Taxation Law: Annual Payment of Income, Calculation of Taxable Income for Corner Pharmacy, Principle of Tax Avoidance, Evaluation of Capital Profit and Loss for Joseph and Jane

TAXATION LAW
1

Table of Contents
Question 1: Describe with proper reason annual payment of income is an Income........................3
Question 2: Calculation of the taxable income amount of Corner Pharmacy and an explanation of
the relevant pharmaceutical benefit schemes..................................................................................4
Question 3: Describe the Principle that was implemented in the case of IRC vs Duke of
Westminster [1936] AC 1................................................................................................................6
Question 4: Evaluation of capital profit and loss in terms of Joseph and Jane...............................8
References......................................................................................................................................10
2

Question 1: Describe with proper reason annual payment of income is an Income
Issue
A lottery commission has arranged a lottery which has been termed as "Set for Life" and decided
to pay $50000 every year (consecutive to 20 years) to the winner who will scratch "Set for Life"
lottery. When the winner of this lottery will be declared, that individual person will get an
amount of $50000. Moreover, the second payment will be permissible for the lottery's
anniversary regarding the initial payment. In this context, an issue has been aroused regarding
the payment of lottery which will be made after the death of an individual winner.
Rule
The Federal Government of Australia has already been declared that every lottery winner is
considered to be taxable for such income. In the context of the death of a winner, the tax needs to
be paid by the winner's guarantee (classic.austlii.edu.au, 2018). Rules of Registration 24 of 2014
mentioned that every winner of a lottery is not considered as taxable to those who possess
ordinary income (classic.austlii.edu.au, 2018). The customs of HM do not term lottery prize as a
generator of income, therefore, such lottery amount considered as tax-free. In accordance to the
Income Tax Assessment Act of 1936, the grantee receives a handsome amount after the death of
lottery winner.
Analysis
The issue rises whether to consider lottery winning as an income or not. In accordance with the
Australian Income Tax laws and regulation, it has been stated that the amount received by the
grantee is a part of an estate also (Saad, 2014, p. 1069). In this context, the grantee is needed to
pay 40% of Inheritance Tax, which the individual had already signed an agreement before the
death of the winner (Cassidy and Cheng, 2017, p. 25). A lucid drafted agreement (with a
signature of the grantee) will save the syndicates of a lottery from the risk of nonpaying of tax on
the amount of lottery winning.
Australian Federal estates tax involves receiving the lottery winning amount after the demise of a
winner, which will be valued on the fair rate of market. The Customs (HMRC) and HM Revenue
3

will charge tax on the lottery winning amount based on the Inheritance Tax (IHT) (Evans et al.
2015, p. 735). The taxation scale is as follows:
- Decreasing of tax by 20% if the winner dies after providing the amount in 3 to 4 years
- Decreasing of a rate of tax by 40% if the winner dies after providing the amount in 4 to 5 years
This overall fact of taxation on the winning of lottery totally depends, when the grantee signs an
agreement for paying the tax after the winner’s death within 7 years (Symes, 2016, p. 50).
Conclusion
The above-mentioned analysis regarding the diagnosis of lottery winning has been concluded.
The annual income of the grantee, if it has been banked, then the grantee is bound to pay tax on
such lottery winning amount, will be considered as Inheritance Tax of 40%. Moreover, the
grantee has to sign an agreement with winner before the death, therefore, the remaining tax has
to pay by the grantee after the demise of a winner, and this rule has also been concluded.
Question 2: Calculation of the taxable income amount of Corner Pharmacy and an
explanation of the relevant pharmaceutical benefit schemes
Issue
Corner Pharmacy is a respective pharmacy shop in Australia which does not prefer to include
credit cards operation in its business operating procedure. Although the pharmacy shop tends to
accept credit cards for sales operations still the prescriptions get filled up using certain schemes
registered under the Pharmaceutical benefit schemes. There is an existing issue of taxable
income that has to be paid by the Corner Pharmacy. In order to identify and determine the
taxable income of this respective pharmacy certain things are required to be measured such as
purchase or sales records, on stock record, rent charges and remuneration structure and so on.
These things will be measured as per the record of the present financial year only. Hence, the
taxable income of the chosen pharmaceutical shop named Corner Pharmacy has its taxable
income identified based on each individual transaction record of accrual basis and they can be
applied to both parts like credit card sales cost and cash sales cost (Lancaster et al. 2015, p.
1198).
4