Taxation of Timber Operations

This assignment analyzes the taxation of income generated from forest operations, specifically focusing on scenarios involving the sale of felled timber and royalty payments received for granting timber harvesting rights. It examines relevant tax laws and legal precedents to determine how such income is treated for tax purposes.

Running head: TAXATION
Taxation
Name of Student:
Name of University:
Author’s Note:

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Table of Contents
Answer to question 1:......................................................................................................................2
Issue:................................................................................................................................................2
Laws:................................................................................................................................................2
Application:.....................................................................................................................................2
Application:.....................................................................................................................................3
Conclusion:......................................................................................................................................3
Answer to question 2:......................................................................................................................3
Issue:................................................................................................................................................3
Laws:................................................................................................................................................3
Application:.....................................................................................................................................4
Application:.....................................................................................................................................4
Conclusion:......................................................................................................................................5
Answer to question 3:......................................................................................................................5
Issue:................................................................................................................................................5
Laws:................................................................................................................................................5
Applications:....................................................................................................................................5
Conclusion:......................................................................................................................................6
Answer to question 4:......................................................................................................................7
Answer to Question 5:.....................................................................................................................7

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Issue:................................................................................................................................................7
Laws:................................................................................................................................................8
Application:.....................................................................................................................................8
Conclusion:....................................................................................................................................10
References:....................................................................................................................................11

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Answer to question 1:
Issue:
Is it possible for the taxpayer to measure the amount which is sustained from the capital
gains or loss that can be thought for set off based on the Section 108-10 of the ITAA 1997.
Laws:
i. Section 108-20 of the ITAA 1997
ii. Section 108-10 of ITAA 1997
Application:

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Application:
The scenario at present with regard to the taxpayer mentions that the sustained loss from
the sale of the sound system cannot be approved for the purpose of set off. This is due to the
reason that the loss originating from the home sound system sales possessing a nature of the
personal asset will not be allowed for the purpose of set off (Woellner et al., 2014). Eric procured
profits on the day of the sale of the ordinary assets without any existent year capital or any form
of reductions as well. This was in compliance with the section 108-10 of the ITAA 1997.
Evidence about the loss of collectable nature is not possible to be considered for the set of
against the ordinary gains from the sales of the shares that are not allowed fro set off. This is
based on the guiding principles of the section 108-10 of ITAA 1997. The capital gains for Eric
were arrived at $15,000 (Coleman & Sadiq, 2013).
Conclusion:
Based on the conversation it is found that Eric cannot possibly set of the loss sustained
from the collectables as he solely derived the revenue upon the asset sales of an ordinary nature.
Answer to question 2:
Issue:
The particular scenario introduces the issue which actually deals with the computation of
the FBT which has been defined based on the fringe benefit act 1986.
Laws:
i. Fringe Benefit Tax Act 1986

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ii. Taxation Rulings TR 93/6
Application:
Computation of the Fringe benefit Tax
Application:
Depending on the guidelines of the Taxation Rulings of the TR 93/6 the economic
institutions in the nature of banks or other types of loan making companies, usually device plans
which give an individual the opportunity of offsetting the interest occurred by the customers. The
customers are provided with the rulings on the event of the incurring of the profit where any sort
of tax payment for such derived income is not required. Based on the provided circumstances

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that Brian is discharged by the bank, he will not be required to pay tax depending on the
Taxation Rulings of the TR 93/6 (Woellner, 2013).
Conclusion:
Based on the conversation discussed above, if the loan interest is payable towards the end
of the loan, no amount of income tax is required to be paid to the bank (Jover-Ledesma, 2014).
Answer to question 3:
Issue:
The matter discussed is related to the distribution of loss which is sustained by the
taxpayers in the mentioned context related to the rental property as well as its joint ownership
(Grange, Jover-Ledesma & Maydew, 2014).
Laws:
i. FC of T v McDonald
ii. Section 51 of the ITAA 1997
iii. Taxation ruling TR 93/23
Applications:
Conforming to the Taxation Ruling TR 93/32 guidelines defined under the rulings
provides the explanation that arises from the division of income of any form of loss derived from
the rent property among the joint owners of the property (Krever, 2013).

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Apart from this the ruling discussed above lays down the guidelines of getting
into and understanding the assessable position of the co-owners who are not accountable for the
business principles within the defined activities. Jack and Jill in this context are being evaluated
on their assessable position from the property that is rented by them. Jack in this context will be
eligible for 10% of the profits from the property and Jill will be getting 90% profits from the
rented property (Jover-Ledesma, 2014).
Based on the definitions of the TR 92/32 relating to the joint ownership of the rental
property, it can be defined as the partnership due to income tax purposes that is defined under the
concept of the general law. It does not include the concept of the joint ownership of any type of
business proceedings that meets the income tax purposes. It is clearly understood that the joint
ownership of the income tax will not be accounted for the partnership with regard to the
principles of the general law. This is evident from the Jack and Jill context (Kenny, 2013).
That the joint ownership of the property cannot be treated as a form of partnership under
the general law is explained according to the principles of Taxation ruling TR 92/32. The
partnership situation in this case contains either written or oral forms of agreement which has no
effect on the share of the income or the loss which is derived from the rental property. It has been
found that the profits whereas Mrs Mc Donald needs to get 75% of the profit from the property
while Mr. Mc Donald would be required to 25%. This was mainly due to the income of his wife
and identification of any loss.
In the same way, in the present context, the partnership between them would not be
considered as partnership under the general law as well as the losses arising out of such rented
property that need to be equally shared.

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Conclusion:
On the basis of the above discussed situation it is to be determined that Jack and Jill will
be required to share out the loss on an equal basis as well as the joint ownership between them
does not accounts as partnership.
Answer to question 4:
One of the most quoted rulings on the basis of the subject which confirms that the
avoidance of the tax is thought of as acceptable as well as legal which is based on the of IRC v
Duke Westminster (1936). The gardener was paid wages by the Duke of Westminster weekly
and ultimately entered the contract by which he stopped the payment of the wages as well as
drew up the equivalent amount payment according to the covenant agreement. The benefit of tax
was received by the duke though an equal amount of wage was paid to the gardener. The Duke
received the benefit because the covenant lowered the liability of the Duke to surtax. An
individual cannot be forced to pay an increased amount of tax. As explained by the case, each
person is allowed to order for his tax affairs with the objective of the tax attachment under the
appropriate acts which is lower than otherwise (Braithwaite, 2017).
In case the taxpayers understand the situation that the principles define whether a person
is successful in ordering them for the purpose of obtaining suitable results, they will not be
required to pay an increased amount as tax. This particular decision provides an individual with
an opportunity to reduce their tax liability under the fiscal law framework.

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Answer to Question 5:
Issue:
The current issue has been considered and an assessment has been done relating
to the cutting down of the timber under the subsection 6 (1) of the ITAA 1997.
Laws:
i. Subsection 6 (1) of the ITAA 1936
ii. McCauley v FC of T
Application:
Based on the present issue of Bill it can be understood that he owns the land
which has numerous pine trees. At the initial stages he decided to clear the land for the grazing
sheep but when he was approached by the logging community he agreed to pay $1000 for every
100 meter of timber that the logging firm can take from Bill’s land.
The Taxation ruling TR 95/6 deals with the income tax rulings arising from the activities
of the primary production as well as forestry. It also defines the degree to which a person
deriving income from the activities related to the forestry is assessable.
The ruling is also applicable in case of the individual taxpayers who indulge in the
forestry activities or the businesses concerned to the primary production activities like depositing
the timber. Based on the explanation of the Subsection 6 (1) of the ITAA 1936, an individual
taxpayer possessing associations with the forest operations will be considered as the major

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producer for the income tax in case the activities of forest operations treated as performing of
business activities.
The major production can be explained as the planting of the trees as well as the tending
down of the trees in a specific plantation in compliance with subsection 6 (1) of the ITAA 1997
which is actually intended for the cutting or the tending of the trees in a particular vegetation.
According to the present context, Bill has been considered as the primary producer as he
is involved with the business of the primary production for the tending of the pine trees on a
huge part of land which he owns. The forest operations are usually known as those specific
operations where there is a planting or tending of trees in the vegetation despite the fact that the
taxpayer actually did not plant the trees.
In the above context it can be said that the trees were not planted by Bill, however the
amount which he received for the sale of the felled timber would be considered for proper
assessment. Despite the fact that the sales were either entirely of those part of the assets having
commercial values, the tending of trees would be regarded as receipts and complying with the
subsection 36 (1) would be included in the taxable income.
Royalties that is received by Bill from felling of timber would be treated as carrying the
business of forest operations. In respect of the judgement stated in McCauley v The Federal
Commissioner of Taxation payments which were received by the grantor on assignment of the
timber right. Therefore, the amount that will be received by Bill in the alternative scenario from
the sale of timber would be included in the taxable income in compliance with the section 26 (f).
In the alternative situation in case the taxpayer were paid an amount of $50,000 only by
assignment of the right of cutting down the necessary quantity of timber, the receipts would be

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regarded as the royalties. Based on the definitions in the section 26 (f) receiving royalties from
timber tending would be regarded as assessable income and be included in the assessable income
at the time of tending of the trees.
Conclusion:
On the basis of the analysis stated above it can be stated that the received amount from
Bill for the tending of the Timber would be thought of as taxable income and in case of the
alternative scenario in case a lump sum is received for right grant, it would be treated as
royalties.

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References:
Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Coleman, C., & Sadiq, K. Principles of taxation law (2013).
Grange, J., Jover-Ledesma, G., & Maydew, G. (2014) principles of business taxation.
James, M. Taxation of small businesses 2014/15.
Jover-Ledesma, G. (2014). Principles of business taxation 2015. [Place of publication not
identified]: Cch Incorporated.
Kenny, P. (2013). Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. (2013). Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Morgan, A., Mortimer, C., & Pinto, D. (2013). A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Ting, A. Principles
of taxation law 2014.
The taxpayers' guide 2013 & 2014. (2013). Milton, Qld.
Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. Australian taxation law 2014.

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