpayer has received the income.

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Further, it has been illustrated in the case of Countess of Bective v Federal
Commissioner of Taxation 1932 47 CLR 417, that in order to consider receipt as income the
person paying taxes has to prove that he has regarded such receipt as gain. To prove this, the
taxpayer has to prove that the receipt is incurred by David in beneficial way. Moreover, as
per section 6.5 of the Act, an income will be regarded like an ordinary one if it is derived by
ordinary concept of income.
Application:
In this case, David was paid 52000 $ by his father Patrick to support him in his new
business. He agreed to repay Patrick, his father 58000$ after 5 years. It cannot be regarded as
income as it was not received by David as gain. It can be supported by the decision of
Hochstrasser v Mayes.
Further, Patrick paid David without a security deposit or formal agreement. He also
said David not to pay any interest. This again shows that the loan repayment cannot be
termed as taxable income in the Ptrick’s hand as seen in Scott v Commissioner of Taxation
case.
But, when David made repayment of the total sum after 2 years by a cheque, it
contained an extra amount of 5 percent of the borrowed amount. It can be considered as
income as it provided a gain. Though the lender did not want to get interest, still it will be
considered as a taxable income because it is received as gain. Thus it is regarded as income
under s.6.5 of the said Act.
Conclusion:
Thus, it will regarded as an assessable income of Patrick.

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References:
Blank v Federal Commissioner of Taxation [2015] FCAFC 154 2015 ATC 20-536
Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8. (1982) 150 CLR
355; 56 ALJR 240
Countess of Bective v Federal Commissioner of Taxation 1932 47 CLR 417
Hochstrasser v Mayes (1960)
Scott v Commissioner of Taxation (NSW) 1935 35 SR NSW 215 at 219
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997