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

This article discusses the taxation laws related to annual payment of income, calculation of taxable income for Corner Pharmacy, principle of tax avoidance, and evaluation of capital profit and loss for Joseph and Jane. It provides insights into relevant pharmaceutical benefit schemes and Australian taxation laws.

TAXATION LAW
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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
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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
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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).
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Rule
As per the Pharmaceutical Benefits Scheme, it is stated that a pharmacy has to keep both of the
copy of the prescription like the original copy as well s the carbon copy for reimbursement
procedure (aph.gov.au, 2018). According to the Australian government, which are registered
under this Pharmaceutical Benefits Scheme are liable to provide medicines to their customers
without taking full price of them (healthdirect.gov.au, 2018). A wide range of doctor prescribed
medicines can be purchased using this scheme as Australian government tends to provide
affordable and safe medication to all its citizens (Brett et al. 2018, p. 439). The Australian
citizens who have an authentic Medicare card are eligible for applying PBS (McKittrick and
McKenzie, 2018, p. 317). This scheme was introduced in Australia in 1953 when it got
registered under the National Health Act (legislation.gov.au, 2018). All the other countries that
have a reciprocal health care agreement with Australia will also get the benefit of this scheme
(Kelty et al. 2018, p. 78).
This benefit states that all the customers will have to pay a certain portion of the medicine and
the rest of the amount will be paid by the Australian government. The price structure of PBS is
also uncapped as certain medicines' price structure might increase as well in terms of demands
(Vitry and Roughead, 2014, p. 345).
Analysis
It is quite clearly identified that the taxable income of Corner Pharmacy assumes each of the
transaction records as per the accrual basis (Grossi et al. 2014, p. 32). As per the Pharmaceutical
Benefits Scheme, it is clearly mentioned that all the pharmacy shops will have to accept cash as
well as credit cards in order to operate the business within the country. Hence, the violation of
the Pharmaceutical Benefits Scheme will be happening in this case if Corner Pharmacy denies
accepting credit card in business transactions. Corner Pharmacy is liable to provide the
customers their desired medicines in credit cards too because as per Pharmaceutical Benefits
Scheme, the pharmacy shops have to accept credit cards while business transaction because
customers will not pay full money only to buy the medication (Page et al. 2015, p. 25). The law
also states to provide an accurate assumption purchase record so if Corner Pharmacy is not
keeping the transaction record statements then the violation of PBS will occur.
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Pharmaceutical Benefits Scheme mainly states that every customer will get a concession card
when they will purchase medicines from a respective pharmacy in Australia (Harris et al. 2017,
p.1). There is no such record of concession providing found in the recorded financial statement
of Corner Pharmacy. Hence, another aspect of PBS violation is observed to occur in this case of
Corner Pharmacy and they can get convicted of a serious punishable offense for not keeping
clear records of business operations and not following the guidelines of Pharmaceutical Benefits
Scheme.
Conclusion
At the end of this discussion, it can be concluded that the entire taxable income of Corner
Pharmacy incurred on the basis of annual financial expenditure is 45%. The pharmacy was
obligated to pay a lot more than this amount and the expected amount is $166500 and this
amount was supposed to pay by them at the very end of the financial year. Since the cash sales
cost structure and also the credit card sales cost structure both are the income source of Corner
Pharmacy so both of them are added in order to determine the total value of taxable income.
Question 3: Describe the Principle that was implemented in the case of IRC vs Duke of
Westminster [1936] AC 1
Issue
This case has been occurred many years ago which led to the establishment of principle of
avoidance of tax. Duke of Westminster paid £ 3 to his gardener every week. By making an
agreement with his gardener he stopped paying the weekly wage and accessed into a contract to
pay the gardener an equal amount. Based on the taxation law of 1929 to 1932, the wage of
gardener would not have given rise to decreasing of tax. On the other hand, the contract
decreases the liability of Duke in the context of the surtax. Now, on to thrive on this violation of
taxation law, this case came into the notice of House of Lords. Lord Tomlin made a statement
and it had become the principles, moreover, such principles mainly deal with tax avoidance.
Rules
In accordance with the Income Tax Act of 1936 (Cth0), the provision of tax avoidance is
complex which can be found in Part IVA of the ITA 1936. Moreover, this law renders the
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authority of the Commissioner of Taxation regarding the rejection of tax that has been based
under Part IVA (Asuzu, 2017, p. 80). The commissioner intervenes regarding the construction of
assessment if taxable income determines certain after the rejection of benefit of tax. The
principles that have been implemented, during the case of IRC vs Duke of Westminster 1936 AC
1, mentioned that an individual is bound to gather its affair legitimately with the purpose of
decreasing the burden of tax (Phillips, 2018, p. 20). The rules and regulation mentioned by Lord
Tomlin, that every person needs to gather affairs, therefore, to avoid the burden of a tax.
Analysis
The above-mentioned case study mentioned case study has mentioned a case between IRC vs
Duke of Westminster, this case has led to the establishment of principle of tax avoidance. Lord
Tomlin had declared that every man is bound to order his or her affairs; therefore, the tax
attached based on accurate act would be less than otherwise. Now, onto thrive on this case, a
similar case has occurred in the year 2005, TRENNERY V WEST (INSPECTOR OF TAXES):
HL 27 JAN 2005. In this case, the declaration had been made by imposing a charge on the profits
based on a settlement under a specific situation of Taxation Chargeable Act 1992 77 (1).
Conclusion
From the case study of IRC vs Duke of Westminster, it is concluded that the applicable doctrine
of tax avoidance by the arrangement of expenditure and income issue can be considered as
relevant. The principle which was founded during the case of Duke of Westminster has relevance
with Australia Taxation law. Moreover, that case was closed by a statement, which was made by
Lord Tomlin that the accuser cannot compel an individual regarding its amalgamation of affairs
of tax evasion.
Question 4: Evaluation of capital profit and loss in terms of Joseph and Jane
Issue
Joseph and Jane, a married couple borrowed an amount of money to acquire an asset property
(house) as joint tenants. They signed an agreement which actually mentioned that Joseph will get
20% of the total profit and Jane will get 80% of the total profit from the rental property.
Furthermore, the agreement also mentioned that if the asset generates a loss, in this context,
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Joseph has to bear the loss of 100%. The rental property had already incurred a loss which roses
to $40,000.
Rule
In accordance with the Australian Law of Taxation, the division asset income between the couple
is bound for the payment of 20% and 80% interest (Graetz and Warren, 2016, p. 20). Whenever a
case arises regarding the division of interest which is mentioned in the agreement, the interest is
segregated in proportion from the equivalent division will have no impact on tax. The issues
arise that the loss of 100% will be conveyed by Joseph, which is not allowed regarding the
Australian Law of Taxation (Cobiac et al. 2017, p. 14). The decision regarding the selling of
rental property by Joseph for eradicating loss of capital by 100% is a necessity to balance the
capital gain in the preliminary stage.
Analysis
In the case study of Joseph and his wife who has borrowed money in order to purchase a rental
house and share profit of 20% and 80% regarding the Taxation Law of Australia. Hence, the loss
of $40000 was totally suffered by Joseph, which has no relevance in this case. In accordance to
the Capital Gain Tax; after 19th September 1985 purchasing NBA and selling of an asset will
incur both capital gain and loss on the asset. The capital gain of an asset is estimated by
subtracting the price of capital and additional capital expenditure with a sale price. On the other
hand, the Australian Law of Taxation has mentioned that capital loss will be incurred by joint
partners which need to the allocated equivalently.
Conclusion
The case study was able to conclude that, regarding the Taxation Law of Australia, if the profits
are allocated in the ratio of 20% to Joseph and 80% to Jane, then the loss confronted by asset
need to be divided equally. A capital loss of $40000 faced by selling of rental asset needs to be
accounted for the balance of preliminary capital gain. Taxation is the procedures of gathering an
amount from an individual by the Government across this globe. The below-mentioned case
study gives importance mainly to the Law of Taxation in the country of Australia which is based
on the current scenario.
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