Taxation Law: CGT Implications and Income from Personal Exertion

This document discusses the CGT implications arising from the sale of antique painting, historical sculpture, antique jewellery, and picture. It also explains the income from personal exertion in situations involving the writing and selling of a book. Additionally, it discusses whether the repayment of a loan amount is assessable income for tax purposes.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

1TAXATION LAW
Answer 1
Item 1
The CGT implications arising out of the sale of sale of antique painting by Helen.
Antique painting implies CGT asset and to be more precise a collectible as provided in
section 108.10 of the ITAA 1997. A CGT liability is said to have accrued under section 102.2
only if a CGT event has occurred under section 104.5. The disposal of a CGT asset by way of
sale is to be considered under A1 category of CGT events under section 104.10. The time of
procurement of the CGT asset is said to have effected, if the same has conferred upon the
taxpayer an ownership over the asset as has been made evident in section 109.5.
The facts of the case does not present any clear picture about the timing at which the painting
has been procured by Helen. The reason behind the same is that the painting has been
acquired by her father. If the painting has been purchased prior to 20/09/1985, it would have
been treated as a pre-CGT asset which would have rendered the transaction relating to the
asset to be an exemption from the computation of CGT. However if the procurement of such
a asset has been made subsequent to that date it will be treated as a collectible. The cost base
pertaining to the asset will be the procurement cost of the acid that is element one of the cost
base amounting to $4,000 as provided in section 110.25. Again there is a probability that the
asset might have been acquired by Helen by way of gift or succession. In such a case the cost
base will be modified by the market value as per section 112.20. The capital proceed will be
the proceeds earned from the sale that is $12000 in section 116.20. The CGT gain will be
computed by deducting the CB from the CP. A father 50% discount under div 115 will be
allowed if the acid has been retained by her for more than 1 year.
Item 2
The CGT implications arising out of the sale of sale of historical sculpture by Helen.

2TAXATION LAW
Historical sculpture implies CGT asset and to be more precise a collectible as provided in
section 108.10 of the ITAA 1997. A CGT liability is said to have accrued under section 102.2
only if a CGT event has occurred under section 104.5. The disposal of a CGT asset by way of
sale is to be considered under A1 category of CGT events under section 104.10. The time of
procurement of the CGT asset is said to have effected, if the same has conferred upon the
taxpayer an ownership over the asset as has been made evident in section 109.5.
In this case the historical sculpture will be treated as a collectible. The cost base pertaining to
the asset will be the procurement cost of the asset that is element one of the cost base
amounting to $5500 as provided in section 110.25. The capital proceed will be the proceeds
earned from the sale that is $6000 in section 116.20. The CGT gain will be computed by
deducting the CB from the CP. A further 50% discount under div 115 will be allowed if the
acid has been retained by her for more than 1 year. The deduction of the cost base from the
cost proceed presents a CGT gain of $500.
Item 3
The CGT implications arising out of the sale of sale of antique jewellery by Helen.
Antique jewellery implies CGT asset and to be more precise a collectible as provided in
section 108.10 of the ITAA 1997. A CGT liability is said to have accrued under section 102.2
only if a CGT event has occurred under section 104.5. The disposal of a CGT asset by way of
sale is to be considered under A1 category of CGT events under section 104.10. The time of
procurement of the CGT asset is said to have effected, if the same has conferred upon the
taxpayer an ownership over the asset as has been made evident in section 109.5.
In this case the antique jewellery will be treated as a collectible. The cost base pertaining to
the asset will be the procurement cost of the asset that is element one of the cost base
amounting to $14000 as provided in section 110.25. The capital proceed will be the proceeds

3TAXATION LAW
earned from the sale that is $13000 in section 116.20. The CGT gain will be computed by
deducting the CB from the CP. A father 50% discount under div 115 will be allowed if the
acid has been retained by her for more than 1 year. The deduction of the cost base from the
cost proceed presents a CGT loss of $1000.
Item 4
The CGT implications arising out of the sale of sale of picture by Helen.
Picture is a capital gain asset as provided in section 108.10 of the ITAA 1997. It needs to be
regarded as a collectible. A CGT liability is said to have accrued under section 102.2 when
accompanied by CGT event has occurred under section 104.5. The disposal of a CGT asset
by way of sale is to be considered under A1 category of CGT events under section 104.10.
The time of procurement of the CGT asset is said to have effected, if the same has conferred
upon the taxpayer an ownership over the asset as has been made evident in section 109.5.
The facts of the case does not present any clear picture about the timing at which the picture
has been procured by Helen. The reason behind the same is that the painting has been
acquired by her mother. If the painting has been purchased prior to 20/09/1985, it would have
been treated as a pre-CGT asset which would have rendered the transaction relating to the
asset to be an exemption from the computation of CGT. The cost base pertaining to the asset
will be the procurement cost of the asset that is element one of the cost base amounting to
$470 as provided in section 110.25. Again there is a probability that the asset might have
been acquired by Helen by way of gift or succession. In such a case the cost base will be
modified by the market value as per section 112.20. The capital proceed will be the proceeds
earned from the sale that is $5000 in section 116.20. The CGT gain will be computed by
deducting the CB from the CP. A further 50% discount under div 115 will be allowed if the
acid has been retained by her for more than 1 year.

4TAXATION LAW
Answer 2
Situation 1
The concerning facts relating to the case presents the issue that whether the payment received
by Barbara from the writing of the book as offered by Eco Books Ltd can be treated as an
income from personal exertion.
Section 6.1 the Income Tax Assessment Act 1936 provides the definition of the term income
from personal exertion. As has been decided in the case of Tupicoff v. FCT 84 ATC 4851 a
receipt earned through ordinary concepts will only be treated as an income from personal
exertion if the same has been accrued to the taxpayer as a gain or a reward accruing from the
income yielding activity.
The writing of the book as offered by Eco Books Ltd has earned Barbara an amount of
$13,000. This receipt is required to be treated as an ordinary income as it has been flowing
from the application of personnel labour. Hence this income can be treated as an income from
personal exertion.
The assigning of the copyright of the book by Barbara to the Eco Books Ltd for a price of
$13400 is required to be treated as a Capital gain. This is because as per the principles
established in the case of Pacific Film Laboratories v Commissioner of Tax [1970] HCA 36
copyright is required to be treated as a Capital asset.
The selling of the manuscript pertaining to the book for a price of $4350 is required to be
treated as an income from personal exertion. This can be supported with the case of D.F.C. of
T. v. Purcell (1921) 29 CLR.

5TAXATION LAW
The selling of the manuscript pertaining to the interview for a price of $3200 is required to be
treated as an income from personal exertion. This can be supported with the case of D.F.C. of
T. v. Purcell (1921) 29 CLR.
Situation 2
The alternative issue in this situation is whether the income from the selling of the book
would have been treated as income from personal exertion if Barbara had written the book in
his spare time and decided to dispose it afterwards.
The Tax Ruling 97/11 makes it clear that an income from hobby will not be treated as an
assessable income in the hands of the taxpayer. Hence, income from the book if written in
spare time will not be assessable in the hands of Barbara.
Answer 3
The issue in this circumstances is whether the repayment of the loan amount will be treated as
in assessable income for Patrick.
Income that has been earned buy ordinary concepts will be required to the assessed as
ordinary income under section 6.5 ITAA 97.
As has been held in the case of Hochstrasser v Mayes 1960 AC 376 a receipt will only be
treated as an income if the same has been attached as a gain to the taxpayer.
The receipt need to comply with all the essentials of an income to be rendered as an income
assessable in the hands of the taxpayer. This can be supported with the case of Federal Wharf
Co Ltd v DFCT 22.
In this case, the loan extended by Patrick was $52,000 and repayment agreed was $58,000.
Additional amount of $6,000 has been agreed upon to be paid upon the loan amount.
Moreover an additional amount of 5% on the loan amount has been paid by David at the end

6TAXATION LAW
of the 5 years. Both the additional 5% as well as the $6,000 can be evidenced as a gain
accrued to Patrick. Hence being a gain, this can be treated as an income in the hands of
Patrick. This can be supported with the case of Hochstrasser v Mayes 1960 AC 376.
Therefore it can be concluded that the repayment of the loan amount will be treated as in
assessable income for Patrick.

7TAXATION LAW
Reference
D.F.C. of T. v. Purcell (1921) 29 CLR
Federal Wharf Co Ltd v DFCT 22
Hochstrasser v Mayes 1960 AC 376
Pacific Film Laboratories v Commissioner of Tax [1970] HCA 36
Tax Ruling 97/11
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
Tupicoff v. FCT 84 ATC 4851