Taxation Law

This document provides answers to questions related to taxation law. It discusses capital gain tax on antique impression painting, historical sculpture, antique jewellery piece, and picture. It also covers the tax consequences of personal services income and interest earned from a loan agreement. The document includes references and is relevant to the subject of taxation law.

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

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Table of Contents
Answer to question 1:...................................................................................................2
Capital gain tax regarding antique impression painting:...........................................2
Capital gain tax regarding historical sculpture:.........................................................2
Capital gain tax regarding antique jewellery piece:..................................................2
Capital gain tax regarding picture:............................................................................2
Answer to question 2:...................................................................................................3
Answer to question 3:...................................................................................................4
References:..................................................................................................................6

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Answer to question 1:
Capital gain tax regarding antique impression painting:
The capital gains tax must not be viewed as separate tax. The provision of the
capital gains tax is applied on the assets that is purchased on or following the 20-09-
1985. Helen is reporting the sale of antiques that she has bought for a cost of
$4,000. The asset was acquired by Helen in February 1985 (Mitchell, Voon and
Hepburn 2019). This can be stated that the asset that is purchased by Helen is a
pre-CGT asset because the asset was acquired prior to the beginning of the CGT
regimes. In addition to this the capital gains that is derived from selling the antique
impression painting must be ignored since it is exempted from tax.
Capital gain tax regarding historical sculpture:
The definition that is made in “s108-10(2)” is mainly dealing with the
collectables. This kind of asset is generally held for the personal enjoyment of the
taxpayer (Morgan, Mortimer and Pinto 2018). This includes the antiques, artwork,
rare folio or manuscripts etc. Most notably the cost of ownership is not taken into the
account in the cost base while computing the capital gains tax. Likewise, the CGT
event A1 under the “section 104-10 (1)” incurs when the taxpayers sell the assets
to another person.
Here the taxpayer Helen has sold the historical sculpture on the 1st January
2018. The sales amount earned from the sale of historical sculpture stands $6,000.
While the acquisition purchase price of the painting was $5,500. Hence, it should be
interpreted that the painting is the antiques and should be referred as collectables
under “s108-10 (2)”. The sale of painting is a CGT event A1 for Helen. Helen by
referring to the “sec 102-5” must include the net capital gain in her assessable
earnings for income year.
Capital gain tax regarding antique jewellery piece:
Helen with the objective of funding her business of fashion design has also
sold the jewellery for $13,000 that was purchased by her in October for $14,000.
Similarly, in the “s108-10 (1)”, the net amount of capital loss that is suffered from the
collectables must be carried forward or should be offset from the capital gains
(Murray et al. 2018). Helen is advised her to offset the capital loss of antique piece of
jewellery from the historical sculpture to reduce the capital loss.
Capital gain tax regarding picture:
The definition that is given in the “s108-20(2)” of the personal use asset
involves boats, yacht, household’s goods and electronic goods that is kept by the
taxpayer for their own enjoyment purpose. The taxpayer must denote that the capital
loss must be ignored under s108-20 (1) that is suffered from the personal use asset.
The specific rule that is given the “s118-10 (3)” explains that the capital gains
should be simply ignored where the cost of asset is less than $10,000 (Richardson
and Lanis 2017). Helen has sold the picture for a $5,000 that she had bought it for
$470 only. As the cost base of the asset is below $10,000 so the capital gains that is
made from picture must be disregarded by Helen with respect to the “s108-10 (3),
ITAA 1997”.

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Answer to question 2:
Issues:
The description is basically aimed at determining the tax consequences of the
payment that is received upon providing the personal services.
Rule:
The rule given in the “s6(1), ITA Act 1936” explains that the personal service
income or the personal efforts income is generally comprising of the gratuities that is
paid, or wages, salaries, bonuses or fees earned by the person while performing any
kind of service. The judiciary concept of “s6(1), ITAA 1936” explains that the
character of personal exertion earnings determines the tax liability. Similarly, “s6-5,
ITAA 1997” explains that the earnings that are received by the taxpayer is
considered taxable under the ordinary sense (Seligman 2014). The personal exertion
income is generally considered chargeable as the ordinary income. The judgement
of the court is noted in “FCT v Brent (1971)” to support the payment of personal
exertion as the income under the ordinary concept. The judgement was followed
when it was understood that the taxpayer has appeared in the media interview to
narrate her life story. The narration of the taxpayer story was soon printed in the
articles of newspaper for publication purpose and as a result the money that was
received by the wife of train robber was considered taxable under the ordinary
meaning of “s6-5, ITAA 1997”.
The payments that are received from the personal exertion are reliant upon
the facts of the particular case. This includes whether the services are given with the
intention of receiving the money or payment. To support this assertion, it is
necessary to refer to the case of “Hobbs v Hussey (1942)” when it was noticed that
the taxpayer that was the criminal, subsequently received a sum of £1,500 for his
autobiography when he exclusively granted the permission of publishing the
autobiography to the newspaper (Dwyer 2015).
While in another case of “Housden v Marshall (1958)” it should be referred
that the concerned taxpayer here decided to share his experience of jockey that also
included the sharing of cuttings from the newspaper and the photographs in
exchange of money.
Application:
It is noteworthy to denote that the information from this case is mainly
concerned with the tax position of Barbara. The concerned taxpayer here Barbara is
the economist and mainly involved in the work of research and commentator. Further
development of scenario from the case study reveals that she was approached by
the publisher who wanted Barbara to write a book on economics in exchange of
$13.000. It is worth mentioning that she ultimately wrote the book called principle of
economics.
To justify the payment that is made above to Barbara it is noticed that the
taxpayer was simply required to provide the service in order to get the payment. The
case of “FCT v Brent (1971)” must be adopted in the situation of Barbara to support

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the payment of personal exertion as the income under the ordinary concept ( Smith
2015). The payment received by Barbara amounts to income derived by her from the
personal exertion under “s6 (1), ITAA 1936”. While taking into the account the tax
liability of the payment it should be noted that the payment of $13,000 will be
considered taxable as ordinary income.
Further development from the case suggest that Barbara also gave the
copyright of her book to the Eco Books Ltd and in exchange she was given a sum of
$13,400. To treat the payment as income it is necessary to refer to the example of
“Hobbs v Hussey (1942)” in the situation of Barbara. The assigning of copyright is
an ordinary income under “s6-5, ITAA 1997” because the taxpayer was simply
motived to offer the service and assign the copyright of the book in receipt of the
payment (Mares and Queralt 2015). Therefore, the sum of $13,400 should be
considered taxable under “s6-5, ITAA 1997”.
The final instance that is obtained from the case of Barbara also suggest that
she gave the manuscripts for both the books and the interview to a library. At the
time of selling the manuscripts of the books and interview Barbara was given the
payment of $4,350 and $3,200. Accordingly, the payment must be viewed as the
ordinary income because the quantum of payment that is received by Barbara holds
significance with her personal exertion effort. The payment should not be simply
viewed as the nominal amount to cover the expense of writing book. Hence, under
“s6-5, ITAA 1997” the payment is a taxable income within the ordinary concept.
On reconsidering the above factors, if the alternative situation of the
concerned taxpayer is taken into account that she simply wrote the book in her free
time and later took the decision of selling it then in such a situation the payment that
will be received will be considered taxable under ordinary sense of “sec 6-5, ITAA
1997”.
Conclusion:
To rightly support the above stated analysis the money received by concerned
taxpayer here for writing the book is a personal exertion income and it is taxable
under “sec 6-5, ITAA 1997” as the ordinary income.
Answer to question 3:
Issues:
The description is centrally focussed on the tax outcome of the interest that is
earned by the concerned taxpayer from the loan agreement given to the son by the
father.
Rule:
The rule regarding the tax consequences of the statutory income is that it
takes into the consideration both the assessable earnings and the ordinary earnings.
The ordinary earnings on the general note is considered as the income that are
ascertained by the court in accordance with the ordinary concept. It is noteworthy to
denote that the statutory income is generally specified as the taxable earnings under
the provision of the tax assessment acts such as the net capital gains. For an
individual tax payer in order to determine the income tax liability the provision of
statutory income is considered at first under the most important provision of “s6-
25(2), ITAA 1997”.

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When adding the assessable earnings under the taxable income it is
considered for tax purpose. One of the most important aspect of the Australian
income tax legislation is that income must be characterised as gain (Rick, Paolacci
and Burson 2018). One must take into the consideration that the receipt cannot be
treated as the income until and unless it is in the nature of cash or convertible in
cash. The amount must be a real gain for the taxpayer in order to treat the receipt
taxable.
The reference here can be considered relating to treatment of the income in
the case of “Hochstrasser v Mayes (1960)”. The court has stated that the receipts
must be a genuine gain in order to qualify as income. Another important
consideration relating to the tax treatment of the receipts is the nature of the income
(Gale, Krupkin and Rueben 2015). This generally includes that whether the money
that is received is regarded as the regular gain or the periodic gain and may also be
treated as the ordinary income if it is paid as lump sum. It is worth mentioning that
the lump sum gain is most likely to be treated as the ordinary income. In the same
way, receiving interest through the one-off payment under the loan agreement is
regarded as taxable income.
Application:
The information that is derived from the case facts of Patrick it is very much
clear that the concerned taxpayer has made a loan of $52,000 to his son for five
years’ period. The son here David is required to repay the amount to his father with
the interest of $6000 at the end of the fifth year. The loan was ultimately paid back to
Patrick by his son inside the span of two years which also accompanied a sum
equivalent to 5% of the borrowed amount. The payment was made through a cheque
and was paid under a single mode payment.
By referring to the decision made in “Hochstrasser v Mayes (1960)” the
amount is the real gain for the taxpayer since the interest was received in lump sum
under the one-off loan agreement (Rick, Paolacci and Burson 2018). The sum of 5%
that is paid equivalent to the loan amount constitute a real gain for Patrick and
should be held as statutory income under “s6-25(2), of the ITAA 1997”. The interest
is having the both perquisite of income since it is also convertible in cash as well and
real gain for the taxpayer.
Conclusion:
The case study here is concluded by stating that the amount of interest
received for the loan made to son by Patrick is taxable statutory earnings.

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References:
Dwyer, T., 2015. The taxation of shared family incomes. About this issue, p.23.
Gale, W.G., Krupkin, A. and Rueben, K., 2015. The relationship between taxes and
growth at the state level: new evidence. National Tax Journal, 68(4), pp.919-942.
Mares, I. and Queralt, D., 2015. The Conservative Origin of Income
Taxation. Available at SSRN 2602307.
Mitchell, A.D., Voon, T. and Hepburn, J., 2019. Taxing Tech: Risks of an Australian
Digital Services Tax under International Economic Law. Melbourne Journal of
International Law, Forthcoming.
Morgan, A., Mortimer, C. and Pinto, D., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Murray, I., Taylor, J., Walpole, M., Burton, M. and Ciro, T., 2018. Understanding
Taxation Law 2019.
Richardson, G. and Lanis, R., 2017. Determinants of the variability in corporate
effective tax rates and tax reform: Evidence from Australia. Journal of accounting
and public policy, 26(6), pp.689-704.
Rick, S., Paolacci, G. and Burson, K., 2018. Income tax and the motivation to
work. Journal of Behavioral Decision Making, 31(5), pp.619-631.
Seligman, E.R.A., 2014. The income tax: a study of the history, theory, and practice
of income taxation at home and abroad. The Lawbook Exchange, Ltd.
Smith, J.P., 2015. Australian state income taxation: A historical perspective. Austl.
Tax F., 30, p.679.