Taxation Law

This document provides answers to questions related to taxation law, including capital gains tax, CGT assets, personal use assets, and more. It explains the rules and regulations surrounding these topics and provides examples to illustrate the concepts. The document also discusses the taxation of earnings from selling copyright and publication of books, as well as the taxability of interest received on loans. It is a valuable resource for students studying taxation law.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................6
References:.................................................................................................................................9

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Answer to question 1:
Requirement A:
The capital gains tax should not be viewed as the separate form of tax. The provision
of capital gain is applied on the assets that are purchased on or following the introduction of
CGT on September 20, 1985. The assets which is purchased before the CGT regimes got
introduced, should be treated as pre-CGT asset. Any kind of gains that is made from the pre-
CGT asset is simply ignored from the provision of CGT (Klein, Bankman and Shaviro 2013).
In other words the capital gains from the pre-CGT asset is exempted from tax.
The client here Helen held an antique impression painting which was acquired by her
father. The antique impression was acquired by her father in February 1985. This evidently
makes it clear that the asset is a pre-CGT asset because the client’s father here purchased it
before the CGT regimes were introduced. Upon the disposal of painting on 1st December
2018 the asset a capital gains were derived by the client. Since the painting is bought prior to
the introduction of CGT regime, the gains are exempted from CGT.
Requirement 2:
A CGT asset under “sec 108-5, ITA Act 1997” includes any form of property or the
legal or equitable right which may not be held as property. The CGT event A1 amounts to the
disposal of the CGT asset under “sec 104-10 (1), ITA Act 1997”. A person disposes the CGT
asset when there is an actual change in the ownership happens (Lockwood 2016). The
definition of collectables as per “sec 108-10 (2)” includes the art work, rare folio, antiques,
coins or medallion that are mostly for the enjoyment and usage of taxpayer on private basis.
“Sec 102-5, ITA Act 1997” explains that a person is required to include in their assessable
income net capital gain derived during the income year.

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The client here Helen, disposes the sculpture which purchased back in December
1993. The sculpture was sold for $6,000 with cost base of $5,500. Within the legislative
provision of “sec 104-10 (1), ITA Act 1997” the disposal of sculpture led to CGT event A1.
Within the legislation of “sec 102-5, ITA Act 1997”, the capital gain that is made from the
collectable should be included by client here in her assessable income for the relevant income
year.
Requirement C:
There are special rules that is applied on the collectables. Denoting “sec 108-10 (1),
ITA Act 1997” on suffering capital loss from collectable the loss should be quarantined
(Berliant and Gouveia 2018). The loss from collectables must be reduced from capital gains
on other collectables. Similarly, the client here Helen has purchased the antique jewellery for
14,000. But it was eventually sold for a loss with the sale value of $13,000, thereby incurring
a loss of $1,000. The client here Helen is advised to lower the loss by setting the same off
against the gains from historical sculpture.
Requirement D:
The definition of the personal use asset (PUA’s) is given in “sec 108-20 (2)” as a
CGT asset apart from collectable that are used for private enjoyment (Kaplow 2019). These
assets usually comprise of boats, yacht, vehicles, electronic items, household items etc. While
“sec 118-10 (3)”, says that when noticing the cost of asset is less than $10,000 then the
taxpayer must ignore the capital gains made from those assets.
The client here Helen disposed the picture which is a personal use asset for a sale
price of $5,000 that her mother bought in March 1987 for $470. The case facts presents that
the picture has the cost price of less than $10,000. Under the legislation of “118-10 (3)” the

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gains made from picture should be ignored by Helen because its cost base is less than
$10,000.
Answer to question 2:
Issues:
The case introduces the issue that the money that is obtained from selling the
copyright and publication of books is an ordinary income under “sec6-5, ITA Act 1997”.
Rule:
As explained in “sec-6-5-ITA Act 1997”, the taxpayer’s chargeable earnings consist
of the earnings in accordance with the ordinary sense (Oishi, Kushlev and Schimmack 2018).
The legislation does not offer any kind of expression regarding the earnings from ordinary
meaning. The income from ordinary conceptions involves the payment that are periodic
receipts. The payment also involves the reward relating to provision of personal service. The
ordinary concept payment includes the services that are rendered with the purpose of
receiving payment.
The income is treated significant because of the importance and it is not simply
considered as the nominal amount to meet the inconvenience of taxpayer or the cost incurred.
The earnings derived by a person from personal exertion involves the salary, fees,
commissions etc. The general principles explain that there should be adequate relation amid
the benefit that is obtained and the personal exertion. The general principle of “sec 6 (1),
ITAA 1936” explains that the amount or the benefit received constitute the reward or the
product of personal exertion (Ábrahám, Koehne and Pavoni 2016). To treat the personal

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exertion income, it is not necessary that there should be employment relation or business
relation. It generally comprises of the personal effort such as providing service.
The explanation can be supported by adopting the example of “FCT v Brent (1971)”
the court treated the payment as income when she was given money for telling describing the
story to newspaper for making publication (Boadway, Song and Tremblay 2017). In another
example of “Hobbs v Hussey (1942)” the taxpayer was held taxable for receiving the amount
of £1500 for assigning the right of autobiography for its exclusive publication in the
newspaper article.
Accordingly, in “Housden v Marshall (1958)” where the taxpayer sold the
experience of jockey along with newspaper cuttings was held as income under the ordinary
concepts.
Application:
The indications gained from Barbara case suggest that she is a researcher in
economics. On one occasion a publishing company named Eco Books Ltd approached
Barbara to write a book for them. Though Barbara never wrote a book earlier she ended up
writing the book named Principles of Economics. Upon writing the book, the publishing
company paid Barbara a sum of $13,000.
In accordance to above explanation of case facts it can be understood that even though
there was no such as employment relation or business relation between Barbara and Eco
Books Ltd she rendered a personal service of writing the book. There is an adequate link
among the amount and the personal exertion. With respect to “sec 6 (1), ITA Act 1936” the
amount of $13,000 that is received by Barbara amounts to the product of private efforts.
To support the explanation above, example of “FCT v Brent (1971)” is considered in
the case of Barbara (Sattinger 2017). Barbara made herself available to Eco Books Ltd to

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write the book and was duly rewarded with the sum of $13,000 for rendering her services.
The amount is some earnings from private effort which is taxable under ordinary sense of
“sec 6-5, ITA Act 1997”.
She further receives a sum of $13,500 from the Eco Books Ltd. The amount was
received by her from conferring the copyright of the books for its exclusive publication.
Mentioning “Hobbs v Hussey (1942)” the taxpayer here Barbara will be considered taxable
for the amount of $13,500 under the ordinary meaning of “sec 6-5, ITA Act 1997” when she
granted the right of books for its publications. The amount received by her is in exchange of
her personal services and the amount of time invested by her.
Finally, she sells the manuscripts of interview and books to the library in exchange of
money. Considering the court’s response in “Housden v Marshall (1958)” the agreement of
Barbara to sell the manuscripts to library and in exchange receiving money amounts to
ordinary income which is taxable under “sect 6-5, ITA Act 1997”.
If in the alternative situation Barbara writes the book in her free time and only sells in
the late stages then the money that she will receive from the sale of books is a taxable
ordinary income from the personal efforts only. The receipts would have been treated as
ordinary income under “sect 6-5, ITA Act 1997”.
Conclusion:
So the case analysis above can be brought to conclusion by explaining that the monies
that is earned by Barbara from her personal efforts is a personal exertion income and taxable
under “sect 6-5, ITA Act 1997” as ordinary earrings.
Answer to question 3:
Issues:

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Whether or not the money that is received in the form of interest on loan with respect
to the loan agreement is taxable as ordinary earnings under the “sec 6-5, ITA Act 1997”?
Rule:
“Sec 6-5, ITA Act 1997” assesses the ordinary earnings for tax. It includes the
assessable earnings derived in respect of the ordinary concepts. To characterise an income, it
should be considered as money or can be transmitted to money (Black 2018). Another
characteristic include whether the income is periodic, recurring or regular in nature. It should
be noted that the receipts from the income generating activities should be viewed as ordinary
earnings. The court in “FCT v Harris (1980)” explained that there should adequate relation
among the receipts and the revenue creating activity.
The taxpayers will be subject to tax for their assessable income if the two
prerequisites of income are satisfied. This includes that the receipts should be easily cash
convertible and must be a real gain for the taxpayer. The gain requires the characterisation of
the courts to treat it as income. The commissioner in “Scott v CT (1935)” explained the
interpretation of income and stated that it should be determined with respect to ordinary sense
and use of mankind (Bronfenbrenner 2017). A gain that is considered periodic or treated as
regular in nature is most likely to be held as ordinary earnings rather than those that are paid
as the lump sum.
There are situations where the lump sum gains are characterised as income with
respect to ordinary conception. For instance, where the taxpayer receives the one off receipt
of interest under the loan agreement is treated as the ordinary income.
Application:
The circumstances of Patrick shows that he lent an amount of $52,000. The amount
was lent to his son David as the assistance to start new business. The son agreed to repay the

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amount of $52,000 to his father within the time of five years. The capital amount also
included the loan amount of $6,000 to be payable within the five year span (Mares and
Queralt 2015). However, as the situation developed later, the Son repaid the loan amount to
father in a span of two years. The payment was made through the cheque and also
accompanied a 5% of interest on loan.
By gauging into the situation of Patrick the equivalent amount of 5% that is received
on the borrowed from his son is an assessable income that is subjected to tax. Citing the case
of “CT v Scott (1935)” the amount of interest money that is received by Patrick is a real gain.
The receipt constitute earnings for Patrick which should be interpreted with reference to
ordinary conception. The receipt of interest fulfils both the pre-requisites of ordinary income
because it is cash convertible and real to Patrick. The one-off receipt of interest by Patrick
under the loan agreement is a gain that is having the characteristics of ordinary income
(Faccio and Xu 2015). Therefore, Patrick will be required to declare in his assessable income
the one-off receipt of loan interest which will attract tax liability under “sec-6-5 ITA Act
1997”. While it should be noted that the mode of payment does not precludes the tax liability
of the one-off receipt interest from loan agreement for Patrick because it is a real gain for the
taxpayer for the amount lent.
Conclusion:
The explanation above that is made, evidently makes it clear for the taxpayer that
Patrick will be assessable for the interest received under the loan arrangement. This is
because the amount is an income within the ordinary sense of “sec-6-5, ITA Act 1997”.

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References:
Ábrahám, Á., Koehne, S. and Pavoni, N., 2016. Optimal income taxation when asset taxation
is limited. Journal of Public Economics, 136, pp.14-29.
Berliant, M. and Gouveia, M., 2018. On the political economy of income taxation.
Black, D., 2018. The incidence of income taxes. Routledge.
Boadway, R., Song, Z. and Tremblay, J.F., 2017. Optimal Income Taxation and Job
Choice. The Scandinavian Journal of Economics, 119(4), pp.910-938.
Bronfenbrenner, M., 2017. Income distribution theory. Routledge.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis, 50(3), pp.277-300.
Kaplow, L., 2019. Market Power and Income Taxation (No. w25578). National Bureau of
Economic Research.
Klein, W.A., Bankman, J. and Shaviro, D.N., 2013. Federal income taxation (pp. 184-86).
Aspen Publishers.
Lockwood, B.B., 2016. Optimal income taxation with present bias. University of
Pennsylvania Working Paper.
Mares, I. and Queralt, D., 2015. The non-democratic origins of income
taxation. Comparative Political Studies, 48(14), pp.1974-2009.
Oishi, S., Kushlev, K. and Schimmack, U., 2018. Progressive taxation, income inequality,
and happiness. American Psychologist, 73(2), p.157.
Sattinger, M., 2017. Double limit analysis of optimal personal income taxation. Oxford
Economic Papers, 70(1), pp.93-113.

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