Taxation Law

This document provides solutions to various questions related to taxation law. It discusses the capital gain consequences of selling antique painting, historical structure, antique jewelry piece, and picture. It also explores the nature of receipts made from personal exertion and the assessable income from loan repayment. References to relevant case laws are provided.

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

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Table of Contents
Question 1..................................................................................................................................2
Part 1......................................................................................................................................2
Part 2......................................................................................................................................2
Part 3......................................................................................................................................3
Part 4......................................................................................................................................3
Question 2..................................................................................................................................4
Part 1......................................................................................................................................4
Part 2......................................................................................................................................5
Question 3..................................................................................................................................6
References..................................................................................................................................8

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Question 1
Part 1
The issue is to determine the capital gain consequences of the Antique painting sold by
Helen.
The antique painting is a collectible and is a capital gain asset as suggested by s.108-10(2)
ITAA97. As stated in s102.2 CGT will only be trigged if there is a CGT event under the table
provided in s104-5. The sale of a CGT asset or its disposal is CGT event A1 under s104-
10(1). The timing of acquiring the asset is when the TP becomes the owner as per s109-5(1)
(Barkoczy 2016).
It is not clear from the facts that when the painting was acquired by Helen. This is because
the painting was purchased by her father. If the painting is purchased before September 20th
1985 it is exempt from CGT as it is a pre-CGT asset. If it is acquired after the date it will be
treated as a collectible. The cost base according to s.110-25(2) Element one will be the
acquisition price of $4000. However, as she may have acquired it through death or by gift,
the CB will be modified by the market value at the time of acquisition as per 112-20. The
capital proceeds will be the sale price of $12000 as per s116.20. The CG will be the Capital
Proceeds deducted by Cost Base. If he holds the asset for more than a year she will be able to
gain a 50% discount on the same under Div 115.
Part 2
The issue is to determine the CGT consequences of the Historical Structure sold by Helen
The Historical Structure sold by Helen is a collectible and is a capital gain asset as suggested
by s.108-10(2) ITAA97. As stated in s102.2 CGT will only be trigged if there is a CGT event
under the table provided in s104-5. The sale of a CGT asset or its disposal is CGT event A1
under s104-10(1). The timing of acquiring the asset is when the TP becomes the owner as

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per s109-5(1). Here the timing of acquisition is December 1993 which means that the
historical structure is a post CGT asset and its disposal is CGT event A1 under section 104-
10(1). The cost base according to s.110-25(2) Element one will be the acquisition price of
$5500. The capital proceeds will be the sale price of $6000 as per s116.20. The CG will be
the Capital Proceeds deducted by Cost Base. This means that the total Capital Gain on the
sale for Helen is 6000 deducted by 5500. Thus the total CG is $500. This means that she
would be entitled to the 50% discount under section 115.10 as she is an individual and she is
holding the asset for a year under s115-15 and she acquired the asset after September 1999 as
per s115-25.
Part 3
The issue is to determine the CGT consequences of the antique jewellery piece
The antique jewellery piece sold by Helen is a collectible and is a capital gain asset as
suggested by s.108-10(2) ITAA97. As stated in s102.2 CGT will only be trigged if there is a
CGT event under the table provided in s104-5. The sale of a CGT asset or its disposal is CGT
event A1 under s104-10(1). The timing of acquiring the asset is when the TP becomes the
owner as per s109-5(1). Here the timing of acquisition is October 1987which means that the
antique jewellery piece is a post CGT asset and its disposal is CGT event A1 under section
104-10(1). The cost base according to s.110-25(2) Element one will be the acquisition price
of $14,000. The capital proceeds will be the sale price of $13,000 as per s116.20. The CL will
be the Capital Proceeds deducted by Cost Base. Thus the total CL is $1000. This loss can
only be offset against collectible Capital gains and not from GC from normal assets.
However, this loss can be carried forwarded to the next year (Woellner et al. 2010).
Part 4
The issue is to determine the CGT consequences of the Picture sold by Helen

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The Picture is a collectible and is a capital gain asset as suggested by s.108-10(2) ITAA97.
As stated in s102.2 CGT will only be trigged if there is a CGT event under the table provided
in s104-5. The sale of a CGT asset or its disposal is CGT event A1 under s104-10(1). The
timing of acquiring the asset is when the TP becomes the owner as per s109-5(1).
It is not clear from the facts that when the painting was acquired by Helen. This is because
the painting was purchased by her Mother. The painting was acquired after 20/09/1985 it will
be treated as a collectible. The cost base according to s.110-25(2) Element one will be the
acquisition price of $470. However, as she may have acquired it through death or by gift, the
CB will be modified by the market value at the time of acquisition as per 112-20. The capital
proceeds will be the sale price of $5000 as per s116.20. The CG will be the Capital Proceeds
deducted by Cost Base. If she holds the asset for more than a year she will be able to gain a
50% discount on the same under Div 115.
Question 2
Part 1
The issue is to determine whether the receipts made by Barbara as per the facts would be
considered as Income from personal exertion
Income from personal exertions is defined under section 6-1 of the ITAA36. However, the
definition is very broad and not useful for categorising a receipt. Thus reference to case laws
in needed (Sadiq et al. 2012). In the case of Hayes v FCT 1956 the court stated that a receipt
will be ordinary income because of being income from personal exertion of the receipt can be
categorized as a reward or product of income earning activity.
$13000
To make it simple, there has to be a sufficient nexus between the services given and the
receipt of income. A lump sum payment to an independent contractor is OI as it flows from

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personal services given. In the same way as Barbara has been given $13000 to write a book
and as she is being an independent contractor, the receipt will be treated as Income from
personal exertion. The same proportion can be asserted by the case of Brent v FC of T
(1971) ATC 4195
$13400
Barbara has got $13400 by selling her copyright to Eco Books. Giving up rights is generally
regarded as Capital receipts. The same has been discussed in the case Brent v FC of T
(1971) ATC 4195 where the court stated that if the TP would have assigned Copyright it
would be a capital receipt. Thus, as here also Barbara is assigning her copyrights, it would be
a capital receipt rather than income from personal exertion.
$4350
The income from sale of the book manuscript will be income from personal exertion. This
can be stated by relying on the case of Hobbs v Hussy(1942) TC 153 where the court
rendered the sale of rights in autobiography as assessable income. the main reason for the
same is that the activity was carried out by Barbara to earn profit.
$3200
The income from sale of the interview manuscript will be income from personal exertion.
This can be stated by relying on the case of Hobbs v Hussy where the court rendered the sale
of rights in autobiography as assessable income. The main reason for the same is that the
activity was carried out by Barbara to earn profit.
Part 2
The issue is to determine the nature of receipts made by Barbara if she had written the book
in her spare time

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Income under s6-5 only includes receipts from ordinary heads income. There must be
intention to make profit for the receipt to be income. In the same was as clarified by Taxation
Ruling 97/11 an income from a hobby is not assessable income.
Therefore, if Barbara had written the book in her spare time and there would not be any
intention of making profit or nexus between the services rendered and the amount received by
her, the income will be considered as income from hobby and therefore not assessable
income. She would be held to have not carrying on a business as she would not be able to
satisfy the existence of factors for a business provided in TR97/11
Question 3
The issue is to identify whether the amount repaid by the Son in form of additional 5% is
assessable income
In the case of FC of T v Whitfords Beach Pty Ltd (1982) ATC 4031, it had been stated by
the court if a person has been involved in a on off transaction and had the intention of making
profit the transaction receipts will be considered as an income for the tax payer. In the case
of Lomax v Peter Dixon the court expressly stated that interest will be considered as ordinary
income for the tax payer.
The same rules had been discussed in the case of FCT v Myer Emporium Ltd. According to
the first strand of this case if there is a transaction which has the intention of making profit it
will be treated as a income for the TP.
Application
It has been provided through the facts that the son has been provided a loan by the father.
Although there was no demand for interest for the father in relation to the loan, the son had
promised to pay an additional amount to the principle after the loan period is completed. This

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means that the father had an intention of making profit when the loan was provided. The
assertion would have been different if the loan repayment was not accompanied by additional
payment. The additional payment with the principle amount made in this situation is also to
be treated as an interest which is provided in lump sum. However, the loan was repaid at an
earlier date and the son provided them with 5% more money as compared to the original loan
amount. This money is to be treated as a income for the father. This is because as stated in the
case of Whitfords Beach Pty Ltd,if a person has been involved in a on off transaction and
had the intention of making profit the transaction receipts will be considered as a income for
the tax payer. In addition, the receipt also falls within the 1st strand of the Myers case. Thus
the additional 5% provided by the Son to the father is to be treated as assessable income for
the father.
Conclusion
The additional 5% provided by the Son to the father is to be treated as assessable income for
the father.

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References
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Brent v FC of T (1971) ATC 4195
FC of T v Whitfords Beach Pty Ltd (1982) ATC 4031
Federal Commissioner of Taxation v Myer Emporium Ltd (No 1). [1986] HCA 13
Hayes v FCT 1956
Hobbs v Hussy(1942) TC 153
Income Tax assessment Act 1936 (Cth)
Income Tax assessment Act 1997 (Cth)
Sadiq, K., Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., McLaren, J., Obst,
W. and Ting, A., 2012. Principles of taxation law 2012. Thomson Reuters.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2010. Australian taxation
law. CCH Australia.