TAXATION, THEORY, PRACTICE AND LAW

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Table of ContentsAbstract............................................................................................................................................................3Introduction......................................................................................................................................................4Body of Assignment..........................................................................................................................................4Answer 1.......................................................................................................................................................5Sale of Impressionism Paintings...................................................................................................................5Sale of Historical Sculpture...........................................................................................................................5Sale of Jewellery...........................................................................................................................................6Sale of Picture...............................................................................................................................................6Answer 2...........................................................................................................................................................6Tax implication when Income is from Barbara’s Self Exertion......................................................................6Stanton vs. FCT.........................................................................................................................................7Tax Implication when Barbara sells its copyright to Eco Book......................................................................7McCauley vs. FCT......................................................................................................................................7Answer 3.......................................................................................................................................................8Barry and Lorraine Vs his son (Murry Berghan)........................................................................................8References........................................................................................................................................................9

Abstract In this paper, we are going to discuss the effect of different provision of taxation ondifferent types of income as per the Australian law for personal income. Generally, thereare three types of income, which includes Business income, Personal income and capitalgain income. Income tax is payable on the income. The tax rate on the income isdepending on the type of income and also in case of personal income, the tax rate isdepending on your income. Generally, Income tax rate would be higher on higher incomeand lower on lower income. Here, we are going to discuss the provisions relating to Capitalgain, taxability of Royalty income and Loan to family members. We are also going todiscuss case study relating to royalty income and loan to family member.

RUNNING HEAD: TAXATION THEORY, PRACTICE AND LAW
Taxation Theory, Practice and Law
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RUNNING HEAD: TAXATION THEORY, PRACTICE AND LAW
Introduction
Australian law in regards to businesses has a national statutory and framework for fair
trading between businesses and its consumers or investors (Tiley & Loutzenhiser, 2012).
Working as a tax consultant in Mayfield, NSW there are various clients, who have made
multiple types of transactions. In the current discussion various sale of various assets have
taken place which have to be treated in their income statements as discussed below. The tax
computation has been conducted for the ascertaining capital gains or loss for the year ended
30 June of the current tax period. In the second question Fringe benefit tax liability for Raid
Heat Pty Ltd has been conducted, which has provided a car for its employee Jasmine.
Question 1
Asset disposal along with some other types of transactions were conducted by the
client. There was also an attempt on the part of the client to present crucial information and a
thorough understanding of this information clearly reflect on the fact that asset disposal
cannot be considered as contributed to business activity (Gitman, Juchau & Flanagan, 2015).
So, it can be said that these transactions will result in capital generation instead of revenue
generation. It is a fact that taxation is highly linked to revenue and not capital. One of the
major aspects that are associated with capital receipts is that the CGT (capital gains tax) can
only be applied to those capital gains tax which is realised by the taxpayer. Therefore, the
discussion will be solely based on the significance of capital gains in terms of the transaction.
For proceeding with the implications of taxation, there will be an attempt and in this
study to deal with some of the important components.
Pre-CGT Asset
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RUNNING HEAD: TAXATION THEORY, PRACTICE AND LAW
The section 149(10) of the ITAA 1997 have stated that if a taxpayer owns an asset on
or before 19th September, 1985 then it will be treated as pre-CGT asset. One of the reasons
for defining a pre-CGT asset is because the assets that were bought or sold on this particular
date are unable to obtain any CGT liability. This non-application of the CGT is not affected
by the loss or gains obtained from sale.
CGT Event
In order to compute capital gains it is quite essential to give emphasis on CGT events
as capital gain or loss is linked to it. The ITAA 1997 have given a list of the CGT events in
section 104-5. An important event that helps in transpiring as soon as asset disposal is
reported and it is A1 event. It can be discerned that for calculating capital gains one can rely
upon A1 event. The capital gains can be received by deducting cost of assets from price
obtained after selling the asset.
Cost base
While calculating capital gains with help of A1 event, cost base perhaps plays the major role.
It has been defined in the section 110-25 (Mehrotra & Ott, 2015). The section 110-25(1)
evaluates the fact that cost base refers to the combination of five major constituents and it is
termed as elements.
1st Component: Cost at which the taxpayer had bought the asset.
2nd Component: Costs related to agent fees, stamp duties or legal fees that are obtained by a
taxpayer at the time of disposing or procuring an asset.
3rd Component: It takes into consideration the cost of ownership that includes capital interest
or taxes that are incurred while owning an asset.
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Running head: TAXATION THEORY, PRACTICE AND LAW
Taxation theory, practice and law
Name of the Student:
Name of the University:
Author Note

1TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................7
Requirement a).................................................................................................................................7
Requirement b)..............................................................................................................................10
Reference and bibliography list:....................................................................................................13

2TAXATION THEORY, PRACTICE AND LAW
Answer to Question 1:
The first requirement seeks to assess the net capital loss or net capital gain of the client
based on the information provided about its various assets during the present financial year. In
addition to this, the first requirement also addresses the consequence of income tax due to
occurrence of transactions during the particular financial year. The client provides information
about tax that a capital loss of amount $ 8500 has been carried forward from the previous year.
Sculpture sale has also resulted in a loss that is attributable from previous tax of amount $ 1500.
The section 102-20 of ITAA 1997 takes into account the fact that any capital loss or gains
arises due to happening of any transactions, activities or any capital gain tax (CGT) event.
Events concerning capital gain tax can occur in multiple occasions. The provisions for capital
gain tax are triggered by the events that lead to incurring of such taxation. There exist
considerable number of events that is common to making provisions of CGT. This involves
disposing any assets related to CGT. According to section 104-10(1) of ITAA 1997, disposition
of CGT assets results in concurrence of CGT event and such event might result in capital gain or
capital loss. Capital loss occurs when the proceeds from capital is more than the reduced cost
base of assets. Capital gain, on other hand occurs when the disposal results in lower capital
proceeds that the cost base of assets. It is said that entering into contact generates placing
importance on the CGT event in accordance with the decision of the case “Sara Lee household v
FCT (2000)”. There is no separate provision for taxing the event resulting in capital gain; instead
they are taxed with the sequence of ordinary taxation.
During a particular financial year, it is required to take into account total capital for
paying tax according to section 102-5 of ITAA 1997. The capital gains can be used by tax payer

TAXATION THEORY, PRACTICE & LAW
Hi6028
T2 2018
1

Question 1
Vacant land
It is to be understood that a buyer who is intended to buy a vacant land should consider the
asset character which is type of capital. A taxpayer should have knowledge to understand that
the capital gains which are mainly applied on a property are applicable in a vacant land too.
The outgoing record is to be maintained while procuring land and it is an important guideline
given by the ATO (Buxton & Taylor, 2011). As per ATO taxpayer should not get any
exemption from the income tax as it is regarded as the capital expense. However, taxpayers
are given a second chance of obtaining extra capital expense that is got from the procured
land in case the land is disposed.
The client here has carried out many transactions that incorporates various types of asset
disposal as well. From the information that had been furnished, it can easily be derived that
disposal of assets does not form part of the business activity of the client. Hence, it can be
understood such transaction can lead to capital gains and not revenue. Categorizing sale of
assets as capital gain and not as revenues leads to separate treatment for taxation, as capital
gains does not attract taxes similar to revenues however, revenue proceeds generated does
attract substantial amounts of taxes. In case of capital generation, there is Capital gains Tax
(CGT), where the individual will need to pay taxes on the increased value of capital that is
generated (Wagenaar, Salois & Komro, 2009).
Sale Proceeds $320,000
Acquisition Price $100,000
Incurred Expenses payable in local
council, water/sewerage rates, land taxes
$20,000
Cost base =$100,000+ $20,000=$120,000
Capital gains on land block =$320,000-$120,000 = $200,000
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Previous capital losses $7,000
Capital gains =$200,000 - $7000 = $193,000
Net Capital gains on land block =0.5*193000=$96,500
The cost that is meant for the land procurement is $100,000 and it is accompanied with the
outgoings on land tax, rate payment and water. Taxpayers have to provide $20,000 as a
deposit. All these cost can be taken as the capital cost or land procurement. Deductions are
not allowed as per the rules set by the income tax department. As the land is taken as a capital
asset so, revenue earned form the capital gain is under CGT event A1. For selling vacant land
capital gain tax can be levied under the section 104-10 (1).
Antique Bed
Whenever the taxpayers is tried to report any loss regarding their asset then they have to give
reference of CGT event C1. As per the ITA Act 1997, the section 104-20 has made it
mandatory on the part of the taxpayer to immediately report to CGT event C1 in case of loss
of asset (Hofmann, Hoelzl & Kirchler, 2008). The provision which is set under the 104-20
section has clearly specified more clarifications to this event. One of the specifications is that
the taxpayer is required to increase his awareness while receiving compensation for their
assets. The section 104-20 also demonstrates that a land owner would likely to gain capital on
reporting incidence related to los of assets.
The market price of the antique bed that was lost is $25,000 and the owner will receive
compensation of about 11,000 from the insurance company. Here the provision of CGT event
3

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

1TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Question 1:.......................................................................................................................................2
(a) Block of vacant land:..............................................................................................................2
(b) Antique bed:...........................................................................................................................2
(c) Painting:.................................................................................................................................4
(d) Shares:....................................................................................................................................5
(i) Common Bank Limited:.....................................................................................................5
(ii) PHB Iron Ore Limited:......................................................................................................5
(iii) Young Kids Learning Limited:.........................................................................................6
(iv) Share Build Limited:.........................................................................................................6
(e) Violin:.....................................................................................................................................6
Question 2:.......................................................................................................................................7
Requirement (a):..........................................................................................................................7
Requirement (b):........................................................................................................................10
References:....................................................................................................................................11

2TAXATION THEORY, PRACTICE AND LAW
Question 1:
(a) Block of vacant land:
The land sale is CGT event and it could be termed as CGT asset, as per “Section 108-5 of
ITAA 1997”. As a result, A1 event is triggered that occurs when the contract was signed on 3rd
June of the present tax year by complying with “Section 104-10 of ITAA 1997”. This sale would
fetch capital proceeds of $320,000 and the payable amount of $20,000 on 3rd January of the
following year is irrelevant in this case. Therefore, the total cost base would be $20,000 and this
is obtained by addition of the following amounts:
 The initial asset base element is $100,000, in accordance with “Section 110-25(2) of
ITAA 1997”.
 The third asset base element includes land taxes and rates of $20,000, as the land was
acquired after 20th August 1991 (Huizinga, Voget and Wagner 2018).
This denotes that capital gain exists because the capital proceeds are higher than the total cost
base. Hence, $200,000 would be recognised as capital gain ($320,000 - $120,000). This is an
eligible discount capital gain, as per “Section 115-25(1) of ITAA 1997”.
(b) Antique bed:
As per the case, the antique bed was stolen and this item is CGT asset. The event C1 has
been triggered by this incident by adhering to “Section 104-20(1) of ITAA 1997” (Australia
2016). The incident took place when compensation proceeds were obtained from the insurance
organisation. The question here is to assess the collectability of the antique bed. This would
depend on the characteristics of the item and client purpose when it was purchased (Dixon and