Holmes Institute HI6028 Taxation Law Assignment - Semester 1, 2019

This taxation law assignment addresses several key areas of Australian taxation. The first question analyzes capital gains tax (CGT) implications, differentiating between pre-CGT assets, collectables, and personal use assets. It explores the tax treatment of various scenarios, including the sale of paintings, sculptures, and jewelry. The second question focuses on the taxability of income derived from personal exertion, specifically examining whether payments received for granting exclusive publication rights and selling manuscripts are considered taxable income. The analysis references relevant case law, such as Brent v. FC of T and FC of T v. McCauley. The final question investigates whether a one-off receipt of interest from a loan agreement constitutes taxable income under ordinary concepts. It considers the principles established in cases like Scott v. CT and Hochstrasser v. Mayes, applying these to a scenario involving a loan between a father and son. The assignment demonstrates an understanding of the Australian income tax system, the concepts of income and deductions, and CGT, providing interpretations of relevant taxation legislations and case law.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer 1:...............................................................................................................................2
Answer 2:...............................................................................................................................2
Answer 3:...............................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................7
References:...............................................................................................................................10

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Answer to question 1:
Answer 1:
“Section 100-25 (1), ITAA 1997” explains that capital gains that are purchased on or
after the 20th September 1985. It is should be noted that up to 21st September 1999 only real
gains were considered for capital gains tax regimes. Because of this, the cost base of the CGT
asset was indexed for the purpose of inflation given the CGT asset was held for greater than
12 months (Graetz et al. 2015). The capital gains tax provision is applied on the actual or the
realised gains. Capital gains are considered for taxable purpose as the statutory income under
the “sec,6-10, ITA Act 1997” and it is considered into the taxable earnings under “sec 102-5
(1), ITA Act 1997”. While calculating the capital gains tax included in the calculation of
taxpayer’s liability the capital loss can be offset against the capital gains.
Helen sold the painting which her father purchased for $4,000. The painting was sold
for $12,000. The painting was purchased by her father before the regimes of CGT began.
Therefore, the painting should be classified as the pre-CGT asset. The capital which is made
by Helen should be ignored and no capital gains tax is applied in this case.
Answer 2:
The CGT event A1 is applied on the assets that are purchased after the 19/9/1985. In
order to apply the CGT event A1 the CGT asset must be applied or disposed to the another
entity. “Sec-108-10 to 108-17” deals with the collectables. A collectable is regarded as one
of the items that are listed in the “sec-108-10 (2)” which is mainly used or kept for their
personal enjoyment (Thuronyi and Brooks 2016). This includes the antiques, artwork such as
sculptures, jewellery etc. CGT event are regarded as the different types of transactions or
events that may lead to the capital gains or loss.

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An historical sculpture was purchased by on December 1993 by Helen for a cost of
$5,500. The piece of sculpture was eventually sold by Helen on 1st January 2018. The sale of
sculpture has given rise to CGT event A1 by Helen. The capital gains that is made by Helen
will be taxable as statutory income under “sec 6-10, ITA Act 1997” and it will be included
into the Helen’s assessable income.
Answer 3:
According to the “sec 118-10 (1)”, the capital gains that are made from the
collectables which has the purchase price of less than $500 they are simply ignored from the
capital gains tax regimes (Hogg, Magee and Li 2013). The taxpayers should note that capital
loss from the collectables are required to be separated and can only be offset against the
capital gains from the other collectables.
The case study explains that an antique jewellery was purchased by Helen on October
1987 which was eventually sold by her on march 2018. The purchase price for the jewellery
was $$14,000 while the it was sold for $13,000. The sale of collectables or the antique
jewellery led to capital loss. Helen in this situation is required to offset the capital loss against
the capital gains which she has made from the historical sculpture.
Answer 4:
An explanation regarding the personal use asset has been made in the “sec 108-20 to
108-30, ITAA 1997”. These assets are treated as the CGT assets but are mainly used for the
personal enjoyment and use of taxpayer. The examples of this assets namely include the
household items, electrical goods, boats, racehorses etc. The taxpayer is made aware under
the “sec 118-10 (3)” that the capital gains are required to be ignored if the purchase price of
the asset is less than $10,000.

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Accordingly, a picture that was purchased by Helen’s mother for a cost of $470 was
ultimately sold for $5,000. The picture can be classified as the personal use asset under the
“section 108-20, ITAA 1997”. As a result of this, the sale of picture has given rise to capital
gains. However, Helen within the purview of “sec 118-10 (3), ITA Act 1997” must ignore the
capital gains from the capital gains tax purpose because the asset was eventually bought for
less than $10,000.
Answer to question 2:
Issues:
Are the monies that is received by the taxpayer for granting the exclusive right of
publication of book is a taxable earnings within the purview of “sec, 6-5 ITA Act 1997”?
Rule:
As per “S, 6 (1), ITA Act 1936” explains that earnings derived from the private
efforts or income earned through individual exertion amounts to income including the wages,
commissions, fees, bonus, salaries, allowances and gratuities that is received by a person
capacity of the employee or in respect of any form of services that is rendered.
The definition of the “sec 6 (1), ITA Act 36” explains that the definition is regarded
as exclusive and simply lay down the examples of income from the personal exertion which
cannot be considered sufficient. Instead it requires adequate attention towards general
principles (Andrews and Wiedenbeck 2015). As per “sec 6-5, ITA Act 1997” the taxable
income of the taxpayer includes the income made from the ordinary concepts. This includes
whether the payment is the part of the periodic receipt or the payments that is related with the
receipts of personal exertion. It also includes the reward that forms the provision of personal
services.

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In order to treat the payment taxable as ordinary income, the taxpayers are required to
provide the service to obtain the payment. To treat the payment as income the court’s position
in “Brent v FC of T (1971)” is considered where the taxpayer was treated to have earned
chargeable earnings when the taxpayer got the money for narrating her life story to the
newspaper for its special publication (Fleming 2018).
There are other cases that have supported the identical receipts from the personal
exertion or provision of personal services as taxable income. In “Housden (Inspector of
Taxes) v Marshall (1958)” held where taxpayer agreed to make narrate his experience as the
jockey along with the photographs and the newspaper cuttings as the income from personal
exertion.
Under the “Copyright Act 1968” copyrights of a literary works are viewed as the
private property of the owner. Where the taxpayer allocates the copyright of the literary
works to the another person, the amount that is received from the allocation of title is an
ordinary income and does not amounts to royalties (Lang et al. 2018). The decision in “FC of
T v McCauley (1944)” held that any kind of income that is earned following the allocation of
copyright of the literary works then the amount will be taxable as ordinary income and not a
royalty income.
Application:
Barbara received a payment of $13,000 for writing Principles of Economics book.
The payment that is received by Barbara should be treated as the income from the personal
exertion under “sec 6 (1), ITA Act 1936”. Mentioning the court judgement in “Brent v FCT
(1971)” the payment of $13,000 by Barbara constitute the reward for the provision of
personal services.

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Later, Barbara allocates the copyright of her literary works to the Eco Books Ltd for
publication purpose. She received a sum of $13,400 for allocating her copyright and
publication of book. Mentioning the decision of “FC of T v McCauley (1944)” the payment
for assigning the copyright is an ordinary income because she received the monies in relation
to her time and service given (Buenker 2018). In accordance with “section 6-5”, Barbara will
be taxable within ordinary concepts.
She also sold the manuscripts and interview manuscripts to library for $4,350 and
$3,200. Citing “Housden (Inspector of Taxes) v Marshall (1958)” the sale will be treated
taxable as assessable income and income from personal exertion under “sec-6-5, ITA Act
1997”.
Conclusion:
The money that is received for assigning copyright for publication is an assessable
under “sec 6-5, ITA Act 1997” being earnings from ordinary conceptions.

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Answer to question 3:
Issues:
The issue here takes into the account whether the one-off receipt of interest under the
loan agreement is treated as income and taxable under the ordinary concepts of “sec-6-5,
ITAA 1997”.
Rule:
The assessable income of the taxpayer is considered subject to income tax when the
income is added into the taxable income. Ordinary income is generally known as income
based on the ordinary concepts and it is taxable under the “sec-6-5, ITAA 1997”. Gains
commonly needs the characterisation of the court to ascertain if the gains possess the
character of income (Sakurai and Braithwaite 2019). The law court in the case of “Scott v CT
(1935)” have interpreted the meaning of the word income and stated that the receipts should
be ascertained in agreement with ordinary conceptions and mankind use.
A receipts cannot be treated as the ordinary income unless the receipts meet both the
prerequisites. This includes whether the receipts are cash or convertible into cash and whether
it forms the real gain to the taxpayer. If both the prerequisite is satisfied, then the receipts are
treated as the ordinary income. The court of law in “Hochstrasser v Mayes (1960)” if the
receipts cannot be treated as the genuine gain for the taxpayer then it is not considered as the
ordinary income (Hoynes and Rothstein 2016). If both the prerequisite of the income is met, a
gain will be characterised as the ordinary income if it represents adequate characteristics of
income.
A gain that are characterised as the regular or the periodic receipts is most probably
going to be treated as the ordinary income than the gain that is paid as the lump sum. The

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court in “FCT v Harris (1984)” have explained that the regular receipts are treated as
income. It is worth mentioning that the lump-sum gains might also be treated as the ordinary
income (Mumford 2017). For example, where a taxpayer makes a loan agreement and gets a
one-off receipts of interest then it is treated as having the character of income. Therefore, in
order to possess the character of income the item should constitute a gain for the taxpayer that
derives it.
Application:
The information that is obtained from the case study of Patrick it is understood that he
paid an amount of $52,000 to David as the means of assistance in his new start-up business.
The son here agreed to repay to his father the sum of $52,000 upon the fifth year. There
wasn’t any type of formal loan agreement among the father and son neither any kind of
security deposit was paid by son. The case study also highlights that the son was not required
to pay the interest for the loan taken. However, the son repaid to his father the amount after
the two year of the loan taken through cheque and also paid the father with a 5% of equal
amount as the interest on loan for the money borrowed.
It can be noted that the father here Patrick received interest from the one-off loan
agreement. The loan interest here can be characterised as the item of real gain for the father.
In other words, the interest on loan possess the character of income and constitute the gain for
Patrick. Citing the case of “Scott v CT (1935)” it can be stated that the interest on loan
constitute receipts and it is convertible in cash as well as real gain for the father (Mertens and
Montiel Olea 2018). The receipts satisfy both the pre-requisites of the ordinary income and it
is taxable within the ordinary concepts of “sec-6-5, ITAA 1997”.
Though the loan agreement was for five years and the interest was payable at the end
of the fifth year loan term but the loan was received within two years’ span. Citing

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“Hochstrasser v Mayes (1960)” the five interest received by Patrick from David has the
income character and gain for Patrick (Burton 2017).
Taking into the account the payment that is adopted, the single payment through
cheque will create an impact on the tax liability of interest. Taxes will be imposed on the
interest loan while the sum of $52,000 is ignored from tax because it is a capital amount.
Conclusion:
The analysis concludes that the one-off receipt of interest under the loan agreement is
treated as income and taxable under the ordinary concepts of “sec-6-5, ITAA 1997”.

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References:
Andrews, W.D. and Wiedenbeck, P.J., 2015. Basic federal income taxation (pp. 22-73).
Little, Brown.
Buenker, J.D., 2018. The Income Tax and the Progressive Era. Routledge.
Burton, D., 2017. Tax Reform: Eliminating the Double Taxation of Corporate Income.
Fleming, J.C., 2018. To What Degree Does Customary International Law Require
Accommodation of a Source Country's Right to Tax High, Tax Low, or Not Tax at All?. A
Commitment to Excellence: Essays in Honor of Emeritus Professor Gabriel A. Moens (2018).
Graetz, M., Schenk, D., Freeland, J., Lathrope, D., Lind, S., Stephens, R., Burke, K., Brealey,
R., Myers, S., Allen, F. and Keyes, K., 2015. Federal Income Taxation, Principles and
Policies (University Casebook Series). Foundation Press/West Academic.
Hogg, P.W., Magee, J.E. and Li, J., 2013. Principles of Australian income tax law. Carswell.
Hoynes, H. and Rothstein, J., 2016. Tax policy toward low-income families (No. w22080).
National Bureau of Economic Research.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. eds., 2018. Introduction to European tax
law on direct taxation. Linde Verlag GmbH.
Mertens, K. and Montiel Olea, J.L., 2018. Marginal tax rates and income: New time series
evidence. The Quarterly Journal of Economics, 133(4), pp.1803-1884.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Sakurai, Y. and Braithwaite, V., 2019. Taxpayers' perceptions of the ideal tax adviser:
Playing safe or saving dollars?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.

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Thuronyi, V. and Brooks, K., 2016. Comparative tax law. Kluwer Law International BV.