HI6028 Taxation Theory: Capital Gains, Income, & Tax Implications

This assignment delves into various aspects of Australian taxation law, focusing on capital gains tax (CGT) consequences and income assessment. It analyzes scenarios involving the sale of collectibles and personal-use assets, determining CGT liabilities and exemptions based on acquisition dates and values. The assignment further explores the concept of personal exertion income, examining whether income from writing and selling a book qualifies as such. Lastly, it investigates the assessability of income in arrangements between family members, considering factors like the presence of a genuine gain and the nature of loan agreements. The student provides detailed analysis with references to relevant sections of the Income Tax Assessment Act and case law, illustrating the application of taxation principles to real-life problems. Desklib offers a wide range of similar assignments and study resources for students.

Running head: TAXATION LAW
TAXATION LAW
Name of Student
Name of University
Author Notes

1TAXATION LAW
Table of Contents
Answer 1..........................................................................................................................................2
Issue.............................................................................................................................................2
Rule..............................................................................................................................................2
Application..................................................................................................................................3
Conclusion...................................................................................................................................4
Answer 2..........................................................................................................................................5
Issue.............................................................................................................................................5
Rule..............................................................................................................................................5
Application..................................................................................................................................6
Conclusion...................................................................................................................................6
Answer 3..........................................................................................................................................7
Issue.............................................................................................................................................7
Rule..............................................................................................................................................7
Application..................................................................................................................................8
Conclusion...................................................................................................................................8
Reference.......................................................................................................................................10

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Answer 1
Issue
In this case four separate issues can be found all of which can be related to the Capital
Gain Tax consequences. These consequences are the effects of the transactions of Helen funding
of her business as a fashion designer. The first issue is the Capital Gain Tax consequence of an
antique impressionism painting bought by Helen’s father for $4,000 in February 1985 that was
sold by Helen for $12,000 on 1st December 2018. The second issue is the Capital Gain Tax
consequence for a historical sculpture purchased for $5,500 on December 1993 that was sold for
$6,000 on 1st January 2018. The third issue is the Capital Gain Tax consequence of an antique
jewellery piece purchased for $14,000 in October 1987 that Helen sold for $13,000 on 20th
March 2018. The final issue in this case is the Capital Gain Tax consequence for a picture sold
by Helen on 1st July 2018 for $5,000 that her mother purchased in March 1987 for $470.
Rule
Section 102.20 of the Income Tax Assessment Act 1997 grants the status of Capital Gain
Tax consequence of profit or loss accrued by virtue of the occurrence of the Capital Gain Tax
events. Section 104.10 of the Income Tax Assessment Act 1997 under the A1 category renders
the sale of the Capital Gain Tax assets to be treated as CGT event. However the applicability of
the CGT will be effective with respect to the CGT assets that have been acquired after 20th
September 1985. Assets that have been acquired before the date mentioned before would not be
treated under the Capital Gain Transaction and would be considered as an exemption to the CGT.

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Section 108.10 (2) of the Income Tax Assessment Act 1997 provides the definition of the
word ‘collectible’. The word collectible can be defined under the Income Tax Assessment Act
as an item that is owned for personal use and enjoyment by a tax paying individual. According to
this section a collectible can be anything ranging from a rare folio to jewellery or even an antique
object. A collectible is taxable a capital asset under the section 118.10 (1) of the Act only if the
same has been acquired for the price of $500 or more. By the provisions of the section 110.10 of
the act any collectible acquired under the prescribed amount would be treated as an exemption.
Any loss of CGT incurred by virtue of sale of any collective by a person should be
treated as offset only with respect to any profit accrued by the sale of any other collectible by the
person under the section 108.10 of the Income Tax Assessment Act 1997. The loss of CGT of a
collectible cannot be treated as an offset with any other profit of CGT.
The taxability of CGT assets used for personal purpose has been mentioned in the section
108.20 of the Act. According to the provisions of the section of the Act any asset that is used for
personal purpose acquired under the value of $10,000 would be exempted from taxation under
the Capital Gain Tax.
Application
The first issue relates to the sale of an antique painting of impressionism for $12,000 on
1st December that was bought by Helen’s father on February 1985 for $12,000. This issue will
be an exemption from CGT gain as under the provisions of the section 104.10 the application of
CGT is only effective to CGT assets acquired after the 20th September 1985. Any asset that has
been acquired before the mentioned date will be treated as an exemption to the Capital Gain Tax.

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The second issue relates to sale of historical sculpture by Helen on 1st January 2018 for
$6,000 that she purchased for $5,500 on December 1993. This collectible is taxable as capital
asset under the provision of section 118.10 (1) of the Act as the asset has been acquired for an
amount exceeding $500. Under section 110.10 of the act ay collectible that has been acquired
under the prescribed amount will be considered as an exemption to the CGT.
In the third issue antique jewellery was sold by Helen for $13,000 on 20th March 2018
that she had purchased for $14,000 on October 1987. This issue relates to the section 108.10 of
the Act that provides that a CGT loss incurred will be offset only with any CGT gain accrued by
sale of any other collectible. Under the provisions of this section this loss cannot be treated as
offset with any other CGT gain. The CGT loss on sale of jewellery would be treated as offset
with the CGT gain from accrued from the sale of the sculpture.
In the fourth issue it is seen that a picture bought by Helen’s mother on March 1987 for
$470 was sold by Helen for $5,000 on 1st July 2018. The picture will be treated as a CGT asset
that is used for personal purpose. Under section 108.20 if the value of an asset used for personal
purpose does not exceed $10,000 it will be treated as an exemption to CGT. As it is seen that the
value of the picture is less than $10,000 it would be considered as an exemption of CGT.
Conclusion
It can be concluded that the sale of the antique impressionism painting for $12,000 would
be considered as an exemption of CGT gain. The sale of the historical sculpture can be held
taxable as capital asset. Further the sale of the antique jewellery needs to be treated as offset with
CGT gains accrued with respect to the sale of another collectible. Lastly the sale of the picture

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needs to be considered as CGT asset used for personal purpose and as the cost of the picture is
less than $10,000 it should be treated as an exemption of taxation under CGT.
Answer 2
Issue
In the case the primary issue is whether the income affected by Barbara’s transaction can
be considered as personal exertion income. The second issue in the case is if Barbara wrote the
book before signing contract with The Eco Books Ltd and decided to sell it later would it be any
different.
Rule
The definition of income earned or derived from personal exertion can be changed by the
provisions of the Section 6 of the Income Tax Assessment Act 1936. Any income earned by a
taxpayer by any effort that has been given by him in the income generation process is included
under this section. The types of income covered under the provisions of this section are salaries,
commissions, wages, bonuses, fees, allowances, pensions and gratuities. Any income that has
been received by an individual as an employee with respect to services rendered by him can be
described to be under this section. This form of income further covers any business that has been
carried out by the taxpayer alone or in partnership. There should exist a proximate relationship
between the income of the tax payer and his personal exertion to bring the income under the
provision of this section. This has been discussed in the case Jones v Leeming (1930).
An ordinary income is defined as the income earned by a person by any effort or service
rendered by him for earning income under the section 6.5 of the Income Tax Assessment Act

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1997. For the purpose of taxation copyright can be considered as a CGT asset and the proceeds
from the sale of copyright can be considered as CGT gain. However if the sale of copyright is
done for the purpose of earning profit it would be considered as an ordinary income. This has
been illustrated in the case Commissioner of Taxation v McNeil [2007] HCA 5.
Application
In this case it can be seen that Barbara has been offered $13,000 by the Eco Books Ltd to
write a book on economic principles. Although Barbara has not written any book on economic
principles yet she accepts the offer of The Eco Books Ltd and writes a book named ‘Principles of
Economics’. This relates to provisions of income earned from personal exertion mentioned under
the section 6 of the Income Tax Assessment Act 1936.
The copyright of the book is further assigned by Barbara to The Eco Books Ltd for an
amount of $13,000. For the purpose of taxation this can be considered as a CGT asset and the
proceeds received would be considered as CGT gain.
The sale of the manuscript of the book and several manuscripts of interview to the library
of The Eco Book Ltd for $4350 can be considered as income from personal exertion mentioned
under the provisions of the section 6 of the Income Tax Assessment Act 1936.
If Barbara had written the book before signing the contract and decided to sell it
afterwards the tax consequence of the sale of the book, however, would have been considered
under the provisions of section 6 of the Income Tax Assessment Act 1936.
Conclusion
From the above discussions it can be concluded that in this case both the issues would
result in income from personal exertion.

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Answer 3
Issue
In the case the main issue is the effect of arrangements mentioned in the case on the
assessable income of Patrick.
Rule
An individual has to prove to have been making gain in the income earned to treat a
receipt to be an income. This is illustrated in details in the case Hochstrasser v Mayes 1960 AC
376.
After the application of the rules in regard to the taxable income of a person any receipts
that has been received by any individual needs to be considered as an income. This is described
in the case AG of British Columbia v Ostrum (1904) AC 144. In the case Scott v Commissioner
of Taxation (NSW) [1935] the court has stated that where the taxpayer has derived income the
income needs to be analyzed to comply with relevant circumstances.
In the case Bective v Federal Commissioner of Taxation [1932] it has been illustrated that
a tax paying individual needs to be establishing the fact that the income has been treated by him
as gain. For the application of this principle it has to be proved by the taxpayer that he has
derived the game in a beneficial manner.
An income, if derived through ordinary concepts, would be treated as an ordinary income
under the section 6.5 of the Income Tax Assessment Act 1997.

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Application
In the given case it can be seen that David was paid by his father $52,000 for assistance
in his new business. It was agreed between the two that at the end of five year David would be
repaying an amount of $58,000. As the assistance has not been received as a gain it cannot be
treated as income. In the case Hochstrasser v Mayes [1960] this rule is further supported.
In furtherance the loan was provided to David by Patrick in absence of any formal
agreement or security deposit against the sum lent. David was told not to pay any interest by
Patrick. It is evident from this fact that repayment of the loan to Patrick would not be considered
as taxable income as can be seen in the facts of the case of Scott v Commissioner of Taxation
(NSW) (1935).
The full amount was repaid by David by a cheque after two years. This repayment
included an additional of 5% on the amount that has been borrowed by him. As the amount has
been received as a gain it can be treated as an income. Although the receipt of interest was not
intended by the taxpayer yet as the same has been received as gain it would be considered as
taxable income under the section 6.5 of the Act. The issue has been discussed in the case Bective
v Federal Commissioner of Taxation (1932).
Conclusion
It can be concluded from the following discussion that the assistance paid by Patrick to
David cannot be treated as income as it was not received as gain. The repayment of loan cannot
be considered as taxable income as Patrick refused for any interest on the loan. The 5% extra
paid by David to Patrick can be considered as taxable income because although the interest was
not asked for yet it was received as gain.

9TAXATION LAW
Reference
AG of British Columbia v Ostrum (1904) AC 144
Bective v Federal Commissioner of Taxation [1932]
Commissioner of Taxation v McNeil [2007] HCA 5 229 CLR 656; 81 ALJR 638; 233 ALR 1
Hochstrasser (H.M. Inspector of Taxes) v Mayes(1)(2)Jennings v Kinder (H.M. Inspector of
Taxes)(1) (1956-1960) 38 TC 673
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Jones v Leeming (1930) A.C. 415
Scott v Commissioner of Taxation (NSW) 1935 35 SR NSW 215