Taxation Law: Lottery Winnings, Taxable Income of a Company, Tax Avoidance and Ramsay Principle

Taxation Law 1
Taxation Law
by Student Name
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Taxation Law 2
Table of Contents
Question 1 3
The Case 3
Present situation 3
Is the annual payment income? 4
Question 2 6
Taxable Income of a Company 6
Procedure 6
Details of the company 7
Calculations 9
Question 3 10
Tax Avoidance 10
Implementation of Ramsay Principle 12
Question 4 13
Selling the Rental Property 13
Effect of the Agreement 14
References 16
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Taxation Law 3
Taxation Law
Question 1
The Case
In the given case, an instant lottery called “Set for Life” is conducted by the Lotteries
Commission. It is required by the participants to look for three tickets which have written: “Set
for Life”. The participant who wins the lottery receives the annual payment of $50,000 for the
next 20 years. The first of the series of payment is to paid on the win instantly. After that, they
are paid every year on the anniversary of the date on which the participant won (Gripaios,
Bishop and Brand, 2010). The interesting question to be considered here is that if the lottery
winnings should be considered the income of the winner or not. If they are considered the
income of the individual, then these are subjected to taxation laws by the government. And a part
of this income will then be paid to the government as per the rate of taxation applicable to the
income earned through a lottery.
Present situation
Now, let us understand the present stand taken by state authorities on the issue of lottery wins.
The lottery payment is considered a form of income by the state authorities. Therefore, the state
imposes taxation laws on the prize money. This money is subjected to taxation and the winner is
obliged to pay the state authorities the tax according to the tax rate applied by the state.
Therefore, it is required by the winner of the lottery to report to the taxation authorities of the
state and then pay the taxes according to the,e taxations rules and norms of the state. Only a
meager prize amount is not supposed to be brought the tax net (Western Australian Current
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Taxation Law 4
Regulations, 2014). This amount is different for the different country. However, if the prize
money excludes the minimum amount which is not liable to taxation, then it is mandatory for the
person to report to the taxation authorities of the state. The common practice adopted nowadays
is the deduction of the taxation amount by the prize distributor before awarding the prize to the
winner. Thus, the amount received by the winner is usually deducted for taxation. There are
different tax rates applicable to the different sum of money won. The rate of taxation also differs
from the activity by which the money is won (Bergsma and Tayal, 2018). For example, the tax
rate may be higher on the prize money earned from winning a horse race in comparison to the
money won through a lottery. Also, in case of a win of a horse race, the prize money is subjected
to taxation at a lower amount than the prize money won through the lottery. Usually, the taxation
rate on prize money is more than 25 percent which is very high in comparison to the tax rate
applicable to the income.
Is the annual payment income?
In the case provided to us, the annual payment must be considered as an income. Therefore, it
should be subjected to the rules and norms of taxation. This is so because the prize money which
is won by the participant seeks the same good and services which the income of the winner
seeks. In case the prize money is not subjected to taxation, the excessive amount of the money
possessed by the lottery winners will create a huge demand for the products and services
available in the market. The surge in the demand for the goods and services will eventually lead
to the scarcity of those goods and services which do not expect the new demand (Bennett, 2014).
This imbalance between the factors of supply and demand of the factors will result in the rise in
the prices of the goods and services. The increase will cause inflation of the goods and services.
Not only does this causes inflation in the market, but it also prohibits the regular customers from
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