Taxation Law

This document provides a comprehensive analysis of various scenarios related to taxation law. It discusses the CGT implications and rules for the sale of assets such as paintings, sculptures, and jewelry. It also explores the taxation of income earned from personal exertion and receipts from loan agreements. The document includes relevant case references and explanations of the applicable rules and regulations.

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

1TAXATION LAW
Question 1
Issue 1
The CGT implication of the sale of an antique painting purchase in February 1985 worth
$4000 and sold in in December 2018 for price of $12,000.
Rule
The profits as well as losses arising from the happening or not happening of a CGT event
will always imply a CGT loss or a CGT gain as per section 102.20 ITAA1997. The CGT
event that involves the seal affected with respect to work CGT asset is to be brought under
the purview of CGT event A1 as provided under section 104.10 ITAA1997. An asset is
allowed to be treated as a CGT asset, only if it can be proved that the acquisition of the same
has been affected on or after 20.09.85. Any asset acquired on a prior date to that of the
prescribed will be required to be treated as an exemption from the CGT computation.
Application
In the present instance the painting has been acquired on February 1985. This implies the
painting to be bought on a pre-CGT date rendering the asset to be a pre-CGT asset. Although
the disposal of such an asset would have fallen under the category of A1 of the CGT events
but the acquisition of the same prior to the introduction of CGT have rendered the transaction
to be excluded from the incidence of CGT. Hence this sale of the painting on December 2018
needs to be excluded from the computation of CGT.
Conclusion
Hence this sale of the painting on December 2018 needs to be excluded from the
computation of CGT.

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Issue 2
The CGT consequences of the sale of historical sculptor that has been purchase for rise of
$5,500 on December 1993 and sold on 1st January 2018 for a price of $6000.
Rule
Collectible depicts any commodity that has been possessed by the taxpayer for being used
in personal purpose and being held for personal enjoyment under section 108.10(2)
ITAA1997. All the antiques, artworks, jewellery and other similar objects are treated as a
collectible under this section. Any collectible whose worth fails to exceed $500 will not be
considered as a CGT asset as per section 118.10(1) ITAA1997. Such collectibles needs to be
treated as exemption from the computation of CGT as per section 110.10.
Application
Historical sculpture being an artwork as well as antique object is required to be treated as a
collectible. It has been purchased on 1993 and the sale was affected on 2018, this renders the
collectible to be a post-CGT asset. Again the price of the same has exceeded the threshold of
$500. The acquisition price in its entity is $5,500. This makes the collectible to have incurred
a gain. Being a CGT asset this gain is required to be treated as a CGT gain and needs to be
included in the computation of the CGT. Hence the sale of the historical sculpture by Helen
for a price of $6000 is required to be treated as a CGT gain and is need to be included in the
CGT computation.
Conclusion
Hence the sale of the historical sculpture by Helen for a price of $6000 is required to be
treated as a CGT gain and is need to be included in the CGT computation.

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Issue 3
The CGT implication of the antique jewellery box for a price of $14000 in October 1987
and sold for a price of $13,000 on March 2018.
Rule
A CGT loss is said to have occurred when any transaction relating to a CGT asset incurs a
loss to the taxpayer. In this context a collectible is also treated as a CGT asset when its price
exceeds $500. Any loss that accrues in any transaction relating to a CGT asset needs to be
treated as an offset against CGT gain. Again as per section 108. 10 ITAA1997, a loss that has
been caused by the transaction relating to a collectible, which is permitted as a CGT asset is
required to be treated as an offset against a collectible gain only. No other CGT gain can be
subjected to such an offset. If there is no collectible loss in a particular year, the loss is
required to be carried forward to the subsequent year.
Application
The antique jewellery was purchased in October 1987 for a price of $14,000. This makes it
a CGT asset and any transaction relating to the same is required to be treated as a component
of CGT computation. Moreover it is a collectible and the sale of the same has incurred a loss
to Helen. This transaction is required to be treated as an offset against any CGT asset that can
be treated as a collectible. This renders the transaction to be treated as an offset against the
sale of the historical sculpture.
Conclusion
Hence, the loss from the sale of the antique jewellery is required to be treated as an offset
against the profit from the sale of historical sculpture.

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Issue 4
The cgt implication of the picture sold by Helen for a price of 5000 dollars on 2018 which
was acquired by mother on 1987 for a price of $470.
Rule
Any commodity that has been held for personal use is required to be treated as a CGT
asset and subjected to taxation accordingly as per section 108.20 ITAA1997. For the purpose
of being treated as a CGT asset such a commodity needs to be worth more than $10,000. Any
commodity below that price will be treated as an exempt from the CGT computation.
Application
The picture that Helen sold for $5000 was acquired for the price of $470. This can be
treated as an object which has been acquired for being used for personal purposes. It is a CGT
asset and any transaction relating to the same is required to be treated as a CGT event.
However the cost of the picture feels to exceed the threshold limit of $10,000 and this makes
the asset to be excluded from the computation of CGT. Hence the picture sold by Helen need
to be excluded from the computation of CGT.
Conclusion
Hence the picture sold by Helen need to be excluded from the computation of CGT.
Question 2
Issue
Whether the income that Barbara has earned from the writing of the book can be treated as
an income from the application of personal exertion. Whether the same outcome can be
achieved if the book has been written by Barbara prior to the instituting of the contract as a
hobby and has been decided to be sold afterwards.

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Rule
The term income from personal exertion or income derived from personal exertion has
been defined in section 6 of ITAA1997. Salaries, commissions, bonuses, fees, superannuation
allowances, gratuities and other earnings that are earned with respect to any services rendered
by an employee is treated as an income from personal exertion. In this context, it can be said
that any income that an individual earns by the application of effort and labour is required to
be treated as an income from personal exertion when such an effort or labour has been given
towards the process of generating income, which is taxable. Hence, it can be stated that
incomes, which are earned by virtue of the employment relationship is required to be treated
as an income from the application of personal exertion. In certain cases the income accrued
from businesses are also treated as an income from personal exertion but for claiming the
same it needs to be established by the taxpayer that such a business has been solely carried
out by him or he has been acting as a partner in a partnership while earning that income. This
can be explained with the principles established in the case of.
Any income that the taxpayer earns with the help of personal efforts as well as services
rendered is required to be treated as an income from personal exertion, which is again
brought under the purview of ordinary income as per section 6.5. of the ITAA1997.
As has been held in the case of Federal Commissioner of Taxation v. Whitfords Beach
Pty. Ltd (1982) 150 CLR 355, copyright is treated as a CGT asset and any gain accruing from
the same is required to be treated as a CGT gain. However if the purpose of the creation of
the copyright has always been the earning of profit and the person creating the same has
applied personal exertion for the creation of the same, it needs to be treated as an ordinary
income.

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Application
In the present situation, Barbara has exerted efforts for the purpose of writing the book
that she has been offered by the Eco Books Ltd for a price of $13,000. This makes the receipt
of $13,000 to be an income accrued from the exertion of personal efforts and needs to be
treated as an income from personal exertion.
The spinning of the copyright of the book for a price of 13400 dollars is required to be
treated as a CGT gain. This is because copyright is required to be treated as a CGT asset.
The sale of manuscript of the book as well as the manuscript of the interviews are required
to be treated as an income on from personal exertion.
Again, in the alternative situation, if the book has been written by Barbara as a hobby and
later on she has decided to sale it, it would have been treated as an income from hobby and
would not be assessable.
Conclusion
The CGT implication of the transactions entered into by Barbara can be discussed as
above.
Question 3
Issue
Whether the receipt that Patrick has received under the arrangement between David and
him can be treated as an assessable income in the hands of Patrick.
Rule
As held in the case of Bective v Federal Commissioner of Taxation [1932] HCA 22, any
receipt that accrues as something beneficial towards the recipient is required to be treated as
an income for tax purposes.

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A receipt is only permissible as an income if the same has complied with all the
requirements and legal essentials of an income which is taxable in the hands of the taxpayer.
This can be explained with the principle established in the case of Hochstrasser v Mayes
[1960] AC 376. A receipt needs to be both complaint with all the requirements of income as
well as accruing benefit to the taxpayer to be rendered as an income assessable for the tax
purposes.
Those incomes, which accrues as a gain towards the taxpayer is only admitted to be
treated as a receipt. This has been made evident in the case of Scott v Commissioner of
Taxation (NSW) 1935 35 SR NSW 215. The element of beneficial receipt is required to be
present for the purpose of treating a receipt as an income.
Any income that has been earned through ordinary concepts is required to be assessed as
an ordinary income as per section 6.5 ITAA1997.
Application
In the present situation Patrick has loaned and amount of $52,000 to David on the basis of
an agreement to pay off the amount of $58,000 by David at the end of 5 years. No agreement
has been instituted between them for the purpose of accruing any interest with respect to the
loan extended. However the agreement between them requires David to pay an additional
amount of $6,000 to Patrick at the end of 5 years. This additional amount is required to be
treated as a gain in the taxable income of Patrick. This can further be supported with the case
of Bective v Federal Commissioner of Taxation [1932] HCA 22.
Again, at the end of 5 years, David has made the repayment of the loan with an additional
5% upon the amount borrowed. Although there has been no express agreement between the
two regarding the interest to be paid but as the additional amount is accrued to Patrick as a
gain, it needs to be treated as an income earned by Patrick under section 6.5 ITAA1997.

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Conclusion
The receipt will be taxable in the hands of Patrick as it has been received by him as a gain.

9TAXATION LAW
Reference
Bective v Federal Commissioner of Taxation [1932] HCA 22
Hochstrasser v Mayes [1960] AC 376
Scott v Commissioner of Taxation (NSW) 1935 35 SR NSW 215
Taxation v. Whitfords Beach Pty. Ltd (1982) 150 CLR 355
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997