Taxation Law

This document provides an overview of taxation laws related to capital gains on antique impressionism paintings, historical sculptures, antique jewelry pieces, and personal use assets. It also discusses the taxation of income earned from personal exertion and interest on loans. The document includes relevant rules, applications, and conclusions.

Running head: TAXATION LAW
Taxation Law
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Answer 1:......................................................................................................................2
Answer 2:......................................................................................................................3
Answer 3:......................................................................................................................5
Conclusion:...................................................................................................................6
References:..................................................................................................................7

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Answer 1:
Tax charged on Capital Gain for antique impressionism painting:
As per “sec 100-25 (1), ITAA 1997”, tax imposed on capital gains is
restricted on assets on which it is applied. Moreover, according to the section, the
tax is limited on those products which are bought on the 20th September, 1985. The
real gains, which are made, are applied only up to 21st September 1999, for tax
regarding the regimes of capital gains tax (Afonso and Alves 2018). For this reason,
the cost base related to assets of the capital gains tax was indexed for inflation when
the CGT asset, which was hold for more than 12 months, was sold. However, assets
that were bought before 20th September of 1985 and gained after that are not
accountable for CGT as these are exempted assets.
In this context, Helen purchased antique painting on February 1985 which
was before 20th September, 1985. Hence, the purchase was done before the
implementation of the capital gain tax regimes. On the other side, this painting was
sold in December 2018. The purchasing price of this painting was $4000 while it was
sold for $12000. Therefore, the sale of painting had helped Helen to experience
capital gain. The asset is known as pre CGT assets as it was bought before the
introduction day and consequently the capital gains for Helen was exempted in this
context.
Capital Gain Tax related to historical sculpture:
The CGT provision is on the realised or actual gains. As per “sec 102-5 (1)”,
the capital gains for a taxpayer are taxable in the form of statutory income and this is
included in the assessable earnings as well. On the other side, “Sec 104-10, ITAA
1997” is related with the disposable of CGT asset. The event A1 regarding CGT
happens when the CGT related assets are sold (Jacob 2018). Some listed items
under “sec 108-10 (2), ITAA 1997” are antiques, rare books, sculptures and
jewellery, which are used for the purpose of personal enjoyment.
In 1993, a sculpture, which was an art work, was bought by $5500 by Helen,
who sold it again in 2018 for $6000. The sculpture is described as the collectable
item related to “sec 108-10 (2), ITAA 1997”. The selling process of the sculpture
has increased CGT event A1 based on “sec 104-10, ITAA 1997”. The capital gains,
which are made over here, are known as taxable in the form of statutory income
regarding “sec 6-10”. Depending on “sec 102-5 (1)”, this capital gains will be
considered as assessable income of Helen.
Tax on capital gain related to antique jewellery piece:
From “sec 108-10 (1), ITAA 1997”, it is seen that the capital loss happened
from any collectables are quarantined and this can e offset only against the capital
gains that happened from other collectables. This indictes that leftover amount from
capital loss can be carried forward for futures with the help of “sec 108-10 (4)”
(Bentley 2019). In this situation, Helen has purchased the jewellery by paying 14000
and sold it on 20 March 2018 by losing $1000 from the purchased price. By following
the quarantined rule under “sec 108-10 (1), ITAA 1997”, it is said that the capital
loss needs to be quarantined. Furthermore, such can be offset beside capital gain,
occurred from sculpture. Based on “sec 108-10 (4), ITAA 1997”, it is observed that

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the remaining $500 in the form of unused loss of capital needs to be carried forward
in coming years.
Capital Gain Tax related to picture:
“Sec 108-20 to 108-30” provides a list of assets that are used for personal
use where such assets should not be mistaken with collectables. Those assets are
racehorses, boats, electronic items, equipment and household items that people use
for their personal user. On the other side, “sec 118-10 (3)” refuses the assets used
for personal use for the purpose of capital gain when the value of such assets
remain below 10000.
From the situation, it is seen that Helen sold the picture by $ 5000 in the
month of July of 2018. The person bought this picture in the year 1987 by paying
$470. The picture is classified as an assent used for personal use according to “sec
108-20, ITAA 1997” (Steyn et al. 2018). Following the rule provided under “sec 118-
10 (3)”, it can be said that the capital gain obtained from the picture cannot attract
any tax from capital gain. This is because the asset does not need to be qualified the
eligible criteria that is given under “sec 118-10 (3), ITAA 1997” because of its cost
price lower than $10000.
Answer 2:
Rule:
According to “Sec 6 (1), ITAA 1936”, it is observed that taxpayer’s earnings
in the form of wages, salaries, superannuation and gratuities etc is received after
performing service. Thus, such services are held due to personal exertion and
income. The definition of “Sec 6 (1), ITAA 1936” is very inclusive and it only
provides examples of earnings which happen due to personal exertion. Thus, it is not
pleasant and need proper attention regarding general principles from the viewpoint
of case law. From “FC of T v Hayes (1956)” it observes that the amount obtained
from personal exertion is categorised as product of incident or service reward that

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are rendered (Redonda et al. 2019). Thus, a sufficient relationship among the
activities related to income generation and amount can be observed.
In general, it is observed that the maximum form of earnings that taxpayer
receives, come in the form of ordinary earnings. Hence, the judicial concept related
to ordinary income related to “sec 6-5, ITAA 1997” considers ordinary types of
income. To provide support to the income done for personal exertion under income
case laws like “Brent v FCT (1971)” is suggested. This happens for gaining taxable
earnings, when Helen provided money to newspaper for telling her story based on
her life to in some exclusive publication.
Another example related to “Hobbs v Hussey (1942)”, in which the infamous
criminal earned £1,500 after selling the autobiography to a publisher. The criminal
did it in order to make an exclusive publication based on his story in the form of an
article in a newspaper. The payment amount that the taxpayer made cannot cover
the inconvenience or the cost.
Similarly, other instance related to “Housden v Marshall (1958)”, states that
the taxpayer paid the taxable amount when he sold out the Jockey related
experience. This also included the newspaper cutting as well as photographs. The
received amount was taxable and ordinary income where the meaning of ordinary
came from “sec 6-5, ITAA 1997”.
Application:
Barbara, the economist and a research commentator, was received $13000
from the publisher of Eco Books Ltd for writing a book of economics. After accepting
this offer, she wrote a book, named “Principle of Economics”. The provision of
services of Barbara was worth $13000. In addition to this, the example related to
“Brent v FCT (1971)” stated that the payment have huge amount of services which
are left for the earning activity (Kennedy et al. 2017). The payment character, which
Barbara received is the income earned after personal exertion as stated in “sec 6(1),
ITAA 1997”. Hence, the amount is taxable as ordinary earnings related to the
concept of judicial of “sec 6-5, ITAA 1997”.
Later, Barbara assigned the copyright for her book to her publisher, the Eco
Books Ltd. To sell the copyright, Barbara received the amount $13400. This similar
case example is discussed in “Hobbs v Hussey (1942)”. Barbara sold the copyright
of her economic book to the publisher and this is a taxable ordinary income as noted
in “sec 6-5, ITAA 1997”. Barbara received the amount as she needed to be
provided the personal service for obtaining the payment (Bentley 2019). It is
observed that she needed to write this book before receiving the payment from the
Eco Books Ltd. The chief importance of this payment that Barbara received was not
to cover up the outgoing that taxpayer incurred. Rather, in this case, taxpayer
motivates Barbara to make the service and her payment was the product of her
work.
At the end, Barbara sold the manuscript of her book along with the
manuscripts of interview to the library. These activities helped her to earn money. As
referred in “Housden v Marshall (1958)”, selling manuscripts of interview and
books as well as the income receipt hence is considered as taxable ordinary income
that occur under “sec 6-5, ITAA 1997”.

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On the other side, if Barbara wrote the book simply during her leisure time
and after that she sold those to the book publisher for further publication then the
amount derived from her work would be known as income (Chardon, Freudenberg
and Brimble 2016). Such income coming from the exertion of personal service would
be taxable under the “sec 6-5, ITAA 1997”.
Thus, the amount of money received by Barbara is relayed exclusively with
her personal exertion. Under the judicial concept of “sec 6-5, ITAA 1997”, the
amount will be referred as taxable in the form of ordinary earnings.
Answer 3:
Rule:
The taxable income considers both the ordinary income as well the statutory
income. Thus, ordinary income is known as income which the courts generally
ascertain by implementing the income definition. Such definition of income depends
on the ordinary concept of “Sec 6-5 (1)” and measures the tax related ordinary
income. The taxable income related to the taxpayer includes the income related with
the concept of ordinary earnings. In order to characterise such income, it is essential
to consider the required characteristics related to it (Castro 2018). This considers
whether the earned receipt can be convertible easily into case. Featuring the
receipts as income generally involves the ascertainment. This implies whether the
receipts hold recurrence, periodicity and regularity. The receipts obtaining from the
activities related to income generation are normally known as ordinary earnings.
In this context, it is essential to mention that ordinary earnings mainly have
two prerequisites. This considers whether the receipts can be converted into cash
and a receiver’s real gain or not. As per “Hochstrasser v Mayes (1960)”, the court
law has explained that the ordinary income will not occur until the receipt are
considered as the genuine gain (Steyn et al. 2018). The gains will be described as
ordinary income if the prerequisites related to the ordinary income will be satisfied. In
this situation, the gains will be known as the ordinary income that will consider the
sufficient characteristics related to income. Most importantly, the one-off receives are
not considered as the ordinary income. Likewise, the lump sum gains can be
considered as the ordinary income if the interest related to one-ff receipt under the
loan agreement will be held as ordinary income.
Applications:
Hence, rules, which are analysed in the above discussion, can be applied in
the context of Patrick and David. Patrick provided a loan to his son, David for five
years. However, Patrick also paid the loan where the amount of interest was $6000.
David paid the amount of loan by with the help of cheque. Furthermore, on the total
amount of borrowing, he also paid 5% in the form of the interest.
In this context, the interest amount earned by Patrick can be considered as
the real gain of the taxpayer and consequently it is denoted as income. The interest
receipt covers up the prerequisite as it can be converted easily into cash and this is
also a real gain (Torgler 2016). As mentioned in “Hochstrasser v Mayes (1960)”,
the one-off receipt related to interest obtained from the loan agreement is considered
as the real gain which is considered as an ordinary income as mentioned in “sec 6-
5, ITAA 1997”.

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At the end, to measure the tax liability related to the interest, the payment
mode, which the son utilises, cannot influence the tax position.
Conclusion:
In this section, it can be concluded that the interest related to loan, which the
father has provided will be referred as the taxable income obtained from “sec 6-5,
ITAA 1997”. This is because for a taxpayer it is a real gain.

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References:
Afonso, A. and Alves, J., 2018. Optimal tax structure for consumption and income
inequality: an empirical assessment. REM Working Paper, pp.051-2018.
Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience
Eleven Years On. Journal of Malaysian and Comparative Law, 23, pp.13-36.
Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience
Eleven Years On. Journal of Malaysian and Comparative Law, 23, pp.13-36.
Castro, J.A., 2018. US Tax Treatment of Australian Superannuation. In Nevada Law
Journal Forum (Vol. 2, No. 1, p. 6).
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not
knowing your deduction from your offset. Austl. Tax F., 31, p.321.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review, 27(1), pp.1-21.
Kennedy, T., Smyth, R., Valadkhani, A. and Chen, G., 2017. Does income inequality
hinder economic growth? New evidence using Australian taxation
statistics. Economic Modelling, 65, pp.119-128.
Redonda, A., de Sarralde, S.D., Hallerberg, M., Johnson, L., Melamud, A.,
Rozemberg, R., Schwab, J. and von Haldenwang, C., 2019. Tax expenditure and the
treatment of tax incentives for investment. Economics: The Open-Access, Open-
Assessment E-Journal, 13(2019-12), pp.1-11.
Steyn, T., Smulders, S., Stark, K. and Penning, I., 2018. Capital gains tax research:
an initial synthesis of the literature. eJTR, 16, p.278.
Steyn, T., Smulders, S., Stark, K. and Penning, I., 2018. Capital gains tax research:
an initial synthesis of the literature. eJTR, 16, p.278.
Torgler, B., 2016. Tax compliance and data: What is available and what is
needed. Australian Economic Review, 49(3), pp.352-364.