Australian Taxation Law: CGT, Collectibles, Income, and Loans Analysis

This document presents a comprehensive solution to an Australian taxation law assignment. It addresses three key questions, each exploring different aspects of the tax system. Question 1 examines capital gains tax (CGT), differentiating between pre-CGT and post-CGT assets, and analyzing the tax implications of collectibles and personal use assets based on the provided case studies. Question 2 delves into the concept of assessable income, distinguishing between ordinary income and capital gains, and applying relevant case law to determine the taxability of income derived from services, such as writing a book. Question 3 focuses on the tax treatment of interest on loans, determining whether it constitutes assessable income under the ordinary income provisions of the Income Tax Assessment Act 1997 (ITAA 1997). The solution provides detailed analysis, applying relevant sections of the ITAA 1997 and case law to support its conclusions, offering a clear understanding of the tax implications in each scenario.

0AUSTRALIAN LAW OF TAXATION
AUSTRALIAN LAW OF TAXATION
Name of Student
Name of University
Author’s Note
Course ID

1AUSTRALIAN LAW OF TAXATION
Table of Contents
Answer to Question 1:.......................................................................................................2
Answer A:.......................................................................................................................2
Answer B........................................................................................................................2
Answer C:.......................................................................................................................3
Answer D:.......................................................................................................................4
Answer to Question 2:.......................................................................................................5
Issues:............................................................................................................................5
Rule:...............................................................................................................................5
Application:.....................................................................................................................6
Conclusion:.....................................................................................................................8
Answer to Question 3:.......................................................................................................8
Issues;............................................................................................................................8
Rule:...............................................................................................................................8
Application:.....................................................................................................................9
Conclusion:........................................................................................................................9
References:......................................................................................................................10

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Answer to Question 1:
Answer A:
As per the ordinary concepts the capital gain will not be considered as the
income tax. The capital gain started off from the September 20, 1985. All the capital
gain receipts are come under the purview of the tax base. Net capital gains can be
included in the income tax liability of the taxpayer. It is notiable to know that when the
taxpayer purchased any goods before the introduction of the capital gains tax then the
asset is considered as the pre-CGT asset. On the other hand the asset purchased by
the taxpayer after the introduction of CGT it can be considered as the post-CGT asset.
As per the case study provided the father of Halen has bought the antique
painting on February 1985 (Stantcheva 2017). It can be seen that the transactions
made before the CGS implemented so it will be considered as the Pre-CGST. So the
selling of asset will not be considered and the tax will not imposed on the antique
painting which was bought by Halen’s father.
Answer B
As per mentioned in the “section 108-10 ITAA 1997” collectible can be
explained as asset whose use are considered to be personal or the associate of the
taxpayer. As stated in the “section 108-10 (2), ITAA 1997” the list of collectibles has
been provided in this section. The list of collectibles which us mentioned in the
“section 108-10 (2), ITAA 1997” usually include antique, jewelry, art works, coins and
rare stamps. As stated in the “section 102-5, ITAA 1997” the taxpayer should mention
net capital gains for the income year as the assessable income.

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As per mentioned in the case study of Halen, who bought a statue which is
related with the historical sculpture on the December 2018. The case study also
mentions that Halen sold the historical sculpture at 1st January 2018 at the price of
$6,000. It is seen in the case that Halen has earned capital gain and from the selling of
the antique painting (Schepens 2016). The capital gain which is made by Halen will be
taxable as the assessable income under the “section 102-5, ITAA 1997” .
Answer C:
Collectible are surrounded by the special rule for taxation. The capital loss which
is incurred are to be separated from the loss and will be balanced with the capital gain
which the taxpayer has made under the “section 108-10 (1), ITAA 1997”. As per
mentioned in the “section 108-10 (4) of the ITAA 1997” if the taxpayer incurred capital
loss which is raised aginst collectibles must carried forward by the taxpayer in the future
year.
As per the case study Halen had purchased jewelry for the price of $14,000 in
the month of October in the year 1987. This antique jewelry piece is sold by Halen at
the price of $13,000 in the month of March, 2018. It can be observed that Halen has
incurred $1,000 capital loss after the sale of collectibles. The loss realized by Halen
while selling the antique jewelry is to balance with the capital gains which are made by
Halen in that assessment year (Schenk 2017). The capital gain which is realized by
Halen while selling of the statue is to be balanced. As per the “section 108-10 (4),
ITAA 1997”, the capital loss which incurred by Halen can be transferred to the next
assessment year for the calculation of the taxable income.

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Answer D:
As per mentioned in the “section 108-20”, the CGT asset which handled by the
taxpayer for the purpose of the personal enjoyment of use will be considered under the
personal use assets. Under the purview of the CGT taxation the personal use assets
has some some special rules which to be followed while assessing it. According to the
“section 118-10 (3), ITAA 1997” that the capital gain made from the purchase assets
which can be termed as the personal use assets are lower than the cost of $10,000 will
be exempted for the capital gains tax (Lockwood 2016).
Halen has bought a picture for the cost of $470 in the month of March, 1987 and
it is sold in the year 2018, July. The amount fior which the picture has been sold is for
$5,000. It is evident from the above case that Halen has realized capital gain from the
transaction (Li, Lin and Robinson 2016). As per the special rules which is mentioned in
the “section 118-10 (3)”, the amount which is realized by Halen by selling the antique
picture can be termed as the capital gain and it will be exempted from the capital tax
because it is less than eligibility criteria of capital gains under $10,000.
Particulars Amount ($) Amount ($)
Sale of Sculpture
Sales proceeds 6,000.00
Less: Cost Base 5,500.00
Gross Capital gains 500.00
Sale of Antique Jewellery
Sales proceeds 13,000.00
Less: Cost Base 14,000.00
Gross Capital Loss -1,000.00
Net Capital Loss (Carry forward) -500.00
Computation of Capital Gains
For the year ended 2019

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Answer to Question 2:
Issues:
As per the ordinary income under the “section 6-5, ITAA 1997” the case will be
considered as the taxpayer earned from providing services or making business comes
under the purview of the taxation.
Rule:
The amount which is realized by the taxpayer will be treated as the income
earned by the services rendered or the income [while doing business or the amount
earned in case as the reward which is made by an individual. The income which can be
termed as the provate income can include salary, allowances, wages and contact
payments. In these kind of situations the ioncome earned by the individual can be
termed as the ordinary income which is under the “section 6-5, ITAA 1997”.
As per stated in the “section 6-5, ITAA 1997” the taxable earnings include that
is made from ordinary concepts. Income includes the portion of periodic receipts which
is made for payments (Kroft, et al., 2015). This section includes reward for the provision
made from services which is personal and the income from the services for the purpose
of receiving payment.
As in the case of “Brent v FCT (1971)” the payment made reference to the
verdict which is made by the court in this respect. As the verdict suggest the taxpayer is
also assessed on the income that is derived from the publication of the boo from which
the income is enjoyed by the taxpayer.

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As in the case of “Hobbs v Hussy (1942)” it states that the taxpayer here is a
convict who received £1,500 for selling of the copyright for the autobiography to the
publication company for the purpose of publication in the article of twelve newspapers
(Heathcote and Tsujiyama 2015). The amount recvied by the taxpayer who is the
convict is considered as the taxable under the purview of the ordinary income as per the
“section 6-5, ITAA 1997”. The tax is imposed on the convict because the amount
received by the convict for providing the service which is in turn can be said to be
writing the autobiography.
From the above mentioned case it can be stated that the amount which is treated
as the income from the services should fall under the purview of the taxpayer. As per
mentioned in the case of “Housden v Marshall (1958)” the decision is given where the
taxpayer was held taxable upon agreeing to make the supply of the experience as the
jockey which also included the photographs and newspaper cuttings.
Application:
As per mentioned in the above mentioned case it can be understood that
Barbara is a researcher in economics. It is seen that Barbara got an offer of writing the
book on economics from the Eco Books Ltd at the sum of $13,000. Immediately
Barbara accepted the offer. Barbara wrote the book on economics named as Principle
of Economics it is seen the amount which is earned from the publication company is to
be considered as income derived as the individual income because she has provided
effort behind this (Grubert and Altshuler 2015). The amount can be considered as the
reward coming from the services rendered by Barbara from writing book.

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As per the case of “Brent v FCT (1971)” the taxpayer will be considered as the
ordinary income as per mentioned in the “section 6-5, ITAA 1997”.Barbara here is
motivated by offering the service instead of payment made. It is also evident from the
case that the money which the company has paid to Barbara against the services
provided by her in terms of writing books (Findeisen and Sachs 2016). It cannot be
treated as the nominal amount which can make up for the inconvenience or cost.
As per mentioned in the case Barbara has sold the copyright of the books written
to the Eco Books Ltd against it she got the amount of $13,400. As per stated in the case
of “Hobbs v Hussey (1942)”the money which is received by Barbara from the
publication company of the books will be considered as the taxable income which will
falls under the ordinary income as per mentioned in the “section 6-5, ITAA 1997” .
On the later stage Barbara has disposed the manuscripts and the interview
scripts to the library in return she gets $4,350 and $3,200. As per mentioned in the
“Housden v Marshall (1958)” the amount will be considered as the income for
improving the experience. As per mentioned in the “section 6-5, ITAA 1997” the
income made by Barbara will be considered as the ordinary income.
If she alternatively writes the book during the free time for the purpose of selling it
to publication purpose, then the income that will be earned would amount to personal
exertion earnings. The income will be taxable as ordinary earnings under “S-6-5, ITAA
1997”.

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Conclusion:
In the aspect of the above explanation as per mentioned in the “section 6-5,
ITAA 1997” Barbara’s income will be considered as taxable under the ordinary income
because the amount received after rendering the services.
Answer to Question 3:
Issues;
Is the money in the form of interest on loan received given or lent under
the loan agreement will be considered as the assessable earnings for the taxpayer
under “sec 6-5, ITAA 1997”?
Rule:
In search of assessable income as the ordinary income the very step to be
followed is that there we must be a distinction of the ordinary earnings and capital
accounts. As per mentioned in the “section 6-5 (1), ITAA 1997” the earnings fetched
by the taxpayer which includes in the ordinary concepts then it is known as the ordinary
income. The ordinary income holds certain characteristics which include the income
should be in liquid cash or it can be easily convertible to cash. The income should also
include regularity, recurrence and periodicity (Faccio and Xu 2015). Any income
generating from the recepits will be treated as the ordinary income. As per the case
“FCT v Harris (1980)” there should be a required nexus among the receipt and the
ordinary income producing activity. The ordinary income should satisfy the requirement.

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Application:
As per the case study it can be understood that there is a formation of agreement
between the father and son which is named as Patrick and David. The son takes the
loan from the father of $52,000 as he aggress to pay the loan in five years and interest
of ;loan which can be accumulated to be $6,000. The loan was waived off by the son
within the two years with five percent additional money for the borrowing amount.
After analyzing the above case it can be stated that Patrick received the capital
gain in terms of the interest on loan. As per stated in the case of “FCT v Harris
(1980)”the interest on loan which is received by Patrick against the loan which is
present under the loan agreement (Bankman, et al., 2018). It is seen that the interest on
loan received by Patrick will be treated as ordinary income because it satisfies both the
standard of the income. Furthermore, it holds sufficient characteristics with the income
earning source. Therefore, the amount will be considered taxable for Patrick within the
ordinary meaning as per stated in the “section 6-5, ITAA 1997”.
As per mentioned in the case study it does not create an effect on the tax liability
of the payment (Mehrotra and Ott 2015). The single mode of payment by cheque will
attract the same tax liability as the one-off receipt of interest.
Conclusion:
As per stated in the “section 6-5, ITAA 1997” the interest is considered as the
real capital gain and hence it will be taxable as the ordinary income under this above
mentioned act. The interest earned by Patrick satisfies the standard with the income.

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References:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2018. Federal Income
Taxation. Aspen Publishers.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis, 50(3), pp.277-300.
Findeisen, S. and Sachs, D., 2016. Education and optimal dynamic taxation: The role of
income-contingent student loans. Journal of Public Economics, 138, pp.1-21.
Grubert, H. and Altshuler, R., 2015, January. Shifting the burden of taxation from the
corporate to the personal level and getting the corporate tax rate down to 15 percent.
In Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of
the National Tax Association (Vol. 108, pp. 1-53). National Tax Association.
Heathcote, J. and Tsujiyama, H., 2015. Optimal income taxation: Mirrlees meets
Ramsey.
Kroft, K., Kucko, K.J., Lehmann, E. and Schmieder, J.F., 2015. Optimal income taxation
with unemployment and wage responses: a sufficient statistics approach (No. w21757).
National Bureau of Economic Research.
Li, O.Z., Lin, Y. and Robinson, J.R., 2016. The effect of capital gains taxes on the initial
pricing and underpricing of IPOs. Journal of Accounting and Economics, 61(2-3),
pp.465-485.
Lockwood, B.B., 2016. Optimal income taxation with present bias. University of
Pennsylvania Working Paper.

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Mehrotra, A.K. and Ott, J.C., 2015. The curious beginnings of the capital gains tax
preference. Fordham L. Rev., 84, p.2517.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schepens, G., 2016. Taxes and bank capital structure. Journal of Financial
Economics, 120(3), pp.585-600.
Stantcheva, S., 2017. Optimal taxation and human capital policies over the life
cycle. Journal of Political Economy, 125(6), pp.1931-1990.