Taxation Law

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

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Requirement 1:.......................................................................................................................2
Requirement 2:.......................................................................................................................2
Requirement 3:.......................................................................................................................3
Requirement 4:.......................................................................................................................3
Answer to question 2:.................................................................................................................4
Issues:.....................................................................................................................................4
Rule:.......................................................................................................................................4
Application:............................................................................................................................5
Conclusion:............................................................................................................................6
Answer to question 3:.................................................................................................................6
Issues:.....................................................................................................................................6
Rule:.......................................................................................................................................6
Application:............................................................................................................................7
Conclusion:............................................................................................................................8

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Answer to question 1:
Requirement 1:
CGT event can be defined as the different forms of transactions or events that may
lead to the capital gains or capital loss. The capital gains tax provisions are applicable on the
actual or realised gains. It should be noted that for the purpose of capital gains tax the CGT
assets may be segregated into two types namely the pre-CGT and the post-CGT assets.
According to the CGT regime, where an asset is purchased before the introduction of the
CGT or prior to 20th September 1985 then the assets are exempted from the capital gains tax
(Evans, Minas and Lim 2015). An asset is only held for capital gains tax purpose when the
asset is bought on or after the 20th September 1985.
An antique impressionism painting was bought by the father of Helen in 1985 for an
amount of $4,000 and she sold the same for $12,000 on 1st December 2018. As a result, the
asset will be considered as the pre-CGT asset and the capital gains that is made by Helen will
be exempted. The asset was bought prior to the introduction of CGT regime and as a result it
is treated as the exempted asset.
Requirement 2:
As explained in the “section 108-5 (1), ITAA 1997”, CGT asset refers to any form of
property or legal or equitable right but does not takes into the account the property. Under the
“section 104-10, ITAA 1997” a disposal of CGT asset occurs when it is disposed to another
entity (Huizinga, Voget and Wagner 2018). A collectable is regarded as one of the item that
is listed under the “section 108-10 (2)” and used or kept mostly for the personal enjoyment or
use of the taxpayer. The collectables include the antiques, work of art, jewellery or rate
stamps etc. The capital gains are considered taxable as the statutory income and it is included
into the taxable income under “section 102-5 (1), ITAA 1997”.

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Helen sold the historical sculpture for an amount of $6,000 that she had originally
bought for the cost of $5,500. The sale of historical sculpture has resulted a capital gain for
Helen. With reference to the “section 102-5 (1), ITAA 1997” the capital gains from
collectables by Helen will be considered taxable as the statutory income and it is included
into the taxable income of Helen.
Requirement 3:
An important tax treatment relating to collectables has been explained under the
“section 108-10 (1), ITAA 1997” that capital losses that is suffered from the collectables are
quarantined and it is only allowed to be offset against the capital gains that are made from the
other collectables (Chardon, Freudenberg and Brimble 2016). Helen purchased an antique
jewellery during October 1987 for a cost of $14,000. On march 20th 2018 the antique
jewellery was sold by Helen and resulted in a capital loss. With reference to the description
made in “section 108-10 (1), ITAA 1997” Helen is only allowed to offset the capital loss
from jewellery against the capital gains from another antique. As evident in the situation of
Helen she has earlier made capital gains from sale of historical sculpture. Therefore, the
capital loss from the antique jewellery can be offset by Helen against the capital gains
derived from the historical sculpture.
Requirement 4:
Under the “section 108-20, ITAA 1997” there are certain kinds of personal use assets
apart from the collectables that is mostly held under the possession of the taxpayer for their
personal use (Jacob 2018). While it should be noted that under “section 118-10 (3), ITAA
1997” capital gains that are made from the sale of personal use assets that are purchased for a
cost lower than $10,000 is ignored.

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The case facts obtained explained that the mother of Helen bought a picture on March
1987 for a cost of $470. The picture was eventually sold by Helen for $5,000. The sale of
picture has resulted in capital gains. However, within the meaning of “section 118-10 (3),
ITAA 1997” the capital gains from picture is ignored because the picture is a personal use
asset and it is bought for less than $10,000. So the capital gains is simply ignored.
Answer to question 2:
Issues:
Are the receipts from the sale of books amounts to personal exertion under the
“section 6, ITAA 1936” and whether the proceeds are taxable as ordinary income?
Rule:
According to the “section 6 of the ITAA 1997”, receipts that are associated to the
performance of contract or the provision of services are treated as the income from the
personal exertion. The character of payment that is received in the hands of recipient is
considered important. It requires satisfactory connection among the amount that is received
and the earning activity of the taxpayer. The court in “Hayes v FCT (1956)” explained the
amounts that is received from the personal exertion is characterised as the product or the
incident of employment or the reward for any kind of services rendered (Burns 2017).
According to the “section 6-5, ITAA 1997” it includes into the taxable income of an
individual regarding the value of any allowances, gratuities, compensation, benefits given to
the person in respect of the employment or the services that is rendered by the person.
According to the “section 6-5, ITAA 1997” the taxable income of a taxpayer includes
the income that is earned in accordance with the ordinary concepts (Campbell 2018). This
comprises of the reward for providing any personal services or payment received for the
services that were provided as the reason for receiving payment.

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The support for considering the payment as the product of income is explained in the
event of “Brent v FC of T (1971)”. As held by court, the wife of train robber was considered
taxable for deriving taxable income when she received the money for narrating her life story
to the newspaper and granting the right for its exclusive publication (Edmonds, Holle and
Hartanti 2015). The amounts received was considered as reward for rendering services.
Similarly, in the case of “McCauley v FC of T (1944)” the granting or the assigning
the copyright of the asset and receiving payment in return is not regarded as royalty. Instead
the amount is treated as ordinary income within the ordinary concept of “section 6-5, ITAA
1997”.
Application:
The case study opens up with the situation that Barbara is the economist researcher.
On one occasion she was approached by Eco Books Ltd that offered her $13,000 to write a
book on economics principles. She readily accepted the offer and wrote the economic books.
The receipt of $13,000 for writing the book can be characterised as the payment that is
received by Barbara related to income from personal exertion under “section 6 ITAA 1997”.
The receipts should be treated as having satisfactory nexus with amount and the income
producing activity (Yuan 2016). Referring to the event of “Hayes v FC of T (1956)” the
amount of $13,000 should be characterised as product of income or the reward for services
that is received by Barbara.
She later assigns the copyright of the book to Eco Books Ltd for a sum of $13,400.
The quantum of payment that is received by Barbara upon assigning the copyright of books
for publication is considered as significant and should be treated as nominal amount to cover
the cost of writing the book. Citing the case of “Brent v FC of T (1971)” the payment of

6TAXATION LAW
$13,400 is a reward for services and will be included into the taxable income in accordance
with the ordinary concept of “section 6-5, ITAA 1997”.
The taxpayer here Barbara was required to perform the service so that she can receive the
payment. The taxpayer here Barbara is motived by the offer and provides the services upon
the receipt of payment. Therefore, the amount is an indicator of services that were rendered
based on the reason of receiving payment.
She later sells the manuscript of books along with the interview manuscripts to library
for a sum of $4,350 and $3,200. Citing the case of “McCauley v FC of T (1944)” the money
that is received from the sale of above mentioned items should be treated as income within
the ordinary concepts of “section 6-5, ITAA 1997”.
If in the alternative situation Barbara decides to write the book in the free time and
only undertakes the decision of selling the book later then the amount that would be treated as
income from the personal exertion under “section 6, ITAA 1936”. Any payment that would
have been received by Barbara from the sale of books would have amounted to assessable
income under the ordinary conception of “section 6-5, ITAA 1997”.
Conclusion:
In light of the above stated discussion it can be stated that in the case of Barbara the
information provided from writing of books for publications and selling the manuscripts
amounts to income earned from the personal services. The income will be considered taxable
under the ordinary concept of “section 6-5, ITAA 1997”.
Answer to question 3:
Issues:
Is the loan provided to son and receipt of interest thereon amounts to assessable
income under the ordinary concept of “section 6-5, ITAA 1997”?

7TAXATION LAW
Rule:
Usually majority of the income that is received by the taxpayer is regarded as the
ordinary income. The assessable income is considered subjected to taxation when it is added
into the taxable income (Long, Campbell and Kelshaw 2016). Gains generally require the
characterisation by the courts to ascertain if the gains possess the character of income. The
nature of an item in the form of income should be judged under the circumstances based on
the derivation by the taxpayers.
The court in “Hochstrasser v Mayes (1960)” held that in order to have the character
of income the item should be the real gain for the taxpayer that derives it. In order to classify
a gain as the ordinary income it is necessary that there is connection between the earning
source (White, Blackwood and Cooper 2019). Similarly, where the taxpayer makes any form
of loan the interest is regarded as the return that flows from lending the money. If the
component of interest is easily identifiable then the interest will be treated as ordinary
income.
Application:
As evident in the current situation of Patrick he gave David, his son with a loan of
$52,000 as the assistance in his new started business. There was the agreement between the
father and the son that the loans will be payable to father at the end of five years. The father
however told the son that no interest will be payable on the loan. The amount was later repaid
within the time span of two years and an additional amount of 5% as interest on loan was
paid to his father by cheque.
The loan amount of $52,000 that is received by Patrick cannot be characterised as
gain because the item that is derived by the taxpayer is the contribution or the repayment of
capital. The amount of interest that is paid to Patrick represents the character of income.

8TAXATION LAW
Citing the case of “Hochstrasser v Mayes (1960)” it can be stated that the 5% interest that is
received by Patrick from his son David constitute an item of gain and holds the character of
income (Peiros and Smyth 2017).
The interest represents the return that flows from lending the money. The amount of
5% on the total capital is clearly identifiable as the component of interest. With respect to the
“section 6-5, ITAA 1997” the interest will be taxable as ordinary income (Burton 2017).
Judging the method of payment that is adopted by David to pay the loan amount, a
notable description can be made in this regard. A single mode of payment by cheque will not
have any effect on the liability to tax the interest amount. Therefore, the jurisdiction of
imposing tax only rest on the interest on loan that is received by Patrick while the capital
component is exclusively excluded from tax.
Conclusion:
The interest loan received by Patrick will is an item of gain which is taxable under
“section 6-5, ITAA 1997” as income from the ordinary concept.

9TAXATION LAW
References:
Burns, A., 2017. Mid market focus: Tax considerations when doing business
offshore. Taxation in Australia, 51(10), p.535.
Burton, M., 2017. A Review of Judicial References to the Dictum of Jordan CJ, Expressed in
Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes
of the Australian Income Tax. J. Austl. Tax'n, 19, p.50.
Campbell, S., 2018. Personal liability of a trustee to tax on trust income: Part 1. Taxation in
Australia, 53(5), p.263.
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.
Edmonds, M., Holle, C. and Hartanti, W., 2015. Alternative assets insights: Super funds-tax
impediments to going global. Taxation in Australia, 49(7), p.413.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an
alternative way forward. Austl. Tax F., 30, p.735.
Huizinga, H., Voget, J. and Wagner, W., 2018. Capital gains taxation and the cost of capital:
Evidence from unanticipated cross-border transfers of tax base. Journal of Financial
Economics, 129(2), pp.306-328.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review, 27(1), pp.1-21.
Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in
Australia. St Mark's Review, (235), p.94.

10TAXATION LAW
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), p.394.
White, A., Blackwood, C. and Cooper, G., 2019. Taxing private trusts-A moving
target. Taxation in Australia, 53(7), p.372.
Yuan, H., 2016. Mid market focus: The sharing economy and taxation. Taxation in
Australia, 51(6), p.293.