Taxation Law

Get expert solutions for taxation law assignments and essays. Find comprehensive study material and solved assignments on taxation law at Desklib.

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

1TAXATION LAW
Question 1
In the present circumstances, Helen desired to proceed with her fashion designing business
and to fund the same, he has decided to sell some of her assets.
Issue 1
The first transaction in that furtherance involves the sale of an antique impressionism
painting, which has been acquired by her father for an amount of $4000 in the month of
February in the year 1985, for an amount of $12000 on December 2018.
Rule
A CGT gain or loss is said to have accrued, when a CGT event takes place causing a gain
or loss to the individual paying the tax. This has been provided u/s 102.20 of the ITAA 97.
For the purpose of rendering an event as a CGT event, the involvement of a CGT asset in the
transaction is required. The CGT event, which involves the transfer of a CGT asset by way of
sale, will be regarded as an A1 category CGT event u/s 104.10 of the ITAA 97. However, to
be rendered as a CGT asset, the individual paying the tax is required to have purchased the
same on or after the 20th of September 1985. Any asset, which has been purchased prior the
prescribed date, will not be subjected to the treatment of CGT asset and will be excluded
while computing CGT liability.
Application
In the instant situation, Helen has made a sale of an antique painting, which has been
acquired by her father for an amount of $4000 in the month of February in the year 1985, for
an amount of $12000 on December 2018. This will be treated as a CGT gain as it is said to
have accrued, when a CGT event of selling the painting has took place causing a gain to
Helen u/s 102.20 of the ITAA 97. There was a CGT event, which the involved the painting
that is a CGT asset. This CGT event, which involves the transfer of a CGT asset by way of

2TAXATION LAW
sale, will be regarded as an A1 category CGT event u/s 104.10 of the ITAA 97. However, to
be rendered as a CGT asset, the individual paying the tax is required to have purchased the
same on or after the 20th of September 1985. As the painting has been purchased on
December 1993 it has been a post- CGT asset and will be included.
Conclusion
Hence, her CGT consequences will be as above.
Issue 2
She also made a sale of a historical sculpture for an amount of $6000, which she acquired
December of 1993 for an amount of $5500.
Rule
Collectible has been defined u/s 108.10(2) of the ITAA 97 as any item that a person owns
and uses in a personal capacity. A collectible includes any artwork, coin, jewellery, antique,
rare folio, book, medallion, manuscript, first day cover as well as postage stamp. However,
only a collectible, which is worth more than $500 will be taxable under CGT u/s 118.10(1).
The collectible costing less than the prescribed threshold will be disregarded to be taxed as a
CGT asset u/s 110.10 of the ITAA 97.
Application
Helen has made a sale of a historical sculpture for an amount of $6000, which she
acquired December of 1993 for an amount of $5500. This needs to be treated as a collectible
as has been defined u/s 108.10(2) of the ITAA 97 as any item that a person owns and uses in
a personal capacity. A collectible includes any artwork and being a historical sculpture this
will be included. However, the sculpture is worth more than $500 so it will be taxable under
CGT u/s 118.10(1). The collectible costing less than the prescribed threshold will be
disregarded to be taxed as a CGT asset u/s 110.10 of the ITAA 97.

3TAXATION LAW
Conclusion
Hence, her CGT consequences will be as above.
Issue 3
Another antique jewellery piece has been sold by her for an amount of $13000 on March
2018, which has been purchased for an amount of $ 14000.
Rule
The losses that are suffered with respect to a transaction involving a collectible that is
taxable under CGT will be required to be subjected as an offset against a collectible gain only
and cannot be applied as an offset against a CGT gain accrued from any other CGT asset u/s
108.10 of the ITAA 97.
Application
Helen has made a sale antique jewellery piece for an amount of $13000 on March 2018,
which has been purchased for an amount of $ 14000. This needs to be treated as a CGT loss
and the same needs to be claimed as an offset against a CGT gain from a collectible only.
This is because the losses that are suffered with respect to a transaction involving a
collectible that is taxable under CGT will be required to be subjected as an offset against a
collectible gain only and cannot be applied as an offset against a CGT gain accrued from any
other CGT asset u/s 108.10 of the ITAA 97.
Conclusion
Hence, her CGT consequences will be as above.
Issue 4
She has also made a sale of a picture for an amount of $5000, which her mother has
acquired for an amount of $ 470 on March 1987.

4TAXATION LAW
Rule
The tax implication of an asset, which has been acquired and owned for the purpose of
being used a personal capacity, has been provided u/s 108.20 of the ITAA 97. Any such asset,
which would only be taxable under the CGT regime of the worth of the same has not been
under the amount of $10000.
Application
Helen has made a sale of a picture for an amount of $5000, which her mother has acquired
for an amount of $ 470 on March 1987. This needs to be treated as an asset, which has been
acquired and owned for the purpose of being used a personal capacity, has been provided u/s
108.20 of the ITAA 97. Any such asset, which would only be taxable under the CGT regime
of the worth of the same has not been under the amount of $10000. Hence, the sale of the
picture will not be considered as a CGT event and will be excluded from the CGT
computation.
Conclusion
Hence, her CGT consequences will be as above.
Question 2
Part 1
Issue
Whether the income of Barbara from the given transaction can be considered to be an
income that has been availed through personal exertion. What difference will it amount to, if
Barbara has composed the book in her spare time and has later on resolved to make a sale of
the same.

5TAXATION LAW
Rule
The income that a taxpayer earns from the labour and efforts extended by him in the
furtherance of the procedure that yields his taxable income will be treated as income earned
from personal exertion. This form of income has also been covered in the Tax Ruling IT
2121. In the case of Tupicoff v. FCT 84 ATC 4851, it has been for making an income
assessable as an income earned from personal exertion, the taxpayer needs to prove a
proximity to be existing between the income earned and the personal exertion extended.
The income that a person earns for any services or any labour that he has extended in
person in the furtherance of this process of generating income will be treated as an ordinary
income u/s 6.5 of the ITAA 36. Copyright is normally considered to be CGT asset and the
sale of the same is to be regarded as the CGT event causing a CGT gain. Again, any
copyright, the sole purpose of which was to earn profit is required to be treated to be an
ordinary income. This can further be supported with the case of Pacific Film Laboratories v
Commissioner of Tax.
Application
In the instant case, the book has been written by Barbara under the offer that has been
extended her by the Eco Books Ltd who offered her a price of $13000. This was the first time
when Barbara has been writing a book on that particular topic. However, she has accepted the
offer, has written the book and sold it to Eco Books Ltd for a price of $13000. This needs to
be treated as an income earned from personal exertion as provided u/s 6 of the ITAA 36.
The copyright of the book has been assigned by her for an amount of $ 13400 towards Eco
Books Ltd. This will be assessed as a CGT gain as copyright is treated as an CGT asset and
the sale of the same as a CGT event.

6TAXATION LAW
The Manuscripts of the book has also been sold by her to the Eco Books Ltd library for a
price of $4350 and she sold other interview manuscripts along with the same. This needs to
be treated as an income earned from personal exertion as provided u/s 6 of the ITAA 36.
Conclusion
The first situation will be treated as an income from personal exertion and the second as an
income from hobby.
Part 2
Alternative issue
Whether if the book that has been written by Barbara, would have been written by him as
a hobby and not in the furtherance of an offer by the Eco Books Ltd, it would have been
income from personal exertion.
As per the rules enacted in the Tax Ruling 97/11, a hobby cannot be treated as an income
assessable for tax purpose in the hands of the taxpayer. Hence, if the book has been written
by Barbara has been written in her spare time and has been decided to be sold later on, the
same would not have been treated as an taxable income in the hands of the taxpayer.
Question 3
Issue
The effect of the arrangement that has to be included in the taxable income of Patrick.
Rule
It has been held in the case of Hochstrasser v Mayes 1960 AC 376 that a receipt is to be
treated as an income assessable in the hands of the taxpayer if the same has accrued a gain to
the taxpayer.

7TAXATION LAW
In the case of Commissioner of Taxation v McNeil [2005] FCAFC 147, it has been held
that for the purpose of rendering a receipt as an income all the rules relating to income is
required to be applied. The compliance with all the requisites of an income is to be
established to calim a receipt to be an income.
A receipt that has been received by the taxpayer is required to be displayed as a gain to be
included in the taxable income of the taxpayer. This has been made evident in the case of
Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24. For the
receipt has to be accrued as a benefit to the person receiving.
Any income that has been earned as an ordinary concept is to be treated as an ordinary
income u/s 6.5 of the ITAA 97.
Application
In the instant case, a loan of $52000 has been provided by David to his son Patrick as a
help towards his business. However, the repayment of the same has been agreed at the end of
5years and an amount of $58000. An additional amount of $6000 has been agreed to be paid.
This needs to be treated as an income as the same has been received as a gain. This is because
it has been held in the case of Hochstrasser v Mayes 1960 AC 376 that a receipt is to be
treated as an income assessable in the hands of the taxpayer if the same has accrued a gain to
the taxpayer.
Although there has not been any formal agreement regarding any security, as the same has
been gained by Patrick as a benefit, it will be treated as an income as can be supported with
the case of Commissioner of Taxation v McNeil [2005] FCAFC 147.
Moreover, an additional amount of 5% has also been returned to Patrick by his son. This is
a gain that has been accrued to Patrick and hence will be treated as an income. This can be

8TAXATION LAW
supported with the case of Federal Wharf Co Ltd v. Deputy Commissioner of Taxation
(1930) 44 CLR 24.
Conclusion
The gain from the arrangement is required to be included in the taxable income of Patrick.

9TAXATION LAW
Reference
Commissioner of Taxation v McNeil [2005] FCAFC 147
Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24
Hochstrasser v Mayes 1960 AC 376
Tax Ruling IT 2121
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997
Tupicoff v. FCT 84 ATC 4851