Taxation Law

This document provides answers to questions related to taxation law. It discusses topics such as capital gains tax, personal exertion income, and statutory income. It also includes references for further reading.

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 impression painting:
Capital gains tax is not the separate tax. The regime of capital gains tax is
integrated into the income tax system (Friezer 2014). The most important rule of the
capital gains tax is that it is applied on the assets that are purchased on 20/9/85.
Assets that is purchased before this dates are simply ignored or exempted from the
capital gains tax.
Helen here reports that she has an antique impression painting that was
bought in February 1985. The painting cost was $4,000 but was sold for $12,000.
The disposal of painting has resulted in the capital gains for Helen. Most notably the
painting was bought before the capital gains tax regime was introduced or in other
words it was bought before 20/9/85. The capital gains that is derived from the
painting should be simply ignored by Helen and it is exempted from the capital gains
tax.
Sale of historical sculpture:
A CGT event A1 under the “s104-10(1)”, comes into the play when the CGT
asset is sold. The sale of CGT asset must happen in order to apply the CGT event.
Referring to the definition of collectible given in “s108-10(2)”, it includes the assets
that used by an individual taxpayer for their own enjoyment and use ( Dabner 2016).
Some notable examples of collectables include the artworks, antiques, rare stamps,
coin etc. “S102-5, ITA Act 97” explains that the net capital gains are included for
assessment as taxable income of taxpayer.
A historical sculpture was sold by Helen for $6000. The sculpture was
eventually bought for $5,500. It can be stated that the sale sculpture is a collectable
under the definition “s108-10(2)”. A CGT event A1 under the “s104-10(1)”, comes
into the force when the historical sculpture was sold. The capital gains that is made
from the sculpture is included for assessment as taxable income of taxpayer based
on “s102-5, ITA Act 97”.
Sale of antique jewellery:
The sale of antique jewellery has led to loss for Helen because the original
price of the jewellery was $14,000 when it was bought in 1987 but was sold for
lesser value of $13,000. As a result, there is a capital loss for Helen. The special rule
for the collectable under “s118-10(1)” the capital loss should be separated and only
permitted to offset against capital gains. Helen is advised to follow the quarantining
rule of “s108-10(2)” and offset the capital loss from antique jewellery with the gains
that is made from the historical sculpture. While the leftover loss must be carry
forward under “s108-10(4)” by Helen to next year.
Sale of picture:
A picture was purchased in 1987 by Helen’s mother. The price paid for the
picture was $470. The personal use asset is defined in “s108-20(2)” and includes
those assets that are used by taxpayer for their personal enjoyment ( Kenny 2014).
The assets are generally the furniture, vehicles, television, household goods etc. The
taxpayers are required to disregard capital gains when the asset has the cost of less
than $10k under “s118-10(3)”.

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The purchase price of the picture is $470 only and it is less than 10k rule
given under “s118-10(3)” so the capital gains that is made from picture should be
disregarded by Helen.
Answer to question 2:
Issues:
The central issue to the problem is determining the tax consequences of the
income that is received by the taxpayer from writing the book and assigning the
copyright title of the book to the publisher.
Rule:
The income from the personal exertion is regarded as the category of income
that comprises of the remuneration from the employment and receipt of rewards from
providing services. “Sect 6(1), ITAA 1936” explains that the personal exertion
income generally includes the income earned from providing or performing any
services (Gilders 2014). The “s6 (1), ITAA 1936” definition is considered very much
inclusive and simply lay down the examples of income that is derived from the
personal exertion, it is considered very much insufficient, and requires paying due
weightage on the general principles that are under the case law.
Denoting “sect 6-5, ITAA 97” the taxable earnings of the taxpayer generally
comprises of the income that is earned from the ordinary concepts (Kenny 2014).
The legislation does not provide any kind of definite expression relating to the
income earned from the ordinary concepts. The law courts have as well, decline to
provide the expression of the definitive meaning with the help of numerous general
indicators of what amounts to income and the same can be identified with the help of
cash law.
Taking into the case law approach, the case of “Eisner v Macomber (1920)”,
the decision of the high court noticed that income might be defined as the gain that is
earned from the capital or from the use of labor. Income might comprise of both the
capital and labor. With respect to the judgement, income is generally viewed as the
flow from the capital asset and it is generally treated as the product of taxpayer’s
personal exertion and efforts.

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The most important instance that define the income is the remuneration that is
received by employer. The statement can be supported by referring to the case of
“Dean & Anor v FCT 97” that took into the consideration the nature of the one-off
retention payment that is made to the vital employees in an organization (Maples,
Andrew and Karlinsky 2014). The payments that was made to the employees were
treated as the consideration for the key staffs to agree with the employment contract
of 12 months following the takeover the company. The verdict of the court noticed
that the payments were treated as salary and wages because it was treated as
remuneration for the services that were rendered by the employee and clearly having
the character of income.
Supporting the receipts of income can be also being noticed in the case of
“FCT v Brent 71”. In that case, the evidences gained suggest that the wife of great
train robber was given a payment by the media company for telling the story of her
life which was subsequently published in the newspaper. The payment was
considered as the reward for services and it was treated assessable under “s6-5,
ITA Act 1997”.
Application:
The taxpayer here Barbara was given a payment of $13,000 by one of the
book publishing company for writing a book. Barbara was by occupation an
economist. She was mainly engaged in the activities of doing research and
commentator. Persuaded by the offer, Barbara writes the book named principle of
economics. The amount that was received by Barbara is eventually characterised
under “Sect 6(1), ITAA 1936” as personal exertion income. The payment must be
referred as the use of Barbara’s personal effort and it is a product of her personal
service. By referring to the case of “FCT v Brent 71” the payment is considered as
the reward for services and it is must treated assessable under “s6-5, ITA Act
1997”.
Later Barbara also sells the copyright of the book to the Eco Books Ltd and in
return she was paid an amount of $13,400. By referring to the case of “Dean &
Anor v FCT 97” the money that is received from assigning the copyright should be
viewed as clearly having the character of income (Khoury 2014). The amount that is
received for assigning the copyright is an income. It must be interpreted that Barbara
had not sold any capital asset nor had she assigned any kind of copyright in the
manuscript that was later produced by the publisher. The special knowledge in
economic that was possessed by Barbara should not be viewed as property right
that resulted in copyright. Rather the amount was simply paid to Barbara in the form
of reward for service. The payment will be treated assessable income under “s6-5,
ITA Act 1997”.
Finally, Barbara also sold the manuscripts of the books and interview
manuscripts to a library. She received a payment upon selling the manuscripts of the
books and interview. By looking at the general principles from the case law of
“Eisner v Macomber (1920)” the payment should be viewed as the flow from the
capital asset and it is generally treated as the product of Barbara’s personal exertion
and efforts.
In the change of scenarios if the book is only written by Barbara during her
free or leisure time and later selling the book in the market for publication then the
moneys that would be received by doing this activity will be treated as income from

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the personal exertion only. The payment will be treated assessable income under
“s6-5, ITA Act 1997”.
Conclusion:
Accordingly, in the case of taxpayer the information that is obtained as the
outcome of the writing book is the income that is earned for rendering personal
services. The payment is an income and it is taxable under “s6-5, ITA Act 1997”.
Answer to question 3:
Issues:
Is the lump sum amount of interest that is received by the taxpayer under the
loan agreement amounts to gain and it is treated as statutory income?
Rule:
The assessable income of the taxpayer includes the income earned from the
ordinary conceptions and the statutory income. The most important characteristics of
income is that income should be carrying the worth of money or convertible into
money. Another noteworthy characteristics of income include that it must involve
periodicity and regularity (Apps, Long and Rees 2014). Finally, the receipts from the
income generating activities will be treated as the ordinary income. It also requires
the connection among the receipt and the income producing activity of the taxpayer.
Each and every factor must be weighed up and no single factor can be considered
decisive.
The assessable income includes the statutory and ordinary earnings. The
statutory income is regarded as the income that is taxable under most of the
provision of the taxation assessment acts. The example of the statutory income the
net capital gains. There are two important prerequisite of income. This includes the
regular and the periodic receipts as well as the flow concepts. The law court in
“Hochstrasser v Mayes (1960)” explains that if the receipt is not the genuine gain
then it is not treated as income (Richards 2014). The gains that are lump sum might
also be having the characteristics of income. The example of such income is the
receipt of interest under the one-off loan agreement.
Application:
The case of Patrick unfolds the scenario that he has loaned his son an
amount of $52,000. The main purpose of giving the loan was to help him in his new
business. No such written agreement was formed regarding the loan between the
Patrick and his son David. Nevertheless, it was agreed between the father and son
that the full amount of loan will be paid within five years with an additional amount of
$6,000 as the interest on loan. The loan amount was ultimately paid by the son
within two years and also accompanied an in interest on loan of 5% for the total loan
amount.
The interest that is received by Patrick must be viewed as income. The sum of
5% from the equivalent loan amount is a real gain for Patrick. Citing the case of
“Hochstrasser v Mayes (1960)” the interest on loan that is received is a real gain
and meets the perquisites of income (Richards 2014). The interest on loan that is

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received is a one-off interest under the loan transaction. The interest on loan is the
statutory income under “s6-25(2)”. The mode of payment that is adopted by the son
to pay the amount through a single cheque does not effects the tax liability of the
transaction. Patrick will be required to declare the income in his assessable income.
Conclusion:
The case can be concluded by stating that the amount of 5% that is received
by Patrick is a one-off receipt of interest under the loan agreement. The interest on
loan is the statutory income under “s6-25(2)”.

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References:
Apps, P., Long, N.G.O. & Rees, R., 2014. Optimal Piecewise Linear Income
Taxation. 16(4), pp.523–545.
Dabner, Justin, 2016. Resolving Australian tax controversies: Does the tax
jurisprudence under the European convention on human rights suggest a better
way? Australian Tax Forum, 31(2), pp.213–256.
Friezer, Mark, 2014. Australian tax law: what's in store for 2014. Mondaq Business
Briefing, pp.Mondaq Business Briefing, Feb 11, 2014.
Gilders, F.M. et al., 2014. Understanding taxation law 2014,
Kenny, P., 2014. Australian tax 2014,
Kenny, P., 2014. LexisNexis concise tax legislation 2014, Chatswood, N.S.W:
LexisNexis Butterworths.
Khoury, Daniel, 2014. Widening the availability of deductions under Australian
taxation law. Tax Specialist, 14(4), pp.207–211.
Maples, Andrew and Karlinsky, Stewart, 2014. The United States capital gains tax
regime and the proposed New Zealand CGT: Through Adam Smith's lens. Journal of
Australian Taxation, 16(2), pp.156–205.
Richards, Robert, 2014. Taxation: Employee share schemes. Law Society Journal:
the official journal of the Law Society of New South Wales, 52(3), pp.40–41.
Richards, Robert, 2014. Taxation: Taxation and divorce, part 2. Law Society Journal:
the official journal of the Law Society of New South Wales, 52(2), pp.40–41.