Taxation Law: Personal Exertion Income, Car Fringe Benefit, Capital Gains Tax, and Gift Tax

TAXATION LAW
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Question 1
It is known based on the facts presented that payment has been received by Hilary on account
of three main sources i.e. story, photographs and manuscript. The ley issue is to ascertain if
any of these payments can be categorised as personal exertion related income under s. 6(5).
Story payment
The newspaper offered $ 10,000 to Hilary to write her story despite being aware of her scant
experience in writing. Offering such a significant sum to a person lacking writing skills
clearly highlight that the interest lays elsewhere and in this case it would be on the
information about Hilary. This information would have commercial worth since this would
pertain to Hilary who is a well-known mountaineer. Also, this information can only be
extracted from Hilary. The story is just acting as means to extract the information which
already exists. Hence, the action of writing does not have any commercial value owing to
lack of writing skills by Hilary. This understanding is endorsed by the ruling in the Brent vs
Federal Commissioner of Taxation (1971) 125 (Woellner, 2014). Thus, the payment of
$10,000 derived in this case cannot be considered as personal exertion related income since
writing activity does not act as source of income.
Manuscript payment
Taking a cue from the above, it is apparent that writing does not lead to any income being
produced. As a result, manuscript has commercial value not because of Hilary writing the
same as her writing skills are not sought after. However, the subject matter is important
which provides intrinsic value to the manuscript which is responsible for purchase by the
buyer. Therefore, considering the role of writing as only a mechanism to transfer information
coupled with lack of writing skills on part of Hilary, it is clear that proceeds are not
considered as personal exertion related income (Gilders et. a., 2016).
Photograph related payment
Hilary is famous as a mountain climber and not as a photographer. Hence the activity of
clicking photos has no special significance and on that count, there is not worth of the
pictures. However, these photos capture moments from Hilary expeditions which makes them
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valuable. Hence, the real source of value for the photos is the subject matter due to which
proceeds are not considered as personal exertion related income (Deustch et. al., 2016).
Change in Intention
If the underlying intention behind writing the story varies, it would not make any difference
to the tax treatment decided in the above case. This is because the writing activity is not the
creator of income and the proceeds are being derived owing to the access to information. This
information has not been created through writing but has only been communicated in this
means. Thus, the underlying motive and the presence of profit or not does not matter since
the activity does not produce any income anyways (Sadiq et. al., 2016).
Question 2
The relevant formula for taxable value owing to car fringe benefit is outlined in s. 9, FBTAA
1986 and highlighted below (Woellner, 2014).
The various inputs which are required to compute the taxable value are highlighted as shown
below (Barkoczy, 2015).
 A – This refers to the underlying vehicle base value which is taken as $ 50,000 since
the car has new only considering the purchase the previous year and hence no
depreciation charge
 B – The value would be taken as 20% since the distance travelled does not impact
this.
 C – The number of days has been provided as 183 in the given question.
 D – The number of days would be 365 for the assessment year that is under
consideration.
 E – The section 9 statutory formula clearly highlights that any employee incurred
expenses would be deductible for taxable value computation. This would happen
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