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Running head: TAXATION LAW Taxation Law Name of the Student Name of the University Authors Note Course ID
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1TAXATION LAW Answer to question 1: Answer A: The impression that is gained from the situation of Helen it is understood that a painting which her father purchased in February 1985 at a cost of $4,000 was sold by Helen in December 2018. It is noteworthy to denote that the CGT event A1 is only appliedontheassetthatispurchasedfollowingthe19/9/85.Iftheassetis purchased before 19/9/85 then it is held as pre-CGT asset. On the other hand, if the asset is purchased after the 19/9/85 then it is understood as the post-CGT asset. So from the above explanation it is understood that the painting that was purchased in February 1985 by Helen’s father is a pre-CGT asset. The capital gain which Helen has made will not be included into for taxation purpose because it is exempted from tax. Answer B: Under“s104-10, ITA Act 1997”the CGT event A1 happens when the asset is sold. In addition to this, collectables are explained in“s108-10, ITAA Act 1997” which is largely used for private enjoyment. This implies that the collectables are usually the antiques, artworks, jewellery etc. As evident from the calculation the cost base of the asset following indexation stands $6177 while the sculpture was sold for $6000 by Helen. As a result, Helen has incurred a capital loss of $177 in this case. It is recommended that he amount of unused capital loss should be carried forward by Helen to the future year under s 108-10 (4). Indexation Factor = Index Factor for when the CGT event occurred (or 21/9/1999) Index factor when expense incurred 68.7=1.123 61.2 = $5,500 x 1.123 = $6,177 Capital gains = $6,177 – $6,000 =$177 (Loss) Answer C: There is also a quarantining rule that is applied on the collectables. capital loss that is earned from the collectables is only allowed to be offset against the capital gains that is earned from the collectables. Helen here reports that she bought a jewellery at the purchase price of $14,000 during the month of October in 1987. While the jewellery was sold by Helen for the cost of $13,000. This can be stated that the jewellery has led to the capital loss. The capital loss that is made from the collectables is only allowed to offset against the capital gains from collectables. Consequently, Helen is here advised to
2TAXATION LAW offset the loss from the antique jewellery should be carried forward to future years for offset purpose. Answer D: There are special rules that are applied on the collectables. According to the sec 118-10 (1) capital gains that are made from the assets which is purchased for less than $500 should be ignored. Helen’s mother had purchased a picture in the month of March in 1987 for the cost of $470. While the picture was sold by Helen for $5,000 in the month of July 2018. So it can be said that Helen has made a capital gain from the sale of picture. With respect to the special rules given under the sec 118-10 (1) the purchase price of the picture is below $500. As the cost base of the asset is below $500 so it is advised that Helen should simply ignore the capital gains under legislation of 118-10 (1). Answer to question 2: Issues: Thecasestudywillbeseekingtoaddresstheissuethatwhetherthe payments that are received by taxpayer in respect of the time and services is held as the personal exertion earnings under“s.6 (1). ITA Act 1936”. Rule: As per the“s.6 (1). ITA Act 1936”the amount is treated as the earnings from the personal exertion if it is earned from the employment of the personal or it is rewarded for the services that is rendered by the person. The examples of the payments include the contract payments, allowances, salaries and wages. As per “s.6-5, ITA Act 1997”the personal exertion income is generally treated as the taxable income based on the ordinary concept but may be treated as the statutory income with respect to“s.15-2, ITAA 1997”. The personal exertion income rule explains that the quantum of the payment is considered significant, even though it is not simply received on the nominal account to make up for the cost of taxpayers or the inconvenience. In support of the treatment of the payment as the earnings from the personal efforts the case of “Brentv FCT(1971)”is mentioned. Thelawcourtjudgementimpliesthat the payment is regarded as the income from personal exertion when she appeared in the media for telling her life story to the newspaper for the purpose of publishing in the article. The amount was ordinary income under s.6-5, ITA Act 1997. Inothercasetherelatedpaymentsweretreatedastheearningsfrom personal efforts for rendering services. In“Dean & Anor v FCT (1997)”the taxpayer who was the employee and was held for taxable income based on the ordinary meaning when the taxpayer was given a retention payment to remain employed with the company even though the company was acquired. In another case of“Eisner v Mocamber (1920)”the court of have explained that the gains that is earned from the capital or from the labor is regarded as income. As income is regarded as the flow from the capital asset it should be viewed as the
3TAXATION LAW product from private efforts. The amount was the ordinary earrings under s.6-5, ITA Act 1997. Application: Based on the above explanation of the rules, the payment of $13,000 that is received by Barbara should be considered as the income from the personal exertion under s6.1,“ITA Act 1997”.The amount that is earned by Barbara must be considered as the taxable income under the ordinary meaning of“sec6.5 (1), ITA Act 1997”. The case reference can be made of“Brent v FCT (1971)”to treat the payments as the personal exertion income since Helen was driven by the motive of rendering the service or writing the book in exchange of $13,000 as the payment. So the income is a personal exertion payment and taxable under ordinary concepts. Barbara in the later stage of the case also assigns the copyright of the book that was written by her to the publisher. In other words, the publisher here was given the copyright of the book that Barbara has written. She also earned a payment of $13,400 for giving up the copyright of the book to the publisher. Referring to“Dean & Anor v FCT (1997)”it can be stated that payment for assigning the copyright is the taxable income for Barbara. It is payment that is made to Barbara in exchange of the time invested and services that was rendered. Barbara will be rightly treated for the payment under ordinary meaning of“sec6.5 (1), ITA Act 1997”because it was earned for the sale of her own right, title and interest in the book that will be published. She was duly paid for it. In addition to this, Barbara sells the manuscripts of the Eco Books Ltd to the library for $3,450 that also had the manuscripts of the interview that was collected by her at the time of writing the book which she ultimately sold it for $3,200. The receiptsthatisearnedfromthelibraryfollowingthesaleofmanuscriptsand interview scripts is a part of Barbara’s personal exertion earnings. Referring to “Eisner v Mocamber (1920)”the earnings will be considered taxable as the ordinary income under the“sec6.5 (1), ITA Act 1997”. Whereas, if the book was written by Barbara on her own for the private purpose during her leisure time and later sold in the market, the payment that would be received will be ideally considered as personal exertion earnings. The payments will be considered taxable under“s.6-5, ITAA 1997” Conclusion: In the Barbara’s case the information that is given above results in the exclusive granting of copyright of the book written by her amounts to providing personal service and the payment is the product of income under ordinary meaning which will be taxable under“s6.5 ITA Act 1997”. Answer to question 3: Issues: The case will look to impose the tax liability of the interest payment received from giving loan under the loan arrangement.
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4TAXATION LAW Rule: The assessable income of the taxpayer includes the ordinary income and the statutory income. The statutory income is regarded as the income that is specified as taxable under the numerous provision in the taxation acts namely the net capital gains. For example, the receipt should be cash or convertible to cash and real gain for the taxpayer must be satisfied. It must be noted that if the receipt is not the simple gain then the taxpayer will not be considered to have earned the ordinary income. If the both the pre-requisite is met, then the gain will be treated as the ordinary income and if it represents the adequate characteristics of income then will be considered taxable as ordinary or statutory income. Similarly, the lump sum gains might be held as statutory income if the taxpayers earn a one-off receipt of interest under the loan agreement. Payments that are out of personal gifts are not characterised as income. The principles that is given in“Hayes v FCT (1956)”explains that the accountant has received shares in the company by its previous boss. The high court noted that the accountant was paid for his services and held that the receipts does not relates to income generating parts. Instead the shares were treated as capital receipt. Application: Based on the above rules, it is understood that Patrick paid the sum of $52,000 to David being his son as the assistance for his new commenced business. It was agreed between the father that the repayment of $58,000 would include the sum of interest as well with the time of span of 5 years for repayment. The amount was duly returned by the Son here David within the span of two years with full repayment of the amount through cheque and also included the added amount of 5% on the money that was borrowed. The amount of interest that will be earned by Patrick is made out of personal gifts and are not characterised as income. In addition to this, the interest income that is received by Patrick represents a capital receipt. Citing the case of“Hayes v FCT (1956)”the amount of five percent as the interest on loan would be treated as capital receipt. Conclusion: On a conclusive note the receipt of interest is purely out of the personal relationship between the father and son. The receipts do not relates to any specific income generating activities on his part and the interest constituted a capital receipt.