HI6028 Taxation Theory, Practice & Law: Case Studies

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VARUN HI6028 TAXATION THEORY, PRACTICE & LAW

Table of content
Question 1........................................................................................................................................3
1. Capital gain tax based on impression painting.........................................................................3
2. Capital gain tax based on historical sculpture..........................................................................4
3. Capital gain tax based on piece of antique jewelry..................................................................5
4. Capital gain tax based on picture.............................................................................................5
Question 2........................................................................................................................................7
1. Income of Barbara according to the case study.......................................................................7
2. Income of Barbara according to the alternative case study.....................................................7
Question 3........................................................................................................................................8
Outcome of arrangement regarding to the wages of Patrick........................................................8
References......................................................................................................................................10
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Question 1
1. Capital gain tax based on impression painting
According to the case scenario an incident has been occurred in which a person Helen was
intended to sell several assets from her family in order to provide support to fund of her family
business. The family business was involved in fashion designing. Father of Helen purchased
some painted antique pieces on the year 1985. She sold those for this purpose at the price 12,000.
For the consequence, through selling these paintings she gained a huge amount of profit.
According to the legislation of Australia, capital gain tax covers the ground of selling along with
buying several antique pieces in this country. As mentioned by Capone and Valadão (2019),
depending on the statement of capital gain tax, overall collectible resources are exhausted from
capital tax, which are gathered before 1985. Moreover, this capital gain taxes can be accounted
with GST. Under the section of Australian legislation from 104 to 230, matters about Capital
gain tax is included. In the Australian legislation, this is involved in Income Tax Assessment
Act, 1997. In this case scenario, Helen paid the rate of 28% of tax. This payment is regarding to
Capital gain tax. Through selling the antique painting, calculation of tax is as mentioned below.
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Tax rate 28%
PARTICULARS
Selling Price $12,000
(Less) Initial value $4,000
Capital gain $8,000
Tax @28% $2240
Net profit for selling of painting $5,760
Table 1.1: Capital gain tax based on impression painting
(Source: Created by learner)
According to the above table, this can be implied that as per statement of legislation of Australia,
Helen needs to lend the amount. Amount of capital gain is 8,000 as well as amount of total tax is
2240. The overall profit gained by Helen for sale is the amount 5,760. For sufficiently raising the
fund from the business, she has to achieve this amount.
2. Capital gain tax based on historical sculpture
In order to raise the amount of fund of business, she had to sell historical sculpture at the price
6000 on 2018. This asset had been sold at 1993 at amount of 5500. According to the statement of
Australian legislation, for selling assets, physical store process is less than selling via online.
Almost every historical sculpture was bought before the year 1995. As influenced by Australian
taxation office (2019), based on the Australian legislation, as the price of these items are less
than 500, these are taken as an exempted product. This has been mentioned by Australian
Taxation Office. As per the announcement of government of the country, discount on income tax
is 50%. In order to increase faith within all the citizen of Australia, this taxation method applied
in this country. On the other hand, the tax for loyalty, Helen paid 28% of her profit, which has
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been organized by Australian legislation. The detail calculation for manipulating Capital Gain
Tax is as follows.
Tax rate 28%
PARTICULARS Amount (in $)
Amount on sale of sculpture $6000
Amount on sculpture was acquired $5500
Capital gain from sales $500
(Less) Capital gain tax @28% $140
Net gain for Helen $360
Table 1.2: Capital gain tax based on historical sculpture
(Source: Created by learner)
From the manipulation, this can be concluded that for selling historical sculpture, Helen had to
pay tax in Australia. Furthermore, this can be implied that margin of profit at the time of selling
historical sculpture is 500. Not only that, after she sold the asset, she gained a capital gain of
amount 360. In the context of gain tax over income levied was 140. The amount of price for
selling these sculptures is 6000. However, the price amount that is acquired on sculpture was
5500.
3. Capital gain tax based on piece of antique jewelry
Additionally, Helen sold some antique jewelry excluding sculpture paintings. She collected some
antique jewelry products from the year 1987 at the price 14000. In order to collect money for her
business fund, she sold this at price 14000 at the year 2018. According to the statement of
legislation on Capital Gain tax, the products that are bought from the year 1995 or before can be
considered as exempted items in Australia. The reason for this is the country was facing
difficulties about price of jewelry. Moreover, her antique items had been purchased before 1955.
Consequently, for selling these items, she faced loss. By the exemption of capital she had to face
this loss as per this legislation. However, on the year 2018, she was not able to avail the
appropriate price of the antique jewelry.
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4. Capital gain tax based on picture
In addition to these products, Helen sold some pictures. At the year 1987, her mother was
purchased these products at price 470. For collecting the fund for her business, she sold this at
5000 at 2018. During the transaction of these pictures, she made a huge amount of profit. This
profit needed to improve her business. Price of these items is less than 500, as well as these were
bought before the year 1995. For this reason these products can be taken as exempted items.
Along with this the cost is considered as Capital Gain Tax, this has been mentioned in Australian
legislation. Moreover, the rule of this legislation is, GST of 10% is applied on transaction. On
the basic price, this tax is exempted. According to the case scenario, a picture from 1995 has
been seen. This can be implied that overall profit for this transaction was 4530. Related to the
selling of several pictures on 2018, this tax has been applied.
Consequences of capital gain tax
TOTAL CGT APPLICABLE FOR HELEN
Particulars
Sales
price
Purchase
price
Profit/
loss
Tax
deduction
Net
profit/loss
Impressionism
Painting $12000 $4000 $8000 $2240 $5760
Historical sculpture $6000 $5500 $500 $140 $360
Jewelry $13000 $14000 -$1000 -$280 -$720
Total CGT paid $2100 $5400
Table 1.3: Consequences of capital gain tax
(Source: Created by learner)
This can be seen from the above study that for the transaction, Helen has to pay some liability
tax for Capital Gain Tax. For this reason, she had to face multiple consequences at the time of
tax application in the country. Furthermore, she gained a huge profit margin of the amount 5760.
On the other hand, she had to pay to government of Australia at the amount of 1000. As the
country faced challenges about factors of jewelry price, she had to pay this amount. Additionally,
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for this reason she had to face this loss. From the above table this can be seen that for
impressionism Painting, the deduction from tax was 2240 as well as purchase of profit is 4000.
Therefore, the overall profit is 5760. For selling historical sculptures, price of purchase is 5500.
Along with this, deduction from tax is the amount of 140. Consequently the profit becomes 360.
On the other hand for selling jewelry, sales price is 13000. Furthermore, the purchase price is
14000. The amount of 280 has been deducted from income and overall loss for this is 720.
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Question 2
1. Income of Barbara according to the case study
As per the case study, Barbara is an economist and also a commentator by profession. A
publication house of Australia which is named as Eco books Ltd House of Australia given an
offer to this individual. This offer is related to publish a book which is named as ‘Economic
Principle’. In this book various theories, concepts and model related to economic will be
discussed. From the study it has been found out that Barbara has already signed the book at an
amount of $13400 with is publication organisation of Australia. Authorities of this publication
company have paid her through using cheque facility because of signing this offer (Capone and
Valadão, 2019). In addition to that Barbara has also sold a manuscript of this particular book to
library for publication purpose at an amount of $4350.
On the other hand this economist and commentator also sold a manuscript of the whole interview
process which has been done in the time of publication of this book. This interview procedure
will provide some essential advice to the writer in order to collect relevant data which is related
with the book. This manuscript has been sold by her at an amount of $3200. In this country
whole transaction procedure has been took place under the close surveillance of administrative
department of Capital Gain Tax (Australian taxation office, 2019). According to this section,
whole process can be efficiently maintained under the 2.2 of Australian contract law,
regulations and policies. In order to get the profit Eco Book Publication House has to develop a
legal framework. This is highly essential to maintain a smooth process during the whole time.
2. Income of Barbara according to the alternative case study
From the provided case study of Barbara, some adverse condition can arise if there is no legal
paperwork given with proper papers issued by court of Australia. However, there are various
different legal steps that an individual can take to get the profit from the publication company.
This particular case has some relation with the case study R.V. Investments (Aust) Pty Ltd as
Trustee for the RV Unit Trust. According to this case study, tribunal had decided that applicant
would receive the refundable amount of $245t13 which is reduced from $61499. Also applicant
did not have to pay a sum of $8386 and additionally a refund amount of $1740 would be paid to
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the applicant. As per the case study it has also noted that, during the period of 1st April 2010 to
30th June 2010, applicant did not have to pay an amount of $13938. In addition to that, $5574
has to be paid to the applicant [R.V. Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust,
2014]. On the other hand, regarding to the penalties a penalty has been imposed for the
recklessness from the period of 1st July to 30 September 2010. Additionally, a substitute
decision has also been given which is a penalty will be provided at a rate of 50% over any kind
of shortfall in Tax from 1st July of 2009 to 31st December 2010.
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Question 3
Outcome of arrangement regarding to the wages of Patrick
From the given case scenario, this can be seen that Patrick was father of David. For business
investment, he lends an amount 52000 from his father. Furthermore, about this transaction this
can be said that he provided this money to his father, however, did not come under agreement.
Therefore, without formal contract, this loan has been taken by David Australian taxation office,
2019). In addition to that for this borrowing, there was no security deposit. As per the statement
of Patrick, this can be said that he was not intended to take more amounts that he has given.
Regarding to an oral communication, he took this money. For this, he made some commitments
about this borrowing. He committed that he will return this amount adding with interest of 5%.
This amount comes under the accession of his income. On the contrary, Patrick was not intended
to take any interest. However, David wanted to pay the money after three years or within that
period including the interest 5%.
This fact had been created a legal contract that is followed by the tax named Fringe Benefit Tax
(Australian Taxation Office, 2018). After he collected the overall money, Patrick needed to pay a
standard amount of income tax on it. Based on the added income tax, he had to pay this.
According to the statement of legislation of Australia, this can be implied that any transaction
from 37,000 to the amount of 90,000 is regarded as payable tax. Moreover, this tax is covered by
assessable amount of income (Australian taxation office, 2019). In case of both the parties
follows statement of Australian legislation, Patrick needed to provide a standard tax for this
transaction. Moreover, this legislation implies that this tax is covered by assessable income. This
has been clear from the given case scenario that Hanna as well as Max is both involved in a
business. For an economic year, the assessable income from the business is 200,000. For the
consequence, they need to pay the amount 60,000, according to the statement of regulation of
Income tax of the country.
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References
Cases
R.V. Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust [2014] AATA 158
Journals
Capone, R.S. and Valadão, M.A.P., (2019). Developing Countries and the role of Civil Society
in Shaping the Contemporary International Taxation System. Revista de Direito Internacional
Econômico e Tributário, 13(1), pp.386-421.
Websites
Australian Taxation Office. (2018). Assessable Income. Available at:
https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/
[Accessed on: 12th March, 2019]
Australian taxation office. (2019). Capital Gains Tax. Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed on: 13th March, 2019]
Australian taxation office. (2019). CGT Assets and Exemptions. Available at:
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/[Accessed on: 17th
March, 2019]
Australian taxation office. (2019). Fringe Benefits Tax (FBT). Available at:
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/ [Accessed on: 17th March, 2019]
Australian taxation office. (2019). GST. Available at: https://www.ato.gov.au/Business/GST/
[Accessed on: 21th March, 2019]
Bachas, P. and Soto, M., 2018. Not (ch) your average tax system: corporate taxation under weak
enforcement. The World Bank.
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