Taxation Law: Capital Gains Tax, Personal Exertion Income, and Taxable Income

This document explains the concepts of Capital Gains Tax, Personal Exertion Income, and Taxable Income in Taxation Law. It covers the applicability of CGT, collectibles, and personal assets, personal exertion income, and taxable income. The document also provides answers to questions related to these concepts.

Running head: TAXATION LAW
TAXATION LAW
Name of Student
Name of University
Author’s Note

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Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer 1:.....................................................................................................................................2
Answer 2:.....................................................................................................................................2
Answer 3:.....................................................................................................................................3
Answer 4:.....................................................................................................................................3
Answer to Question 2:.....................................................................................................................4
Answer to Question 3:.....................................................................................................................6
References:......................................................................................................................................9

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Answer to Question 1:
Answer 1:
As per stated in “s-102-20, ITAA 1997”, it is seen that when the event of CGT takes
place then only the taxpayers makes either capital gains or capital loss. It is said that when the
CGT asset is sold then the CGT event A1 takes place which is under the “s-104-10 (1) ITAA
1997”. Applicability of capital gain tax is possible under two situations namely when there is an
event of asset purchased or when the event occurred after 20 September, 1985 (Bankman et al.
2018). It is seen that there prevails the usage of post-CGT and pre-CGT takes place before and
after 20 September 1985 respectively. As per provided, an antique painting has been brought by
father of Halen in the month of February in the year 1985, for a sum of $4,000 from which it is
clearly evident that the painting is brought before the implication of CGT and so the sale of
antique painting will be exempted from the capital gains tax.
Answer 2:
The collectables things include rare folio, jewelry or the objects which can be stated as
antique (Brownlee 2016). As per stated in “S-108-10(2) of the ITAA 1997” collectible is
explained as the things which are used by the taxpayer for their own enjoyment mainly and less
focused on usage. The collectible which cost less than $500 will not be treated under the “S-118-
10 (1), ITAA 1997” because it is exempted in accordance with the provision under “s-110-10
(1)”. The antique statue which was sold by Halen on 1st January, 2018 for $6000 was originally
bought by Halen for $5,500. The profit of $500 which is realized by Halen will fall under the
purview of the assessable income coming from capital gain so Halen will be taxable under the
CGT act.

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Answer 3:
When the cost of collectible item is lower than $500 and it falls under the first element of
collectible cost then it is to be disregarded under the “s-118-10 (2), ITAA 1997” capital gains or
capital gain loss. As per stated in “s-(1), ITAA 1997” that the capital losses which are realized
from the collectible item which can only help to reduce the capital gains from the collectible item
(Schmalbeck, Zelenak and Lawsky 2015). As per provided, Halen has bought an item of jewelry
of $14,000 during October 1987 which is an antique item and sold by Halen for $13,000. This
deal cost Halen a capital loss of $1,000. As per stated in “s-108-10 (1), ITAA 1997”, it explains
the quarantining rule, that the capital loss which is incurred during the case of sale of jewelry are
balanced with the capital gains made in the sale of collectible item. The capital gain made from
the sale of antique statue is balanced from the sale of jewelry where Halen incurred capital loss.
Answer 4:
As per stated in “s-108-20 (2), ITAA 1997” the personal asset is said to be the asset
which is used by the taxpayer for his enjoyment or for personal use. There are some rules which
is imposed on the usage of the personal asset (Towery 2017). This is best explained in the
provision under “s-110-10 (3), ITAA 1997” when the base of the cost is lower than $10,000
under the first element which is used for personal use asset are to be neglect from the collectibles
pof capital gains or capital losses.
As per stated in the mentioned case, the mother of Halen bought a picture for a sum of
$470 in the year of 1987 was sold by Halen. From the above mentioned situation it is evident
that the use of picture can be stated under the “s-108-20 (2), ITAA 1997”. Rom the above
situation it is also evident that the cost of picture which is bought for personal use is $10,000 and
cpital gains has been realized. So this is applicable for assessment purpose under the CGT act.

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Answer to Question 2:
As per stated under the “S-6 of the ITAA 1936” personal exertion income which the
taxpayer earned includes superannuation, wages, bonuses, salaries after conducting business or
rendering any kind of service to the business is stated as the revenue in favor of taxpayer. The
amount received from the taxpayer needs to have adequate connection with the benefit enjoyed
by the taxpayer will be treated as a reward or it can also be said as personal exertion.
As per stated under the “S-6-5, ITAA 1997” the maximum part of the income earned by
the taxpayer while rendering business activities or providing services are held as ordinary
income. The amount which received by the taxpayer while conducting business activities or any
kind of services rendered are to be treated as reward for the services provided. The same case
also be seen in the case of “Brent v FCT (1971)” the spouse of the train robber who is the
taxpayer allowed media and also provided the exclusive right to the media for the purpose of
publishing her life story (Buenker 2018). The court seen that the income of the wife of the train
robber which is received by providing the permission to the media for the exclusive interview
about her life story will be treated as the reward received in exchange for providing the above
mentioned publishing right.
As per stated in the “copyright Act 1968” the manner which copyright will be treated is
similar to the manner the way the personal property is treated because it possess the striking
similarity between them (Schenk 2017). The general definition of the copyright says that the
payment which is made against the sale of copyright or sale of rights which falls under the
purview of provision of copyright must not be treated as royalties since it does not treated as
payment for the usage of item. The receipt which is returned against the sale of copyrights must
be treated as sale of assets but it cannot be treated as copyright.

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As happened in the case of “McCauley v FCT (1944)”the payment received from the
partial or full assignment of copyright will not be considered under the royalty because the
beneficiary of the asset will be the owner of the underlying property
As per the mentioned case of Barbara, who got an offer of $13,000 in return of writing a
book on the economics principles and she went on to write the book which means she aggress
with the offer. The amount which received by Barbara will be treated as income which raised
from personal exertion of writing the book or rendering the service under the “s-6, ITAA 1997”.
The amount rendered by Barbara will be treated as ordinary income as per mentioned under the
“s-6-5, ITAA 1997”.
In the later part of the case it is seen that the Barbara sold the copyright she holds
regarding the copyright of the book to Eco Book Ltd for the sum of $13,400. The amount
received by Barbara after selling the copyright of books to the company will be chargeable
earnings (Mertens, and Montiel Olea 2018). The taxpayer will be charged tax on the income
made after selling the copyright of books to the company which can also be treated a s capital
gain. The income received by Barbara is treated as taxable income because the payment was
made by Eco Books Ltd on the basis of time invested by Barbara and the services rendered by
Barbara for writing the book.
Barbara’s income falls under the taxable income because the amount gained by Barbara
in respect to the sale of manuscripts and interview manuscripts to the Eco Book Ltd which
amounts to income exertion. The amount received by Barbara totally based on the writing and
thinking skill and also the time invest by Barbara for the writing of the book (Ganbari et al.
2018). The income received is a rightful income from the personal exertion will fall under the

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taxable and ordinary income which falls under “s-6-5, ITAA 1997”. The above mentioned
explanation can be bring under the justification by stating that the amount received by Barbara
was not from business or any kind of profession rather it is rendered completely under the
income exertion.
If the situation from another side where Barbara writes the book in her spare time and
decides to sell it in future the amount which received by Barbara will be treated as the income
which will come from personal exertion. It is seen as the personal exertion because the personal
effort which was invested by Barbara while writing the books. This amount will be assessed
under the “s-6-5, ITAA 1997”.
Answer to Question 3:
The taxpayer realties the income when an item which has some monetary value and the
income can be analyzed brings to home. The income character which can also be stated as item
can be realized as gain on its realizable value. The character of the item can be treated as income
in respect to the taxpayer who possesses such item. When the taxpayer extracts the income it can
be said as gain by the taxpayer. The item when become profitable for the taxpayer then it turns
out to be taxable. As happened in the case of “Hochestrasser v Mayes (1960)” the item which
have income matter perseverance to its name it can have real gain for the taxpayer as the
taxpayer can derive from it (Onu and Oats 2018).
The effect which can be determined from the income which is taxable for the parents
because they have lent an amount of $52,000 to his own son David, who wants to utilize the
money for starting a new business. After period of 5 years the amount which is excess received

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by the parents will be treated as tax liability. The amount which is considered as the gift requires
the repayment by the taxpayer which will go from the part of income of the taxpayer.
Patrick received the amount of $52,000 will be regarded as capital payment will be
considered for the assessment of the amount. When the interest received by Patrick after the end
of five years will be treated as the taxation because it falls under the portion of the income.
The income received by Pattrick which falls under the taxable income did not possess any
kind of formal agreement or demand security and verbal forgoing of the income that is recireved
from interest. The interest received by Patrick will be taxable after the second year when the
amount is actually received by the Patrick. While filling the tax return for Patrick the interest will
be considered as the assessable income.
As per the case mentioned, David, the mode of payment which will be adopted by David
which may be through the single cheque or the payment made on the other mode of payment, it
will provide any effect on the tax calculation of the income. The most important thing which
should be considered when the calculation of taxable income is being made is the intention
behind the income. Treating the payment made to the friends, acquaintances and relatives of the
taxpayer obtained from the case warrants it to be a gift by Australian Taxation Office.
In accordance with the rules and regulation the interest received wil be taxable under the
taxation system of Australia. In the period of five years is permitted gift tax limit of $52, 000 to
Patrick. It can be concluded that in accordance of “section 6-5, ITAA 1997” the interest income
which is received will be taken into consideration for the calculation of taxable income (Alm,
Liu and Zhang 2019). The reason behind the taxable condition is because it has the
characteristics of taxable income as per the case of Patrick. Patrick’s interest income can be

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considered into the assessable income for the purpose of tax. From the above situation it can be
understood that the interest income falls under the purview of the taxable income.

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References:
Alm, J., Liu, Y. and Zhang, K., 2019. Financial constraints and firm tax evasion. International
Tax and Public Finance, 26(1), pp.71-102.
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2018. Federal Income Taxation.
Aspen Publishers.
Brownlee, W.E., 2016. Federal Taxation in Australia. Cambridge University Press.
Buenker, J.D., 2018. The Income Tax and the Progressive Era. Routledge.
Ganbari, M., Nouri, Z., Mahdavi, M., Nezhad, M.A., Azizi, Z. and Moghadam, A.D., 2018.
Investigation of Relation between Tax Laws and Regulations and Tax Evasion. International
Review of Management and Marketing, 8(1), pp.73-78.
Mertens, K. and Montiel Olea, J.L., 2018. Marginal tax rates and income: New time series
evidence. The Quarterly Journal of Economics, 133(4), pp.1803-1884.
Onu, D. and Oats, L., 2018. Tax talk: an exploration of online discussions among
taxpayers. Journal of Business Ethics, 149(4), pp.931-944.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schmalbeck, R., Zelenak, L. and Lawsky, S.B., 2015. Federal Income Taxation. Wolters Kluwer
Law & Business.

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Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial
reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5),
pp.201-226.