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Assignment -Taxation Law

   

Added on  2020-03-23

14 Pages4021 Words43 Views
Running head: TAXATION LAWTaxation LawName of the StudentName of the UniversityAuthors NoteCourse ID

TAXATION LAW1Table of ContentsAnswer to question A:................................................................................................................2Answer to question B:................................................................................................................4Answer to question C:................................................................................................................5Answer to question D:................................................................................................................7Answer to question E:................................................................................................................9Reference List:.........................................................................................................................11

TAXATION LAW2Answer to question A: The present issue is concerned with the determination of the taxability of the incomethat is received by Fashionista Pty Ltd for the promise made to an Australian clothingmanufacturer for not trading in the territory of South Australia. According to the “taxationruling of TR 94/D33”, it determines the consequences of the capital gains tax consequencesrelating to the considerations of the sum received for the purpose of granting restrictivecovenants and trade ties (Barkoczy 2016). The “Taxation rulings of TR 94/D33” addressrestrictive covenants to the contracts or agreements that is formed exclusively based on thetrade ties amid the two parties with the agreement that is entered into by the business entityby agreeing not to trade in the geographical region for a period of time. The taxation ruling considers the former “subsection 160M (7)” is applicable to thepresent context of Fashionista Pty Ltd since the company agreed not to compete in theselected territory for a period of four years (Braithwaite, 2017). The amount that has beenreceived by Fashionista Pty Ltd can be regarded as the restrictive covenant payments sincethe company abided by the trade promise of not entering the specified geographical area fortrade. In the present context of Fashionista Pty Ltd it can be stated that the new “subsectionof 160M (6)” is applicable for any transaction where the amount of money that is received isrelated to the contract for entering into the restrictive covenant along with the exclusive tradeties and the agreement of not to trade (Cao et al. 2015). The commissioner of taxationconsiders the purpose and the effect of the subsection that extends to identify theconsiderations as the benefit of mutual promises that is flowing towards the parties in theagreement. Paragraph 17 of the ruling defines the view where the considerations that is receivedwithin the “Subsection 160M (7)” it is not restricted to the money or property. Instead the

TAXATION LAW3considerations extend to the assessable mutual promise that is flowing to the parties. As heldin the case of Esso Petroleum Co.Ltd v.Harper's Garage(Stourport)Ltd[1968]restrictive covenants under the general law represents to be regarded as the restraint of trade(Saad 2014). The judgement defines that the restraint of trade is applicable where anindividual has contracted to surrender the freedom which could have otherwise beenavailable. In the present scenario of Fashionista Pty Ltdit can be stated that the companyagreed not to trade in south Australia represents a restraint of trade as giving up the freedomof trading in that the geographical boundary which could have been otherwise available fortrade. As held in the case of Bacchus Marsh Concentrated MilkCo Ltd (in Liq) v JosephNathan & Co Ltd[1919] a restraint of trade can be considered as the valid under thecommon law which is not held by an unreasonable restraint by the courts requires that thecovenantee is under the obligations of protecting the interest (Lang 2014). Such interest isgenerally characterised as the interest in the property or the goodwill of the business.Additionally, from the current case of Fashionista Pty Ltd it can be stated that the businessties such as agreement of not trading in the particular territory is a restraint of trade that isvalid under the common law. The amount that is received by Fashionista Pty Ltd could beconsidered for the capital gains tax purpose for the considerations of $440,000 received bythe Australian company for grating the restrictive covenants and trade ties. Computation of Taxable IncomeParticularsAmount ($)Amount ($)Assessable IncomeGross Receipts $ 4,40,000.00 Less: GST $ 40,000.00 Net Receipts $ 4,00,000.00 Total Assessable Income $ 4,00,000.00 Less: Company Tax 27.5% $ 1,10,000.00 Total Tax Payable $ 1,50,000.00 Net Income $ 2,90,000.00

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