Taxation Law

This document provides answers to questions related to taxation law. It discusses topics such as capital gains from antique painting, sculpture, jewellery, and picture. It also explores the characteristics of personal exertion income and one-off lump sum payments. The document includes relevant rules, case references, and application of the rules to the given scenarios.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:...................................................................................................2
Answer to question 2:...................................................................................................3
Answer to question 3:...................................................................................................5
References:..................................................................................................................7

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Answer to question 1:
Capital gains from antique painting:
Under the regimes of the CGT where it is noticed that the net capital gains is
accrued to the taxpayer in the particular year of income then the capital gains is
included into the taxable income of the taxpayer for that year (Oats 2014). It is worth
mentioning that the capital loss is not permitted for deduction from the taxable
income rather it is permitted for offset in the particular income year from the capital
gains to ascertain the net amount of capital gains.
The system of capital gains tax is generally applicable on the assets that is
purchased or events that happens following the 20 September 85. The taxpayers
must be aware of the concept such as pre-CGT and post-CGT asset that is regularly
used to refer to those assets that are purchased before or after the events. It is noted
that the painting has been purchased by father of Helen during the February 1985.
However, Helen in a bid to fund for her new business of fashion design has sold the
painting for $12,000 and made a capital gain. It is must be noted that the painting is
the pre-CGT asset because it was purchased before the system of CGT was
introduced. As a result, the capital gains will be exempted made by Helen will be
exempted.
Capital gains from sculpture:
The primary step of ascertaining whether the transaction or the event has
taken place is to ascertain whether the CGT event has happened. CGT event
generally applies to assets that is bought after 20/9/85. A CGT event A1 occurs
when the taxpayer sells the CGT asset under “s104-10” (Marshall, Smith and
Armstrong 2015). Accordingly, “s108-10(2)” explains that collectable is anything that
are mainly used by taxpayer for their own enjoyment purpose. They are generally the
artwork, jewellery, antique and coin.
Helen puts forward the information that an artwork sculpture was bought by
her in December 1993 for $5,500 but she sold it for $6,000 in January. A CGT event
A1 occurs when Helen sold the art sculpture under s104-10. The sculpture is
referred as collectable under “s108-10(2)”. The capital gains made from the
sculpture is taxable under the CGT regimes and under “s102-5” it will have included
in the net capital gain for that year as Helen’s assessable income.
Capital gains from jewellery:
Accordingly, the important rule discussed under “s108-10(1)” makes it clear
that capital loss from collectables is only used to offset capital gains from
collectables (Stuckey 2017). The antique jewellery was purchased in October 1987
for $14,000 by Helen was sold in march 2018 for $13,000. Therefore, under the
legislation of under “s108-10(1)” the capital loss that is made from the jewellery is
only allowed to offset from capital gains made from the sculpture.
Capital gains from picture:
The CGT asset also include the personal use assets under “subdiv 108-C”.
A personal use asset is non-collectable asset which is kept for taxpayer’s own use
(Braithwaite 2017). Examples of these assets include the furniture, vehicles,

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television, mobile phone etc. The special rules of “s118-10(3)” explain that capital
must be disregarded when the cost base of personal use asset is below 10k.
The mother of Helen bought a picture in March 1987 for $470 which was sold
in July 2018 for $5,000. The picture is treated as personal use asset under “subdiv
108-C”. As per the special rules of “s118-10(3)” the capital gains from picture
should be ignored by Helen because the cost base of picture is less than 10k.
Answer to question 2:
Issues:
The principle issue that will be discussed in the concerned case is the
characteristics of personal exertion payment that is received in the hands of
recipient.
Rule:
Accordingly, in “s6(1), ITAA 1936”, receipts that is connected with the
provision of services are characterised as the income earned from the personal
services or income earned from the personal exertion. The personal exertion
earnings under “s393-10”, includes the taxpayer’s salaries, wages, commissions,
bonus, allowances etc. that is generally received by the taxpayer by working as
employee (Mumford 2017). In order to treat the receipts connected to the provision
of service as income it is very much essential that the nexus is satisfied with the
income producing activities and amounts.
The reference to the court decision in “Eisner v Macomber (1920)” should
be considered where the court has explained that income might be treated as the
gain which is earned from the capital, labor or might be possessing the combination
both the capital and labor (Sakurai and Braithwaite 2019). With respect to the
decision cited above, the judgement also concluded by stating that income is
frequently treated as the flow from the capital asset. It is also considered as the
product an individual taxpayer’s personal efforts and exertion.
The salaries and wages that is earned by the employee is considered as one
of the classic example of receiving an income. The aforementioned statement can be
justified by referring to the example of “Dean & Anor v FCT 97” that took into the

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consideration the one-off retaining disbursements that was paid to the crucial staffs
of the business (Burman et al. 2016). The staffs were paid as the consideration of
the employees so that they continue to remain employed with the corporation for the
time period of one year even though the corporation was takeover. According the
decision of the federal court it was noticed that the payments were simply the salary
and wages that formed the part of remuneration for the services that was rendered
by the employee and clearly has the character of income.
One should denote the fact the reward for services is also a product of
personal service income or income earned through the personal exertion. To justify
the statement mentioned illustrations of the court decision in the event of “FCT v
Brent 71” can be discussed. The case took into the consideration the payment that
was received by the wife of train robber who granted the media company with the
right of publishing her story in the article of newspaper (Wanless 2018). The
agreement was entered by the wife of train robber with the media company to make
herself available for the interview and in exchange for her experiences she was paid
duly. The decision of court concluded that the amounts received were holding the
character of income and she was simply rewarded for her services.
Application:
Assembled information from the event of Barbara puts forward that she is an
economist researcher as well as commentator. A publisher named Eco Books Ltd
offered Barbara $13,000 for the purpose of writing the books on economics. Though
Barbara did not have any kind of previous experience of writing book, she did not
decline the offer given by Eco Books Ltd and began writing the book. She finally
wrote the book and was paid $13,000. Accordingly, for Barbara, under “s6(1), ITAA
1936”, receipts that is connected with her provision of services for writing the book is
characterised as the income earned from the personal services or income earned
from the personal exertion.
The example of “Dean & Anor v FCT 97” must be considered in case of
Barbara. The amount of $13,000 is a reward for services rendered. The amounts
received by Barbara is holding the character of income and she was simply
rewarded for her services. Accordingly, under “s6.5, ITAA 1997” Barbara will be
taxable for $13,000 as it is an income under ordinary concept.
She also assigns the copyright of her titled book to Eco Books Ltd and she
received a payment of $13,400. With reference to the example of “FCT v Brent 71”
the payment received in the hands of Barbara is having the nature of income. It is
worth mentioning that the neither did Barbara disposed any capital asset nor had she
assigned the copyright of the manuscripts which in, fact was the product of the
publisher. So the special knowledge possessed by Barbara should not be viewed as
the product of property right which resulted in the copyright. On the basis of this
justification, Barbara has been simply rewarded for her services and the payment of
$13,400 must be accordingly assessed under the ordinary meaning of “sec6-5, ITA
Act 1997”.
The manuscripts of the books and interview manuscripts was sold by Barbara
to the library which in return paid her an equivalent amount. By citing the example of
“Eisner v Macomber (1920)” it can be stated that the payment received from selling
the manuscripts amounts to ordinary income which is the flow from the capital asset

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and it constituted the product of Barbara’s personal exertion. The payment will be
taxable under the ordinary meaning of “sec6-5, ITAA 1997”.
Alternative case scenario for Barbara can be referred as well to treat the
payment as income. If the taxpayer here Barbara decides to write the book
whenever she was free and then selling the book to receive income, the payment
would have been characterised as personal exertion income which is taxable under
“sec6-5”.
Conclusion:
The nature of the payment that is received by Barbara is significant and was
not just to meet the taxpayer cost. The monies received were the personal exertion
income which is taxable under “sec6-5”.
Answer to question 3:
Issues:
The principle issue that will be discussed in the concerned case is the
characteristics of one-off lump sum payment that is received in the hands of recipient
from the loan agreement.
Rule:
According to the “sec6.5, ITA Act 1997” the taxable income of the taxpayer
comprises of the income earned with respect to the ordinary concept. It must be
noted by the taxpayer that the assessable income usually attracts tax liability and
commonly added into the taxable earnings of the taxpayer (Stiglitz 2015). The
assessable includes the statutory income as well as the ordinary income. The
statutory income is classified as the taxable earnings under the numerous provision
of the tax acts. This generally includes the net capital gains. It is worth mentioning
that the statutory income is taken into the consideration prior to implementing the
ordinary income as the amount that must be assessed under the most important
provision of “sec 6-25 (2)”.
A receipt is generally not considered as the genuine gain until it exhibits the
character of ordinary income. The court in “Hochstrasser v Mayes (1960)”
explained that for a receipts to be classified as gain it must be holding the character
of income (Robin 2019). The lump sum gains might be treated as the ordinary
income if it constitutes a real gain of the taxpayer. This usually comprises of the one-
off receipts of interest that is earned under the agreement of loan.
Application:
The application of the rules that is mentioned above can be referred in the
situation of Patrick. Gathered circumstances from the case facts states that Patrick
loaned his son David $52,000. There was no type of written agreement between the
father and the son but the son agreed to return his father the principle amount of
loan together with the interest of $6000 within five years. The son paid his father with
the full amount along with the five interest as interest on loan through a single
cheque within two years.
The receipt of loan interest by Patrick is a genuine gain here for the taxpayer.
Even though the amount was paid through a single cheque the interest that is

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received by Patrick is a product of one-off receipt of interest based on the loan given.
Mentioning the verdict of “Hochstrasser v Mayes (1960)” the interest amount
constitutes a real gain for the taxpayer. The interest amount is classified as statutory
income it is taxable under the provision of “s6-25(2)”.
Conclusion:
The receipt of interest is considered as the genuine gain for Patrick because it
exhibits the character of ordinary income. It is a one-off receipts of interest that is
earned under the agreement of loan.

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References:
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Burman, L.E., Gale, W.G., Gault, S., Kim, B., Nunns, J. and Rosenthal, S., 2016.
Financial transaction taxes in theory and practice. National Tax Journal, 69(1),
p.171.
Marshall, R., Smith, M. and Armstrong, R.W., 2015. Self-assessment and the tax
audit lottery: the Australian experience. Managerial Auditing Journal, 12(1), pp.9-15.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Oats, L. ed., 2014. Taxation: a fieldwork research handbook. Routledge.
Robin, H., 2019. Australian Taxation Law 2019. Oxford University Press.
Sakurai, Y. and Braithwaite, V., 2019. Taxpayers' perceptions of the ideal tax
adviser: Playing safe or saving dollars?. Centre for Tax System Integrity (CTSI),
Research School of Social Sciences, The Australian National University.
Stiglitz, J.E., 2015. In praise of frank Ramsey's contribution to the theory of
taxation. The Economic Journal, 125(583), pp.235-268.
Stuckey, R., 2017. Best practices for legal education.
Wanless, P.T., 2018. Taxation in centrally planned economies. Routledge.