Taxation Law Analysis: HI6028 Assignment - T1 2019, Holmes Institute

This assignment provides a comprehensive analysis of taxation law, focusing on key areas such as Capital Gains Tax (CGT) and income tax. The solution addresses specific scenarios involving the sale of assets, including pre-CGT and post-CGT assets, collectibles, and personal-use items. It examines the tax implications of various transactions, including the sale of paintings, sculptures, and jewelry, and the treatment of gains and losses. Furthermore, the assignment explores income derived from personal exertion, copyright, and loan agreements, analyzing how these transactions are treated for tax purposes. The solution also delves into the concept of income from hobbies versus personal exertion, and the taxability of interest payments, providing a thorough understanding of the Australian income tax system.

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

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Question 1
In the given instance Helen has been desiring of starting a business of fashion designing. For
the purpose of starting that business she needed funds and to gather such funds she sold some
of the properties. This properties accrued certain gains to Helen in that year of income. The
analysis of each of such transactions involving sale of Helen’s property can be made in the
following way.
The first sale made by Helen was that of a painting that her father what for $4000 in February
of the year 1985. It has been stated u/s 102.20 belonging to the ITAA 97 CGT loss or gain
happens with the happening of a CGT event. A CGT event needs to be accompanied by an
operation which has involved in it a CGT asset. CGT asset needs to be assessed under the
concepts of pre-CGT and post-CGT. Any CGT asset, which has been purchased by a person
prior to the introduction of the CGT regime that is 20/09/85, is required to be excluded from
being rendered as a CGT asset and the event involving the same to accrue CGT gain. These
are called pre-CGT assets. Any asset purchased afterwards will be termed as post-CGT asset
and the event relating to the same will be treated under the CGT regime. The gain or loss that
is accrued to a person by virtue of a sale of an asset that comes under the CGT cover will be
categorised as A1 CGT event. The painting bought by Helen’s father has been actors before
the introduction of CGT and hence is to be treated as a pre-CGT asset. Although it has been
bought for $4000 and sold for $12,000 and the same has been affected in 2018, the same
cannot be included in the calculation of CGT. Therefore it can be stated that this particular
transaction is required to be excluded or exemption while computing CGT liability.
The second sale meet by Helen was that of a historical sculpture purchased on December
1993 for $5,500 for a price of $6000 on January 2018. Is it on that has been defined in section
108. 10(2) of the Act as a commodity that a person possesses for the purpose of personal

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enjoyment and personal usage. Such a commodity will include an artwork, a piece of
jewellery, a rare folio, antique object or any other object of similar nature. To be permitted in
the assessment of CGT, transaction relating to collectible requires the collectible to be both
more than $500 as provided under section 118.10 (1) of the Act. Any transaction relating to a
collectible that has a worth under the mention limit will be allowed as an exemption under
section 110.10 of the Act. The historical sculpture has been sold for 6000 dollars is to be
treated as a Capital asset. This is because it has been purchased after the introduction of CGT.
It is a collectible as the meaning provided under section 108. 10 (2). Moreover as provided
under section 118 .10(1) the collectible is worth above the threshold of $500. This needed the
seal relating to the collectible to be assessed under the CGT liability assessment.
The third sale made by Helen was that of an antique jewellery that she bought on October of
1987 and sold on March of 2018. The jewellery has been bought for $14,000 but the sale has
been made for $13,000. Any loss or profit relating to a collectible above the price of $500 is
required to be treated as CGT profit or loss. But while treating a CGT loss arising from a
collectible the same needs to be allowed as a offset but such an allowance needs to be
permitted only with respect to another collectible gain provided under section 108.10. No
other CGT gain can claim such a loss to be treated as an offset. In the present case the
jewellery has been sold causing a loss of $1000 to Helen. Jewellery being collectible needs to
be treated as a CGT asset and is required to be treated as an offset. However as it is a
collectible the same is required to be treated as an offset with respect to a collectible only. In
the given set of circumstances the only collectible that can be found to be have transacted is
the historical sculpture. Hence, the loss from the jewellery is required to be treated as an
offset in the gain derived from the historical sculpture.
The third seal made by Helen is that of a picture that has been bought on March of the year
1987 and sold on July of the year 2018. The acquisition cost was $470 but the sale price was

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$5000. As provided under section 108.20, any item that has been kept for personal use is
required to be treated as a CGT asset and needs to be subject to taxation accordingly. The
price of an asset kept for personal use which needs to be admitted on the CGT for the purpose
of taxation is required to be worth more than $10,000. In present case the painting was worth
much less than the threshold of $10,000 and it has been purchased by Helen’s mother to be
used for personal purposes. Hence, it cannot be treated as a CGT transaction and is required
to be treated to be an exemption from the same.
Hence, it can be stated that the antique painting is required to be e excluded from the
computation of CGT. The sculpture is to be treated as a CGT gain. The antique jewellery is
required to be treated as a CGT loss and to be subjected as an offset against the gain from the
sculpture. And the picture is required to be treated as a exemption from CGT.
Question 2
In the given instance Barbara has been offered by Eco Books Ltd book on economic
principles for a price of $13,000. Barbara never wrote a book on the same before but
consented to accept the offer. She wrote the book accordingly and the writing of the book has
followed several other transactions. The implications of the same for the purpose of taxation
can be discussed in the following manner.
The first section that followed the writing of the book is the money e of $13000 paid by
the company to Barbara for the purpose of writing the book. Section 6 belonging to the
Income Tax Assessment Act 1936 has provided for a definition to the expression income
earned from application of personal exertion or any income derived from the same. An
income to be brought under the definition of income from personal exertion is required to be
earned by a person with the solicitation of his own toil and efforts that has been provided by
him in the continuation of his course of actions involving the generation of income. Such

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form of income covers salaries, bonuses, commissions, wages, superannuation allowances,
gratuities, pensions and other income of the same kind. In other words it can be stated that
any income that a taxpayer receives for the purpose of his services extended to the employer
under the relationship of employment will also be treated as an income that has been derived
from the application of personal exertion. However in certain cases 20 income may also
include business income but for the same the person earning needs to be acting alone in the
furtherance of the business activities for needs to be e acting as a partner under a partnership
relationship. In the case of Hollyock v. FCT 71 ATC 4202 it has been concluded by the code
that there needs to be a connection being established between the income generated and the
personal toil and effort extended by the taxpayer.
Again the income that a person earns from the application of his personal efforts all with
respect to any services that he has rendered another relationship of employment is required to
be treated as an ordinary income as per the provision of section 6.5 of the Income Tax
Assessment Act 1997.
On the other hand, copyright when subjected to sale is treated as a CGT asset and proceed
from the same is treated as a CGT gain. However, when a copyright is created for the sole
objective of generating profit it needs to be assessed as an ordinary income. This can further
be discussed under the principle set out in the case of Federal Commissioner of Taxation v.
Whitfords Beach Pty. Ltd (1982) 150 CLR 355.
This renders the transaction involving the selling of the book for price of $13,000 by
Barbara to be a income on from application of personal exertion under section 6 of the Act.
The assigning of the copyright of the book for price of $13400 towards the company is
required to be assessed as a CGT gain and the copyright will be considered as an CGT asset.

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The sale of the manuscripts of the book and the interviews for a price of $4350 is required
to be treated as an income as defined under section 6 of the act and the same is required to be
treated as an income that has been found from the application of toil and labour as and
income from personal exertion.
Again the alternative situation provided has made evident that the book has been written
by Barbara as a hobby and has been decided to be sold to the company afterwards. This is
required to be treated as a income from hobby and cannot be treated as an income from
personal exertion.
Question 3
In the present instance a loan of $50000 has been provided by Patrick towards his son of
David. David wanted to start a business with the same. The agreement between them has
assured return of $58,000 to be paid at the elapsing of 5 years by David towards Patrick. The
accessibility of the same in the income of Patrick is required to be discussed in the later
sections. It has been made evident from the case of Hochstrasser v Mayes [1960] AC 376, an
individual needs to prove that the received he has received under any transaction has been
accrued to him as a gain or benefit so that it has caused and advantage to him to be rendered
as a taxable income. Again, in the case of Federal Wharf Co Ltd v. Deputy Commissioner of
Taxation (1930) 44 CLR 24, it has been held that the receipt to be treated as a income need to
comply with all the requirements of an income as is required to be complied with for the
purpose of taxation. The receiver needs to be proved to be beneficial to the taxpayer. In case
of Peate v. FCT 111 CLR 443, it has been held that the income needs to be the receiver needs
to add an advantages aspect towards the taxpayer. The receipt need to be a change in the
position of the taxpayer by virtue of that receipt which should result in favouring the
taxpayer. It has been held section 6.5 of the Income Tax Assessment Act 1997 that on income

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is to be treated as income if it has been derived by virtue of the ordinary concept of earning
income.
In the instant situation the loan has been agreed to be repaid with an additional amount of
$6,000 at the end of 5 years. However there has been no agreement for an interest to be paid
upon the amount of loan extended. Again while making the final payment of the amount and
additional amount of 5% has been provided by David towards Patrick for the loan extended.
This needs to be treated as a receipt that has placed Patrick in an advantages position as he
has gained and amount of $6,000 as well as an additional amount of 5% from the loan
extended and its repayment. Hence, it can be treated as an ordinary income earned by Patrick
under section 6.5 and can also be supported with the case of Hochstrasser v Mayes [1960]
AC 376.

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Reference
Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd (1982) 150 CLR 355
Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24
Hochstrasser v Mayes [1960] AC 376
Hollyock v. FCT 71 ATC 4202
Peate v. FCT 111 CLR 443
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997