Taxation Law: Capital Gains Tax and Fringe Benefit Tax Consequences

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Issue:......................................................................................................................................2
Laws:......................................................................................................................................2
Application:............................................................................................................................5
Conclusion:............................................................................................................................7
Answer to Question 2.................................................................................................................7
Issues:.....................................................................................................................................7
Laws:......................................................................................................................................7
Application...........................................................................................................................10
Conclusion............................................................................................................................12
References................................................................................................................................13

2TAXATION LAW
Answer to question 1:
Issue:
The issue in the current case is based on the determination of the capital gains tax
consequences originating from the transactions reported during the year under “S 104,
ITAAA 1997”.
Laws:
As stated under “s 102-5, ITAA 1997” the taxable income of the taxpayer also
comprises of the net amount of capital gains that is derived during the income year. In order
to ascertain whether the taxpayer has reported any capital gains or loss it is vital to take into
the account whether any CGT event took place (Barkoczy, 2018). Additionally, the taxpayer
must be understand whether the asset is eligible as the CGT asset. As per “section 102-20” a
taxpayer only derives capital gains or loss arising from the CGT event. As per “section 104-
10 (1)” for a taxpayer a CGT event A1 happens when the CGT asset is disposed.
According to the “s 104-25 (1), ITAA 1997” a CGT event C2 takes place when the
intangible CGT assets ends. Alternatively, a taxpayers, ownership of the intangible CGT
asset ends upon the expiration of the asset. Relating to the business goodwill, the
interpretative view of ATO suggest that CGT event C1 occurs when the business is stopped
enduringly. For an individual taxpayer upon selling the business the taxation ruling of TR
1999/16 is applicable when the goodwill of the business is sold under ITAA 1936 act
(Douglas et al., 2014). On noticing that the business is ceased permanently or due to the
outcome of the voluntary act, it is worth mentioning that the business must be permanently
ceased because closure of business on temporary basis would not give rise to CGT event C1.
The federal court in “Murry v FC of T (1998)” held its view on goodwill. According
to the view of commissioner goodwill is viewed as the quality which is acquired from other

3TAXATION LAW
business assets (Grange et al., 2014). The presence of goodwill is dependent upon the
evidence that the business generates revenue from the asset. Referring to the definition stated
in “Subsection 108-5 (2)” the CGT of asset of business considers the goodwill. The law court
verdict in “IRC v Muller & Co Margarine Ltd (1901)” stated that goodwill of a business is
reliant upon the character and business nature (James, 2015). An individual taxpayer should
account in their assessable income the net amount of capital gains derived upon selling the
business goodwill.
As per the explanation stated in “taxation ruling of TR 1999/16” restrictive
covenants refers to the covenants that consist of agreement between the purchaser and the
vendor regarding the sale of business or any form of separate agreement where the vendors
are required to not directly compete in that business (Jover-Ledesma, 2014). The taxation
ruling of “taxation ruling of TR 1999/16” provides explanation regarding the restrictive
covenants amid the vendors and purchaser regarding the agreement that is formed for
disposal of business on the grounds that the employer vows to not compete or attract the
clients directly.
An individual taxpayer that receives the payment for restricting or relinquishing the
rights are not regarded as the income. Generally these payments are made as an agreement of
not doing something or competing directly in any business. As held in the case of
“Dickenson V FC of T (1958)” the taxpayer received an amount for selling shell products for
a period of ten years from its petrol station and in the next five years selling only products of
shell within the area of 5 miles (Kenny et al., 2018). Such a payment will not be treated as
income. In another event of “Jarrold v Boustead (1964)” the taxation commissioner held that
the lump sum payment that is made to the rugby player for giving up the position of amateur
were not treated as income (Kenny, 2014).