Taxation Theory, Practice and Law

This document provides a comprehensive overview of taxation theory, practice, and law. It covers topics such as capital gains tax, income from personal exertion, and tax liability on earned interest. The document includes case studies, rulings, and applications to real-life scenarios. It is a valuable resource for students studying taxation. Subject: Taxation, Document type: Study material, Assignment type: N/A

Running head: TAXATION THEORY, PRACTICE AND LAW
Taxation Theory, Practice and Law
Name of the Student
Name of the University
Author’s Note

1TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Question 1...................................................................................................................................................2
Requirement 1.........................................................................................................................................2
Requirement 2.........................................................................................................................................2
Requirement 3.........................................................................................................................................2
Requirement 4.........................................................................................................................................2
Question 2...................................................................................................................................................3
Question 3...................................................................................................................................................4
References...................................................................................................................................................6

2TAXATION THEORY, PRACTICE AND LAW
Question 1
Requirement 1
Helen sold the painting for $12,000 that her father bought in February 1985 at a
cost of $4000 and the purpose of selling it was to fund the business. CGT is applicable
on the assets bought after 20/09/1985 and thus the worlds like pre-CGT and post-CGT
are used to classify the assets based on the CGT date. Since, Helen’s father bought the
painting before the CGT date and thus, it needs to be considered as a pre-CGT asset
where the capital gain from the sale needs to be ignored (Thuronyi and Brooks 2016).
Requirement 2
Disposal of an asset under “s104-10(1), ITAA 1997” is considered as a CGT
event A1. As mentioned in “s108-10(2)”, artwork, postage stamps, antique, jewellery
and rare folio are the examples of collectable used by the taxpayer for personal
enjoyment. Helen sold the sculpture for $6,000 in 2018 that was bought for $5,500 in
1993 and this needs to be considered as a CGT event A1 as per “s104-10(1), ITAA
1997” since the sculpture is a collectable as per “s108-10(2)”. Thus, the capital gain
from it is subject to taxation due to be a part of the taxable income of Helen (Nobes
2015).
Requirement 3
Capital losses from collectables can only be offset against the capital gains from
collectable as per “s108-10(1), ITA Act 1997”. Helen sold the antique jewellery for
$13,000 that she bought for $14,000 in 1987. This $13,000 is the total loss for Helen.
Since the antique jewellery is a collectable as per “s108-10(1), ITA Act 1997”, it is
possible for Helen to offset the capital gain from the sculpture with the capital loss from
the antique jewellery (Crowe et al. 2013).
Requirement 4
Helen received $5,000 from selling the picture that had the cost base of $470
and she sold it for funding her business. Personal use assets are considered as non-
collectable due to the personal use of the taxpayers as per “Section 108-C”. In case
the asset value is $10,000 or less, it is needed to ignore the capital gain associated with
this asset as per “s118-10(3), ITA Act 1997”. In this case, Helen’s mother kept the
picture for personal delight which makes it a personal use asset. Since, Helen’s mother
acquired this asset for less than $10,000, the capital gain associated with his asset
need to be ignored as per “s118-10(3), ITA Act 1997” (Lang 2014).

3TAXATION THEORY, PRACTICE AND LAW
Question 2
Issues – The main issue is related to tax liability from the taxpayer’s earned receipts
from personal exertion.
Ruling – Salaries, wages, bonuses, retirement gratuities and others are the examples
of the income from personal exertion received by the employees for providing employer
services to the employer as per “s6(1), ITA Act 1936”. A connection needs to be there
between the personal exertion and benefit received and the above ruling provides the
examples of income from personal exertion. The received benefit is considered as the
reward of personal exertion. Income from ordinary senses is subject to taxation as per
“s6.5, ITA Act 1997”. This includes three options; first, the payment is a part of periodic
receipts; second, the payment is the reward for personal service; and third, the payment
is for the services provided to get paid (Woellner et al. 2014).
In the case of “Brent v FCT (1971)”, the count has considered the payment as
income that the robber’s wife earned from telling her story to the media for publication.
In the presence of features of ordinary income, the court considered the payment as
income as per “s6-5, ITA Act 1997”. In another case named “Hobbs v Hussey
(1942)”, the court considered the payment as income. As per the details of the case,
the taxpayer received the payment of £1,500 to provide the right for the printing of his
autobiography in the newspaper and it is assessable income. In another case of
“Houden v Marshall (1958)”, the taxpayer shared his experience of being a jockey
while also shared the newspaper cuttings and photographs. The court considered the
amount paid to his as the income from personal exertion and thus, it was considered as
the taxable income in accordance with “s6-5, ITAA 1997” (Woellner et al. 2016).
Application – The above discussed rulings have relevance in the case of Barbara who
is a economics researcher and approached by Eco Book Ltd for wiring a book. Due to
the attractiveness of the offer, Barbara decided perusing the book called “Principles of
Economics”. After successfully wrote the book, she received a payment of $13,000 and
it is needed to consider this received amount as income from personal exertion as per
“s6 (1), ITAA 1936”. It needs to be mentioned that receive amount by Barbara has
adequate connection with the aspect of income from personal exertion. As referred to

4TAXATION THEORY, PRACTICE AND LAW
the judgment of “Brent v FCT (1971)”, the received amount or benefit needs to be
considered as the reward or product of personal exertion. Due to the presence of all
features of ordinary earnings, this payment needs to be considered as income as per
“s6-5, ITA Act 1997”. Eco Book Ltd received the copyright of the book from Barbara for
paying her $13,400. As similar as the case of “Hobbs v Hussey (1942)”, Barbra
received the amount for providing services which makes this payment as taxable
income as per “s6-5, ITA Act 1997”. Barbara was required for writing the book that can
be considered as providing services (Edmonds 2015).
After that, Barbara also sold the manuscripts and interview manuscripts for
$4,350 and $3,200 respectively. As per the case of “Houden v Marshall (1958)”, this
amount needs to be treated as income from personal exertion and thus is subject to
taxable income as per “s6-5, ITAA 1997”. After considering the above whole
discussion, it can be said that in case Barbara was only involved in writing the book in
her free time and sold the book’s copyright for the purposes of printing as well as
publication, then the amount received by Barbara would required to be considered as
income from personal exertion that would be subject to taxation as per “s6-5, ITAA
1997” (Ingles and Stewart 2018).
Conclusion – As per the above whole discussion, it can be determined that the
features of the payments received by Barbara are of taxable income from ordinary
senses as per “s6-5, ITA Act 1997”.
Question 3
Issue – The issue related to this case is tax liability on earned interest on given loan.
Ruling – Income from ordinary bases along with the statutory earnings forms the
taxable income of the taxpayers. Ordinary earnings are considered as income from the
determination by the court through the consideration of the definition of earnings.
It is needed to consider the provision for statutory earnings before applying
ordinary earnings as the amount that is subject to taxation as per “sec6-25(2), ITAA
1997”. The gains are characterized based on the most fundamental bases to impose
tax. Receipts are considered as ordinary income when they meet both the prerequisites.
These prerequisites are cash or conversable into cash and the real gain of the
taxpayers (Richardson 2014). It is required to mention the verdict of the court in the
case of “Mayes v Hochstrasser (1980)” states that the receipt should be an authentic
gain in order to consider it as ordinary earnings. A periodic or regular gain is most likely
to be having the characteristics of ordinary earnings as compared to the taxpayer’s
earned receipts as the lump sum and the lump sum gains are considered as ordinary
income which includes the one-off receipts interest from the loan agreement (Wurth and
Braithwaite 2016).
Application – It needs to be mentioned that the above rulings have relevance with the
case of Patrick where the provided his son, David, with a loan of $52,000 on the
condition of repaying the loan at the end of five years. $58,000 and $6,000 were the
repayment amount and the interest on loan respectively. The son, David, made the
repayment of the total loan within two years that included an interest of 5% on the basis
of the loan amount (Burton 2017). The interest received by Patrick is an income
because it has the income related prerequisites. In accordance with the verdict of the
Commissioner in the case of “Mayes v Hochstrasser (1980)”, it is a real gain for

5TAXATION THEORY, PRACTICE AND LAW
Patrick and this amount should be considered as statutory income for Patrick as per
“s6-25(2), ITAA 1997”. This amount needs to be considered as a one-off interest on
loan that his son received from him. In addition, the mode of payment through cheque
does not have any effect on the tax position of the interest received. For this reason, it is
needed to include the interest in Patrick’s assessable income as statutory earnings
(Bray 2015).
Conclusion – It can be concluded on the basis of the above discussion that the interest
on loan amount received by Patrick needs to be taken into consideration as the
assessable statutory income because of the fact that it is a genuine gain for Patrick.

6TAXATION THEORY, PRACTICE AND LAW
References
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System: What Has Happened, What Have We Learnt and What Are the
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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.
Crowe, C., Dell’Ariccia, G., Igan, D. and Rabanal, P., 2013. How to deal with real estate
booms: Lessons from country experiences. Journal of Financial Stability, 9(3), pp.300-
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sustainable reform. In Australian Tax Forum (Vol. 33, No. 1).
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Business Research, 45(4), pp.413-441.
Richardson, D., 2014. The taxation of capital in Australia: Should it be lower?.
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Thuronyi, V. and Brooks, K., 2016. Comparative tax law. Kluwer Law International BV.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2014. Australian
Taxation Law 2014 (pp. 1-81).
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law 2016. OUP Catalogue.
Wurth, E. and Braithwaite, V., 2016. Tax practitioners and tax avoidance: gaming
through authorities, cultures and markets. RegNet Research Paper, (2016/119).