Holmes Institute HI6028 Taxation Law Assignment, T1 2019

This assignment solution addresses several taxation scenarios, focusing on capital gains tax (CGT) implications for collectibles like paintings, sculptures, and jewelry, analyzing the timing of asset acquisition and application of CGT rules. It examines income from personal exertion, determining whether receipts from writing a book and associated rights are considered ordinary income or capital gains. The solution also explores the tax treatment of loan repayments, assessing whether an additional payment constitutes assessable income. The analysis references relevant sections of the ITAA 97 and ITAA 36, alongside case law such as Tupicoff v. FCT, and D.F.C. of T. v. Purcell, to support the conclusions regarding tax liabilities and income classifications.

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

1TAXATION
Q 1
1
The issue in this present situation is to assess the capital gain consequence of the transaction
involving the seal of antique painting by Helen.
The painting involved in this case depicts a collectible and it is required to be treated as a
CGT asset u/s 108.10 of the ITAA 97. A CGT event is said to have incurred under section
102.2 of the Act when it can be categorised under any of the events provided under section
104. In case a CGT event involves the sale of an asset it needs to be brought under the
purview of the A1 category of CGT event as under section 104. 10. The timing at which the
asset has been acquired is the time when the taxpayer assumes ownership as on the section
109.5.
It cannot be made clear from the facts provided that exactly at what point of time the painting
has been acquired by Helen. The painting was initially bought by her father. If the purchase
has been effected prior to the 20th September of the year 1985, it would not have been
included in the computation of CGT and would have treated as an exemption being and pre-
CGT asset. However if the asset has been purchased subsequent to the mentioned date it
would have been treated as a collectible. In case of this painting the cost was under section
110.25 will be the element one that will point towards the acquisition price amounting to
$4,000. In this case Helen might have obtain the painting either by way of gift or by of
succession. Under section 112.20, the cost base is required to be modified with respect to the
market value of the painting at the time of the acquisition. Again under section 116. 20, cost
proceed will be the sale price that is the amount of 12000 dollars. For arriving at the CGT
gain the cost base needs to be deducted from the capital proceeds. Again if the asset has been

2TAXATION
hold by Helen for a period of more than one year it will be allowed a discount of 50% as per
div 115.
2
The issue that can be arrived at from the given situation is the assessment of the CGT
consequences relating to the transaction involving the sale of historical sculpture by Helen.
In general sense, historical sculpture that has been sold is required to be treated as a
collectible and required to be construed as a CGT asset as per section 108. 10. A CGT event
is said to have incurred under section 102.2 of the Act when it can be categorised under any
of the events provided under section 104. In case a CGT event involves the sale of an asset it
needs to be brought under the purview of the A1 category of CGT event as under section 104.
10. The timing at which the asset has been acquired is the time when the taxpayer assumes
ownership as on the section 109.5. present situation the sculpture has been purchased by
Helen in the month of December in the year 1993. This implies the sculpture to be a post-
CGT asset and the sale of the same having the effect of disposing it off will be a CGT event
categories A1 as per section 104.10. In this case the cost base under section 110.25 will have
the first element that is the acquisition price of $6,000. The cost proceeds will be the price
earned from selling the asset that is $5,500 under section 116. 20. In this case, the CGT loss
will be computed by deducting the cost base by the cost proceeds. Such an operation will
evidence of CGT loss of $500. Being a CGT loss accruing from collectible, it needs to be
treated as an offset against a collectible only and not from other CGT assets. Hence the loss
will be carried forward to the subsequent year.
3
The issue in this present situation is to assess the capital gain consequence of the transaction
involving the sale of antique jewellery by Helen.

3TAXATION
An antique jewellery that Helen has sold is required to be construed as a collectible and a
CGT asset as per section 108. 10 of the Act. A CGT event is said to have incurred under
section 102.2 of the Act when it can be categorised under any of the events provided under
section 104. In case a CGT event involves the sale of an asset it needs to be brought under the
purview of the A1 category of CGT event as under section 104. 10. The timing at which the
asset has been acquired is the time when the taxpayer assumes ownership as on the section
109.5. In the present situation the jewellery has been purchased by Helen in the month of
October in the year 1987. This implies the jewellery to be a post-CGT asset and the sale of
the same having the effect of disposing it off will be a CGT event categories A1 as per
section 104.10. In this case the cost base under section 110.25 will have the first element that
is the acquisition price of $14000. The cost proceeds will be the price earned from selling the
asset that is $13000 under section 116. 20. In this case, the CGT loss will be computed by
deducting the cost base by the cost proceeds. Such an operation will evidence of CGT loss of
$1000. Being a CGT loss accruing from collectible, it needs to be treated as an offset against
a collectible only and not from other CGT assets. Hence the loss will be carried forward to
the subsequent year.
4
The issue in this present situation is to assess the capital gain consequence of the transaction
involving the sale of picture by Helen.
A picture that Helen has sold is required to be construed as a collectible and a CGT asset as
per section 108. 10 of the Act. A CGT event is said to have incurred under section 102.2 of
the Act when it can be categorised under any of the events provided under section 104. In
case a CGT event involves the sale of an asset it needs to be brought under the purview of the
A1 category of CGT event as under section 104. 10. The timing at which the asset has been

4TAXATION
acquired is the time when the taxpayer assumes ownership as on the section 109.5. In the
present situation the jewellery has been purchased by Helen’s mother in the month of March
in the year 1987. This implies the jewellery to be a post-CGT asset and the sale of the same
having the effect of disposing it off will be a CGT event categories A1 as per section 104.10.
In this case the cost base under section 110.25 will have the first element that is the
acquisition price of $470. The cost proceeds will be the price earned from selling the asset
that is $5000 under section 116. 20. In this case, the CGT loss will be computed by deducting
the cost base by the cost proceeds. The acquisition cost is less than the cost proceeds which
implies a CGT gain. Again if the asset has been hold by Helen for a period of more than one
year it will be allowed a discount of 50% as per div 115.
Q 2
The issue arising from the present situation is whether the receipts that has been received by
Barbara for the purpose of writing the book as offered by Eco Books Ltd is to be treated as
income from personal exertion.
Income that has been earned by personal exertions has been defined in section 6.1 of the
ITAA 36. However it has been held in the case of Tupicoff v. FCT 84 ATC 4851, that
received needs to be construed as an ordinary income being earned by personal exertion if it
can be evidence as a reward or benefit out of the income yielding process.
The $13,000 has been received for the writing of the book by Barbara as offered by Eco
Books Ltd. This needs to be treated as an ordinary income as Barbara has extended her
efforts towards the writing of the book. Hence applying the principles laid down in the case
of D.F.C. of T. v. Purcell (1921) 29 CLR 464 the receipt in the present situation will be
treated as an ordinary income.

5TAXATION
The $13400 that has been received by Barbara for the assigning of her copyright pertaining to
the book to the Eco Books Ltd is required to be treated as a capital gain. This is because
Barbara has given up for rights over the book for the mentioned amount. Again, it has been
held in the case of FC of T v. Suttons Motors (Chullora) Wholesale Pty Ltd 85 ATC 4398,
copyright is a CGT asset and the sale of the same needs to be treated as a capital receipt.
The $4350 has been received by virtue of the sale of the manuscript of the book is required to
be treated as income derived from personal exertion. This can be explained with the case of
Brent v Federal Commissioner of Taxation (1971) ATC 4195, where the court has held that
the proceeds from the manuscript of the book needs to be treated as a income from personal
exertion.
The $3200 received from the sale pertaining to the manuscripts of the interview is required to
be treated as an income derived through personal exertion.
Alt sit
The issue arising from the given facts is whether receipt from the writing of the book should
be an income from personal exertion if the same has been written by Barbara in his spare
time and has been decided to be sold later on.
Section 6.5 renders all the income earn through ordinary means to be ordinary income. For
the purpose of earning and assessable income the motive of making profit is necessary. As
per the Taxation Ruling 97/11, an income from hobby will not be assessable in the hands of
the taxpayer.
Hence if the book has been written by Barbara in her spare time it would have been treated as
income from hobby and will not be included in the assessable income of Barbara.
Q 3

6TAXATION
The issue arising from the present situation is whether the repayment of the loan made by
David along with an additional 5% will be required to be treated as an income, which is
assessable in the hands of Patrick.
Any amount received that can be treated as a gain in favour of the taxpayer is required to be
treated as an income. This can be explained with the case of Jennings v Kinder, HL 1959, 38
TC 637.
Any amount received need to comply with all the requirements of an income to be itself
considered as an income. This has been made evident from the case of Whitaker v
Commissioner of Taxation [1998] FCA 262.
Any such amount needs to comply with all the rules applicable to the to income as well as all
the nature as a gain. This can be illustrated with the case of Federal Wharf Co Ltd v DFCT
22.
Any income that has been earned through ordinary concepts is required to be treated as an
ordinary income as per section 6.5 of the Act.
In the present case, the amount of $52,000 has been given by Patrick towards his son David
for the purpose of aiding his business. The agreement between them evidence the repayment
to be made of $58,000. This needs to be treated as an additional amount of $6,000 that
constitutes a gain to have on to David.
Again at the end of the 5 years the repayment of the loan has been made within amount of 5%
in addition to the loan amount. Hence, even if no agreement for interest has been made
between them, the additional amount of 5% need to be treated as a gain and needs to be
included in the assessable income of Patrick.

7TAXATION
Reference
Brent v Federal Commissioner of Taxation (1971) ATC 4195
D.F.C. of T. v. Purcell (1921) 29 CLR 464
FC of T v. Suttons Motors (Chullora) Wholesale Pty Ltd 85 ATC 4398
Federal Wharf Co Ltd v DFCT 22
Jennings v Kinder, HL 1959, 38 TC 637
Taxation Ruling 97/11
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
Tupicoff v. FCT 84 ATC 4851
Whitaker v Commissioner of Taxation [1998] FCA 262