taxation law case study and some calculation

TAXATION LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a)..................................................................................................................................................1
b)..................................................................................................................................................2
c)..................................................................................................................................................3
d)..................................................................................................................................................3
QUESTION 2...................................................................................................................................4
a) .................................................................................................................................................4
b) .................................................................................................................................................4
c)..................................................................................................................................................4
d)..................................................................................................................................................5
e)..................................................................................................................................................5
f) ..................................................................................................................................................5
g)..................................................................................................................................................6
h)..................................................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Taxation refers to the systems through which the government imposes or levies charges
over the citizens or corporate entities for financing the expenses like welfare, defence etc. Tax is
compulsory payment to the government as per rules and regulations. It could be charged over
any items, activity or any income. Legislatures are vested with powers and responsibility of
making laws. Judiciary interprets law & administration implement laws. Two types of taxes are
there which are direct tax and the other one is indirect tax. In direct tax bearers person himself I
require to pay tax to government. Income tax charged of individuals and corporate is a form of
direct tax. Value added tax is example of the indirect costs. Tax collected by the government at
various stages so that burden is distributed evenly among the people. Income tax is the amount
paid to government from the earnings. Income tax is charged on a progressive rate over the
income of individuals. Legislations governing the income tax are ITAA 1936 & ITAA 1997.
QUESTION 1
Sophia has incurred following transactions during the year. She wants to know the
deductions that are allowed for capital gains and the capital gain consequences over the
transaction incurred during the year on sale and disposal of various assets.
Capital gain
Capital gain occurs when a asset is disposes at price higher than the actual cost of
purchase. It is not separate tax and is charged with the assessable income of individual. Tax laws
provides detailed provisions about the capital gain tax consequences . It is covered by the ITAA
1997.
a)
According to Section 104 of ITAA 1997, Sale of land by Sophia will be attracting
capital gain consequences as the land is sold at rate higher than the cost of acquisition that is
$130000. Taxation office has provided that the cost base includes the stamp duty and legal fees.
Expenses related to the council rates, insurance and interest will not be forming part of tax as
they are incurred before August 1991. She incurred the expenses for removing the pine trees
from land, this can be claimed as deductions as they are incurred for selling the land. Also she
incurred expense of $25000 for advertisement, agent and legal fees (Capital Gains Tax, 2019).
This will be allowed for deductions as they are related to disposal of property.
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