Taxation Theory, Practice and Law

This document provides answers to questions related to taxation theory, practice, and law. It discusses various transactions and their tax implications. It also explores the concept of personal exertion income and the taxation of one-off interest receipts. The document does not mention any specific course code, course name, or college/university.

Running head: TAXATION THEORY, PRACTICE AND LAW
Taxation Theory, Practice and Law
Name of the Student:
Name of the University:
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1TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Answer to Question 1:.......................................................................................................2
Transaction 1:................................................................................................................2
Transaction 2:................................................................................................................2
Transaction 3:................................................................................................................2
Transaction 4:................................................................................................................3
Answer to Question 2:.......................................................................................................3
Issues:............................................................................................................................3
Rule:...............................................................................................................................3
Application:.....................................................................................................................4
Conclusion:.....................................................................................................................5
Answer to Question 3:.......................................................................................................5
Issues:............................................................................................................................5
Rule:...............................................................................................................................5
Application:.....................................................................................................................5
Conclusion:.....................................................................................................................5
References:........................................................................................................................6

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Answer to Question 1:
Transaction 1:
It is evident from the “Section 100-25 (1) of ITAA 1997” that there is restriction
of capital gains tax on the assets to which they are applied and on those asset bought
on or after 20th September 1985. Until 21st September 1999, tax application is made
only for real gains in accordance with the regimes of the capital gains tax (Barkoczy
2016). Owing to this, the cost base related to the capital gains tax asset has been
indexed for inflation purpose; in case, the CGT asset has been held for above a year.
The assets bought before 20th September 1985 and gains obtained from the same are
not entitled to CGT owing to the exemption of assets.
In this situation, Helen has purchased antique painting before 20th September
1985. On February 1985, the painting is bought, which is prior to the initiation of CGT.
However, the painting has been sold in the month of December in 2018. The asset was
bought at an amount of $4,000 and the selling value of the asset has been $12,000.
Therefore, the sale of painting has resulted in capital gain. Since the asset was
purchased prior to the initiation of the CGT, it could be categorised as pre-CGT asset
and thus, Helen is exempted from capital gains in this situation.
Transaction 2:
The application of CGT provision is made on realised or actual gains. In
accordance with “Section 102-5 (1) of ITAA 1997”, the taxpayer has to incur tax on
capital gains, as they are statutory income and the same would be included in the
assessable earnings of the taxpayer. The CGT asset disposal is related to “Section
104-10 of ITAA 1997” (Boadway and Tremblay 2016). After the sale of the CGT events,
the CGT event A1 takes place. Collectable implies items likes antiques, rare books,
sculptures and jewellery mentioned in “Section 108-10 (2) of ITAA 1997”, which is
used for self-enjoyment.
$5,500 was incurred for buying an art work as sculpture. In 2018, the same was
sold for an amount of $6,000. This sculpture could be adjudged as a collectable item in
compliance with “Section 108-10 (2) of ITAA 1997”. By selling the sculpture, there has
been creation of CGT event A1 in accordance with “Section 104-10 of ITAA 1997”. The
capital gains obtained is deemed to be taxable in the form of statutory income within
“Section 6-10 of ITAA 1997” and this would be incorporated in the assessable income
of Helen depending on “Section 102-5 (1) of ITAA 1997”.
Transaction 3:
According to “Section 108-10 (1) of ITAA 1997”, capital loss from collectables
could be used for minimising the capital gains earned from other collectables
(Braithwaite 2017). This denotes that the amount remaining from capital loss is brought
forward to the later years in accordance with “Section 108-10 (4) of ITAA 1997”. In this
situation, the taxpayer is Helen and she has purchased jewellery amounting to $14,000.
On selling the jewellery in March 2018, Helen has incurred a loss of $1,000 from the
actual purchase price. By complying the regulation mentioned in “Section 108-10 (4) of
ITAA 1997”, it is necessary to reduce the capital loss by offsetting the same against the
capital gain made from the sculpture. Based on “Section 108-10 (4) of ITAA 1997”, the

3TAXATION THEORY, PRACTICE AND LAW
amount of $500 remaining as the unutilised capital loss needs to be brought forward to
the later year.
Transaction 4:
“Sections 108-20 to 108-30” provide a list of the assets for personal use. These
assets need to be considered in the form of collectables (Chardon 2014). Instead, they
comprise of racehorses, electronic goods, boats and household utensils, which the
taxpayer uses for personal purpose. Along with this, “Section 118-10 (3) of ITAA 1997”
does not take into account the personal use assets for the purpose of capital gains, if
the value goes down below $10,000.
The picture was sold by Helen on July 2018 for an amount of $5,000. The picture
was bought for an amount of $470 in the year 1987. It has been identified that the
picture needs to be classified in the form of personal use asset in accordance with
“Section 108-20 of ITAA 1997”. By adhering to the regulations mentioned in “Section
118-10 (3) of ITAA 1997”, the capital gains from the picture would not attract capital
gains tax, since they fail to meet the eligibility criteria mentioned in “Section 118-10 (3)
of ITAA 1997”, since its cost price is lower than $10,000.
Answer to Question 2:
Issues:
` The issue here is to determine whether the receipt of the taxpayer based on
providing the service to write the book and sell the same to the publisher for publication
is the outcome of personal efforts.
Rule:
According to “Section 6 (1) of ITAA 1936”, the earnings that the taxpayer has
made via wages, salaries, gratuities, superannuation and others obtained as employee
for conduction of service is to be treated in the form of income from personal exertion
(Cui 2015). The definition of “Section 6 (1) of ITAA 1936” is considered to be inclusive
and it only sheds light on the instances of earnings made via personal exertion. This is
not satisfactory and thus, attention is required for the general rules from the perspective
of the case law. In “FC of T v Hayes (1956)”, the personal exertion amount is classified
in the form of product of incident or reward for the provided service. There is

4TAXATION THEORY, PRACTICE AND LAW
considerable amount of relationship between the amount and the income producing
activity.
In addition, majority of the earnings coming to the taxpayer is categorised under
ordinary earnings. The judicial ordinary income concept in accordance with “Section 6-
5 of ITAA 1997” constitutes of income based on the ordinary concepts. For providing
support to take into account the personal exertion income, the income case laws like
“Brent v FCT (1971)” is considered (Freebairn 2015). This has been held for obtaining
taxable earnings when money was provided to the individual for presenting her
autobiography to the newspaper so that exclusive publication could be made.
In addition to this, there is consideration of another example, which is “Hobbs v
Hussey (1942)”, in which £1,500 was provided to the criminal, since the individual sold
his autobiography to the publisher for publishing the story in the newspaper article
(Groenewegen and McFarlane 2014).The amount of payment incurred to the taxpayer
is not just to cover inconvenience or cost.
Considering the case of “Housden v Marshall (1958)”, the taxpayer was held
table after the individual sold his experience with Jockey, as it contained the cuttings
and photographs of the newspaper (Lang 2014). The amount obtained was considered
in the form of ordinary income and it was taxable in compliance with the ordinary
meaning of “Section 6-5 of ITAA 1997”.
Application:
It has been identified that Barbara besides being an economist, is a research
commentator as well. Econ Books Limited is a publisher that has provided $13,000 to
Barbara for writing a book on Economics. The offer was accepted by Barbara and the
book was written, which was provided the name of “Principle of Economics”. This
amount is seen to be associated with the provision of services for Barbara. In addition,
by considering the instance of “Brent v FCT (1971)”, the payment is observed to have
relationship between the provided services and the activities related to earnings
(Mangioni 2015). The payment character obtained by Barbara is income related to
personal exertion, as per “Section 6 (1) of ITAA 1997”. The amount would be taxable in
accordance with “Section 6-5 of ITAA 1997”.
Later on, Barbara provided the copyright of the book to Eco Books Limited. The
amount incurred for selling the copyright associated with the book was $13,400.
Referring to the case of “Hobbs v Hussey (1942)”, the sale of the copyright to the
publisher by Barbara would be categorised under taxable ordinary income in
compliance with the judicial definition of “Section 6-5 of ITAA 1997”. Barbara received
the amount, since personal service was to be provided for receiving the payment
(Mangioni 2014).
Finally, Barbara sold the book manuscript to the library along with providing the
interview manuscripts, which have yielded money to Barbara. In the case of “Housden
v Marshall (1958)”, selling book and interview manuscripts and the income made could
be classified as taxable ordinary income in accordance with the judicial definition of
“Section 6-5 of ITAA 1997”, In case; Barbara has written the book in leisure and then
the same is sold to the publisher, any amount obtained in that case would be classified
as income from personal service exertion and it would be taxable, as per the ordinary
meaning of “Section 6-5 of ITAA 1997” (Marques, Yigitcanlar and Da Costa 2015).

5TAXATION THEORY, PRACTICE AND LAW
Conclusion:
The amount that Barbara has received is fully from personal exertion and thus,
the amount would be taxable in compliance with the judicial concept of “Section 6-5 of
ITAA 1997”.
Answer to Question 3:
Issues:
The issue here is to find out whether one-off interest receipt made by the
taxpayer by providing loan would be taxable income under “Section 6-5 of ITAA 1997”.
Rule:
Ordinary income and statutory income are included in taxable income. Ordinary
income could be defined as the income where the courts have determined generally by
enforcing the income definition depending on ordinary concepts. “Section 6-5 (1) of
ITAA 1997” is involved in analysing ordinary income for tax purpose (Mihaylov et al.
2015). For characterising the income of the taxpayer, the crucial features have to be
taken into consideration. This constitutes of whether the receipt earned could be
converted into cash easily or not. The receipts that generate income are classified in the
form of ordinary earnings.
In the case of “Hocstrasser v Mayes (1960)”, if it is not possible to consider
receipt in the form of genuine gain, it would not be held in the form of ordinary income
(Miller and Oats 2016). The gains would reveal the adequate features of income and
they would be treated as ordinary income until the requirements of the ordinary income
are fulfilled. It is to be noted that one-off receipts are not considered as ordinary income
and it might reveal the adequate features of income. In a similar manner, the significant
gains might be considered in the form of ordinary income; in case, one-off interest
receipt is treated in the form of ordinary income under the loan agreement.
Application:
The above-mentioned rules are applicable in the provided situation of David and
his father, Patrick. Patrick provided loan to his son for five years for which interest of
$6,000 needs to be incurred on the loan. The son has settled the loan through cheque
and the individual has paid an additional amount of 5% on the loan amount. The interest
that Patrick received needs to be seen as the actual gain to the taxpayer; thereby,
possessing the features of income. The interest receipt is meeting the requirements,
since it is not possible to be converted into cash.
Lastly, for finding out the tax liability related to interest income, the payment
mode that David has used is observed to have no impact on the tax position (Tran-Nam
2016). In this case, Patrick would be considered assessable for the interest obtained on
loan that he has provided to David. The loan amount is not taxable owing to the fact that
the same is an amount of capital (Woellner et al. 2014).
Conclusion:
By considering all the above-discussed aspects, it could be stated that Patrick
has received the interest on the loan provided to his son. The interest amount would be
classified as taxable income within “Section 6-5 of ITAA 1997”, as this gain is real from
the perspective of the taxpayer.

6TAXATION THEORY, PRACTICE AND LAW
References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Boadway, R. and Tremblay, J.F., 2016. Modernizing Business Taxation. CD Howe
Institute Commentary, 452.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Chardon, T., 2014. Taxation and superannuation literacy in Australia: What do people
know (or think they know)?. JASSA, (1), p.42.
Cui, W., 2015. Taxation of non-residents’ capital gains. United Nations Handbook on
Selected Issues in Protecting the Tax Base of developing Countries, pp.107-154.
Freebairn, J., 2015. Who Pays the Australian Corporate Income Tax?. Australian
Economic Review, 48(4), pp.357-368.
Groenewegen, P. and McFarlane, B., 2014. A History of Australian Economic Thought
(Routledge Revivals). Routledge.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag
GmbH.
Mangioni, V., 2015. Land Tax in Australia: Fiscal reform of sub-national government.
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Mangioni, V.J., 2014. Land value taxation and the valuation of land in Australia. Nordic
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Marques, J.S., Yigitcanlar, T. and Da Costa, E.M., 2015. Australian innovation
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Journal of Innovation and Entrepreneurship, 9(2), pp.3-28.
Mihaylov, G., Tretola, J., Yawson, A. and Zurbruegg, R., 2015. Tax compliance
behaviour in Australian self-managed superannuation funds. eJTR, 13, p.740.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Tran-Nam, B., 2016. Tax Reform and Tax Simplification: Conceptual and Measurement
Issues and Australian Experiences. In The Complexity of Tax Simplification (pp. 11-44).
Palgrave Macmillan, London.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2014. Australian
Taxation Law 2014 (pp. 1-81).
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Taxation Law 2016. OUP Catalogue.