Taxation and Law: Calculation of Deductible and Taxable Income

This report provides information on taxation and law, including the calculation of deductible and taxable income, principles of taxation, tax avoidance and evasion, and treatment of taxable income. It also includes case studies and examples.

Taxation

Contents
Introduction:..........................................................................................................................................3
Q.1.........................................................................................................................................................4
Q.2.........................................................................................................................................................5
Q.3.........................................................................................................................................................8
Q 4.......................................................................................................................................................10
Conclusion:..........................................................................................................................................12
References:..........................................................................................................................................13

Introduction:
This report will provide all information and details of different facts in relation to taxation
and law. It will support in providing all details and facts related to the calculation of all
deductible and taxable income. It will reveal and explain the principle of taxation and assured
laws with tax avoidance and tax evasion. It will also provide details of the importance and
purpose of taxation policy incurred related to taxation in the case property. It will also
describe the facts and treatment of taxable income and annual payments mentioned in the
assignment and different case studies. So overall this reading will obtain and describe various
reasons and way of treatment of annual income.

Q.1
Solution:
Annual payment income in case of any businesses can be taken as gross annual income and
annual chargeable income which can be earned or gained in yearly basis by entities. When
income gained by the lump sum payment and can be annual earned. Lottery period can be
taken as a gambling activity and which can be drawn by the playing number of prizes. The
government has been established various schemes and launched the presence of several
regulations. So the lottery in the relation to preparing and gain to protect in the interest of
gnarl people. It is found in the whole circumstances the value of whole lottery amount
amounted through lump sum activity would be figured out to protect the level of public. In
the case of overall payout of annuity, winners have to grasp the opportunity in order to earn
jackpots. The capital gain tax has been taken as a payout of lottery income (Devereux, et. al.,
2014)
Instead of this, all case of annuity income regarding payment, the income amount would be
received by the winning person. And the amount will be fixed. E.g.: for an example, in every
annual year the winner will gain $50,000 and the other entire motive will be that he will be
restricted to change the term and condition of payout for the UN curtained financial and
familiar condition. That time the winner cannot be able to make payment for the large value
of the investment at all time because investment might result for all more cash compared to
the value of interest amounted on the annuities.
Along with all these things, in the case of considering annuity payment income, the tax will
be taxable and levied on $50,000. Other reason can be taken as considering behind through
the income earned from payouts annuity and lottery for another next 20 years in future. Other
than this, another cash flow after the death of the winner will be entitled to achieve the

amount which would be given to the other estates of the affected people that would be
considered as the income of effected winner. The third reason can be taken as that the
winning amount $50,000 will be got by the winner with the date on which he would receive
the amount at an initial time for every year and next 20 years. In the case of overall payout of
annuity, winners have to grasp the opportunity in order to earn jackpots. The capital gain tax
has been taken as a payout of lottery income (Burns, et. al., 2017).
Q.2
Solution:
As it is known that any revenue generation and expenses can be reported when would be
realized on an accrual basis. Another thing is that the expenses should be matched with the
income. All expense of the company shall not be reported until paid would pay in cash or
occurred. On the other hand, the taxable income would be generated with the amount of
earning an income which has to be used in calculating the tax. It is needed to give such tax to
the government by owned individual or business. It is also known that the revenue generation
and all expenditure would be taken as the realization of the accrual basis. It is required for the
company or individual to generate the amount of table income (Chambers, et. al., 2017)
It can be taken as gross income that could be adjusted over deductions and exemptions, which
would be allowed in the taxable year. Such kinds of taxable income are salary, investment,
bonuses for an individual. When the topic is raised in the case of a company, taxable income
can include such income which is raised from selling goods and commodities. It is also
included all subsidies and grants provided by the government to the consumer and so on. It
doesn’t include such expenses realized from the income to calculate taxable income by the
company.

In the scheme of pharmaceutical benefits scheme, it refers the program to establish by the
government of Australia in order to deliver subsidized and prescribed medicines to the
customers and to a resident of Australia along as well as foreigners which can cover by
Reciprocal Health Care Agreement. Schemes launched by the company ensure that the
resident and localities’ would be able to buy an access such affordable drugs in an affordable
price but the company will face the scrutiny which would increase their cost. Taxable income
computation of Corner Pharmacy would be calculated as given below:
When the topic is raised in the case of a company, taxable income can include such income
which is raised from selling goods and commodities. It is also included all subsidies and
grants provided by the government to the consumer and so on. It doesn’t include such
expenses realized from the income to calculate taxable income by the company. From the

above computation, it was found that the Corner Pharmacy has applied accrual basis scheme
that allows them to compute taxable income and total cost of sale of commodities to allow all
deductions for tax purpose. Due to this condition taxable income of corner pharmacy would
be $1, 70,000.
Q.3
Solution:
The case study of Duke of Westminster’s case is mostly cited in the words of tax avoidance.
It was a case of 1936 Act 1 and a full citation was “Inland Revenue Commissioners vs. Duke
of Westminster”. Duke of Westminster has appointed a gardener and he used to pay him after
his post-tax income. It was substantial for the case that to reduce such taxation, duke started
stops paying wages to the gardener. Even he ignored drawing up a covenant; he agreed to pay
an amount equivalent to the value of each and every year (a specified period of time). But the
Department of Inland Revenue refused to accept this and challenged all such arrangements of
tax evasion. They challenged duke to the court and cases were made between IRC v. Duke of
Westminster in 1936 which they, however, lost their case. It has been identified that the
analysis and principle which would be established in IRC vs. Duke of Westminster employed
a gardener and refused to give any payment to him. The payment of taxable income from the
other post taxation income in order to deduct tax and payment would be made at every
specified period (Gorry, et. al., 2018)
Tax avoidance can be taken as an arrangement which is required to manage and control the
financial affairs in order to prepare facilities in such a manner to reduce the tax liability
within the law. The usage method of paying tax amount would be paid to the taxpayer on the
income. In addition to this, their practice would be done by the taxpayer on the income
earned due to tax avoidance and evasion. In the addition to that knowledge, the financial
situation of the people and company would reduce the method of modification related to an

individual to reduce taxable amount of tax to be paid by the taxpayer when they would earn.
It is the principle which is related to tax evasion and avoidance, it gives chance to the people
to understand the financial affairs cleverly and a how to take tax advantages. It carries on the
flexibility to be carried out creative tax strategies and financial tactics (Burns, et. al., 2017).
Tax avoidance is the situation where all arrangements are made as per requirement of
financial affairs and control over such matters effectively by verification of laws and
judgments. Instead of this, there are the practice and relevancy earned by the taxpayers to
evaluate tax liability and refer it to the tax evasion in order to reduce illegal acts and
fraudulent matters.
In such kinds of situation, the principle of Ramsay “taxation evasion and avoidance” has
become relevant. This principle conveys that all companies need to make substantial capital
gain by getting into self-canceled of all complex series and situation of taxation fraudulent
and wrong behavior in order to practice done by the practitioners and individuals. It generates
illusions related to capital losses to avoid capital gain taxable income and then the authority
gets an opportunity to take and charge taxable amount related to such transactions which
come into an effect. Nowadays, Australian taxation office has mentioned and formed the tax
avoidance task force in order to ensure scrutinize the taxation affairs that could be paid as
taxable income which would be chargeable for private and public companies to pay the right
amount of taxable value (Cesarini, et. al., 2017). Such kinds of principles have not an effect
related to capital gain and capital income tax which includes all kinds of creative tax planning
as done by the Duke of Westminster. Instead of this, there are the practice and relevancy
earned by the taxpayers to evaluate tax liability and refer it to the tax evasion in order to
reduce illegal acts and fraudulent matters. We can find out one thing that is an
implementation of equitable assets over tax systems as capital gain in order to avoid tax
evasion and imposing tax over every year (Figari, et. al., 2017).

Through the artificial arrangement has been made by the individuals to impose all specific
and generic terms as anti-avoidance acts and provisions. Such results are the impact on
complexities of tax valuation and legislation related to compliance expenditure of taxpayer as
per given in the tax anti-avoidance systems. Avoidance of such taxation can be established
related to legislation of anti-avoidance tax part IVA. Even he ignored drawing up a covenant;
he agreed to pay an amount equivalent to the value of each and every year (a specified period
of time). But the Department of Inland Revenue refused to accept this and challenged all such
arrangements of tax evasion. It generates illusions related to capital losses to avoid capital
gain taxable income and then the authority gets an opportunity to take and charge taxable
amount related to such transactions which come into an effect. Such rules and regulation
cannot be applied before the ending of financial years (Frecknall-Hughes, et. al., 2015). it
gives chance to the people to understand the financial affairs cleverly and a how to take tax
advantages. It carries on the flexibility to be carried out creative tax strategies and financial
tactics. Tax avoidance is the situation where all arrangements are made as per requirement of
financial affairs and control over such matters effectively by verification of laws and
judgments. Nowadays, Australian taxation office has mentioned and formed the tax
avoidance task force in order to ensure scrutinize the taxation affairs that could be paid as
taxable income which would be chargeable for private and public companies to pay the right
amount of taxable value (Figari, et. al., 2017)
Q.4:
Solution:
It is verified that capital gain depicts to that value related to the capital asset which provides
higher value and amount compared to its purchase price. It is to figure out that capital asset
cannot be realized until it’s sold out. In other words, capital loss will be referred as the value
and amount attained in a similar manner, where the capital loss can be seen as the amount

received by the seller not more than the purchase price. It also found that another capital gain
can be taken as a property on rent for the maximum period of maximum 8 years. In the given
case study, all capital assets are called rental property. So it is figured out that a couple has to
purchase that rental property in as joint property and his husband Joseph has entitled for
around 20% of profits gained from the property. His wife name Jane is possibly entitled to
more than 80% part as profit (Chambers, et. al., 2017). On the other hand, it is observed that
the Joseph is entitled to entitle whole loss, in the case study given in the question says that
parties having covenanted contributed in 20:80 in their agreement. But it is realized that the
parties have to bear the loss of around $40,000which would be totally entitled to bear by
Joseph. On the other hand, such rule is to figure out the occurrence of the positive amount
shown related to capital gain or loss account then it would be taken for the taxation purposes.
In the relation to this comfort, Joseph’s loss is carried forward to the current year with the
occurrence of the capital gain in a current year. In a similar manner, until the amount of
earned loss $40,000 has not been recovered so that the rest amount will be considered for the
purpose of taxable income. Just for a reason, Joseph & Jane earned the profit of around
10,000 then the amount will be associated with the loss occurred in the previous year for a
proportionate manner as $2000 would be reduced from $40,000 to 38,000 which was to be
considered for taxation perspective (Doerrenberg, et. al., 2017)
Instead of this, the proportion for the profit was of $8000 for Jane which has to be considered
for taxable purposes. In the case study, Joseph can set it off all loss for $5000. This will show
the minimum value of $5000 which can be offset with the capital loss for around 8 years.
After entering into an agreement, if couples decide to sell their property, the capital gain will
be realized an entitled for such 20% of whole profit. On the other hand, it is observed that the
Joseph is entitled to entitle whole loss, in the case study given in the question says that parties
having covenanted contributed in 20:80 in their agreement In a whole manner, the loss was

allocated for taxable purposes and financial analysis can be made in such a manner, that will
be accounted for the capital gain or loss will be incurred by them all.

Conclusion:
It will conclude all such analysis related to taxable income and corner pharmacy which was
$170000 which was computed by reducing expenditures from the income benefitted by the
organization. On the other hand, the case of IRC vs. Duke of Westminster case study has
been analyzed which described the principle of tax evasion and the value of avoidance
principle. It is said that all Ramsey principle of taxation and anti-avoidance of income tax has
been incurred by loss and capital gain by them. This report has also been included all capital
loss and gains on a rental property which could be set off over capital gain for at least for 8
years at a minimum value of $5,000 every year to cover all capital loss against gain. On the
other hand, such rule is to figure out the occurrence of the positive amount shown related to
capital gain or loss account then it would be taken for the taxation purposes.

References:
Burns, S. K., & Ziliak, J. P. (2017) Identifying the elasticity of taxable income. The
Economic Journal, 127(600), 297-329.
Burns, S. K., & Ziliak, J. P. (2017) Identifying the elasticity of taxable income. The
Economic Journal, 127(600), 297-329.
Cesarini, D., Lindqvist, E., Notowidigdo, M.J. and Östling, R. (2017) the effect of wealth on
individual and household labor supply: evidence from Swedish lotteries. American Economic
Review, 107(12), pp.3917-46.
Chambers, V., Bland, E. and Spencer, M. (2017) Does the source of a cash flow affect
spending versus saving?. Financial Services Review, 26(3).
Devereux, M. P., Liu, L., & Loretz, S. (2014) The elasticity of corporate taxable income:
New evidence from UK tax records. American Economic Journal: Economic Policy, 6(2),
19-53.
Doerrenberg, P., Peichl, A. and Siegloch, S. (2017) The elasticity of taxable income in the
presence of deduction possibilities. Journal of Public Economics, 151, pp.41-55.
Figari, F., Paulus, A., Sutherland, H., Tsakloglou, P., Verbist, G., & Zantomio, F. (2017)
Removing homeownership bias in taxation: The distributional effects of including net
imputed rent in taxable income. Fiscal Studies, 38(4), 525-557.
Frecknall-Hughes, J. and Moizer, P. (2015) Assessing the quality of services provided by UK
tax practitioners. eJournal of Tax Research, 13(1).
Gorry, A., Hubbard, R. G., & Mathur, A. (2018) The Elasticity of Taxable Income in the
Presence of Intertemporal Income Shifting (No. w24531) National Bureau of Economic
Research.