HI6028 Taxation Law: Solving Complex Tax Issues - Holmes Institute

This assignment solution delves into various aspects of Australian taxation law, addressing issues related to Capital Gains Tax (CGT) implications on asset sales, income assessment from personal exertion, and the treatment of loans as assessable income. The first question analyzes CGT consequences for Helen's sale of assets, including an antique painting, historical sculpture, antique jewelry, and a picture, applying relevant sections of the Income Tax Assessment Act 1997. The second question examines Barbara's income from writing and selling a book, distinguishing between income from personal exertion and CGT events, while also considering an alternative scenario where the book is written as a hobby. The third question evaluates the assessable income of Patrick concerning a loan provided to David, focusing on the gains accrued through repayment terms and additional payments, referencing relevant case laws and sections of the Income Tax Assessment Act 1997. This document is available on Desklib, where students can find a wide range of study tools and solved assignments.

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

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Question 1
Issue
Helen has been acquiring funds for the purpose of proceeding with her business in the
field of fashion designing. The funds that she needs to gather for the same, she resolved to
gather them from the sale of several assets she has possessed. These sales of the assets the has
possessed has accrued certain CGT implications in the incidence of taxation. Form the
provided scenario, the following issue can be drawn out:
1. Capital Gain Tax regarding antique impressionism painting;
2. Capital Gain Tax regarding historical sculpture;
3. Capital Gain Tax regarding antique jewellery piece;
4. Capital Gain Tax regarding picture.
Rule
Section 102.20 of the Income Tax Assessment Act 1997: a CGT gain or a CGT loss is said
to have accrued with the happening of a CGT event. A CGT event implies a situation where a
transaction relating to CGT asset has happened.
Section 104.10 of the Income Tax Assessment Act 1997: the CGT event that involves a
transaction where a sale of a CGT asset takes place is categorised as an A1 category of CGT
event.
Post-CGT and Pre-CGT asset: to be considered as a CGT asset the asset needs to be
acquired at a period before the date 20.09.1985. Any asset acquired prior to this date will be
disregarded to be treated as a CGT asset being a pre-CGT asset and a proceed from the same
will not be included in the CGT assessment. Only the post – CGT assets will be considered in
this respect.

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Section 108.10(2) of the Income Tax Assessment Act 1997: collectible implies an item
possessed by the taxpayer to be used for personal purposes and enjoyment. This covers
artwork, jewellery, rare folio, coin and other antique objects.
Section 118.10(1) of the Income Tax Assessment Act 1997: the collectibles whose price is
under the threshold of $500, will not be included in the assessment of CGT. Only those assets
the worth of which exceeds the $500 threshold, will be treated as a component in the CGT
assessment.
Section 110.10 of the Income Tax Assessment Act 1997: the collectible whose value is
less than $500 will not be permitted as a CGT asset and will be allowed as an exemption from
the computation of CGT.
Section 108.10 of the Income Tax Assessment Act 1997: a loss occurred to a taxpayer in
relation to a transaction that involves the collectible as a CGT asset by virtue of a CGT event
is required to be allowed as an offset against the CGT event concerning a collectible only. No
other CGT gain can be subjected to the offset that has been accrued from CGT loss
concerning collectible.
Section 108.20 of the Income Tax Assessment Act 1997: the CGT assets which are held
by the taxpayer for personal use will be permitted to be assessed as a CGT asset only of its
value is more than $10000. If the value of such a CGT asset fails exceed that limit, the same
will not be treated to be a CGT asset for the purpose of CGT assessment.
Application
In the present case, as certain assets has been disposed off by Helen with a view to gather
funds for assisting her fashion designing venture initiation. All these have accrued certain
CGT consequences. These consequences can be summarised as follows:

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1. Capital Gain Tax regarding antique impressionism painting: a painting has been
disposed off by Helen for a charge of $12000 on 01.12.2108, which has been
purchased on February 2018 for a charge of $4000. This will be considered to be a
pre-CGT event and will be disregarded for the purpose of CGT calculation. This is
for the reason that a CGT gain or a CGT loss is said to have accrued with the
happening of a CGT event. A CGT event implies a situation where a transaction
relating to CGT asset has happened. To be considered as a CGT asset the asset
needs to be acquired at a period before the date 20.09.1985. Any asset acquired
prior to this date will be disregarded to be treated as a CGT asset being a pre-CGT
asset and a proceed from the same will not be included in the CGT assessment.
Only the post – CGT assets will be considered in this respect.
2. Capital Gain Tax regarding historical sculpture: the sale of the historical sculpture
accrued a proceed of $6000 and had an acquisition cost of $5500. The same has
been acquired on December of 1993. This needs to be treated as a capital asset.
This is for the reason that the collectibles whose price is under the threshold of
$500, will not be included in the assessment of CGT. Only those assets the worth
of which exceeds the $500 threshold, will be treated as a component in the CGT
assessment.
3. Capital Gain Tax regarding antique jewellery piece: the jewellery was a post CGT
asset being purchased on the October of 1987. Proceed from the same is $13000
and the acquisition cost has been $14000 causing a loss to Helen. This needs to be
treated as a CGT loss and the same needs to be treated as an offset against the
proceed of the historical sculpture both being a collectible. This is because a loss
occurred to a taxpayer in relation to a transaction that involves the collectible as a
CGT asset by virtue of a CGT event is required to be allowed as an offset against

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the CGT event concerning a collectible only. No other CGT gain can be subjected
to the offset that has been accrued from CGT loss concerning collectible.
4. Capital Gain Tax regarding picture: the sale of picture for a price of $5000 has an
acquisition cost of $470. This needs to be CGT asset for personal purpose and will
not be assessed under the CGT computation as the value of the same fails to
exceed the threshold value. This is for the reason the CGT assets, which are held
by the taxpayer for personal use will be permitted to be assessed as a CGT asset
only of its value is more than $10000. If the value of such a CGT asset fails exceed
that limit, the same will not be treated to be a CGT asset for the purpose of CGT
assessment.
Conclusion
The CGT consequences will be inflicted as has been discussed above.
Question 2
Issue
In the present case, Barbara has been offered an amount of money for the writing of a
book by Eco Books Ltd. She accepted the offer and has entered into certain transactions in
the furtherance. This has created the following issues:
1. Barbara ‘s income under the case scenario
2. Barbara ‘s income under the alternative scenario
Rule
Section 6 of the Income Tax Assessment Act 1936: income that a person paying the tax
earns with the application of personal toil or labour in the continuance of the course of
income yielding is to be regarded as income produced from personal exertion. The income

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from salaries, earnings, wages, allowances, commissions and any other remuneration that
accrues in relation to a service that an employee has extended by the application of their
personal toil and labour. Any business income that the person has accrued by virtue of his
personal toil or labour is required to be treated as income produced from personal exertion,
but person needs act in the sole control or as a partner of a business.
Section 6.5 of the Income Tax Assessment Act 1936: the income that can be earned as a
result of the application of personal toil or labour is required to be treated and assessed under
the ordinary income concept for the purpose of taxation.
D.F.C. of T. v. Purcell (1921) 29 CLR 464: for claiming an income to be assessed as an
income from the application of personal toil or labour the connection between the toil or
labour and the income that has been generated to be established by the taxpayer.
Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd (1982) 150 CLR 355:
copyright in its general implication is to be treated as a CGT asset and the sale of same
accrues CGT gain itself being a CGT event. Again, if the objective of the creation of the
copyright has always been for the earning of profit, the same needs to be treated as an
ordinary income.
Application
In the present case, Barbara has been offered an amount of money for the writing of a
book by Eco Books Ltd. She accepted the offer and has entered into certain transactions in
the furtherance. Income of $13,000 for writing the book is to be considered as an income
accrued from personal labour or toil. This is for the reason income that a person paying the
tax earns with the application of personal toil or labour in the continuance of the course of
income yielding is to be regarded as income produced from personal exertion.

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The sale of copyright is to be treated as a CGT event earning an income of $13,400, which
needs to be treated as a CGT gain.
The sale of manuscript of the book as well as the interviews has earned an income of
$4,350, which needs to be taxed as an ordinary income.
In the alternative situation, the book if written as a hobby and resolved to assign it by way
of sale later on is required to be stated as an income derived from hobby.
Conclusion
The first scenario needs to be treated as an income from personal exertion and in the
alternative situation it needs to be treated as an income from hobby.
Question 3
Issue
The effect of these arrangement on the assessable income of Patrick.
Rule
Hochstrasser v Mayes 1960 AC 376: the receipt that a taxpayer receives during the income
year, is required to be treated as an income if the same can be proved to have incurred a gain
towards the taxpayer.
Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24: the receipt
in question that needs to be included in the income of a person is required to have caused a
benefit or profit in favour of the taxpayer. The receipt is to be traced to have an element of
profit in it.
Whitaker v Commissioner of Taxation [1998] FCA 262: the receipt needs to comply with
all the requirements of the income for the purpose of being rendered as an income. The profit

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element and the compliance with all the requisites of income needs to be complied with to be
treated as an income.
Section 6.5 of the Income Tax Assessment Act 1997: income earned from the ordinary
concepts needs to be assessed as an ordinary income.
Application
In the instant case, a loan of $52000 has been provided to David by his father Patrick,
which needs to be returned on the elapse of five years. The amount to be returned is $58000.
This has accrued an amount of $6000 to be returned for the purpose of availing the loan. This
can be treated as an income as the $6000 is the gain accrued with the receipt as has been
made evident with the case of Hochstrasser v Mayes 1960 AC 376.
Moreover, at the elapse of five years there has been an additional payment of 5% although
no interest has been agreed to be charged. But as this amount has been accrued as a gain the
same needs to be treated as an income under section 6.5 of the Income Tax Assessment Act
1997. This can further be supported with the case of Whitaker v Commissioner of Taxation
[1998] FCA 262.
Conclusion
The effect of these arrangement on the assessable income of Patrick can be discussed as
above.

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Reference
D.F.C. of T. v. Purcell (1921) 29 CLR 464
Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd (1982) 150 CLR 355
Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24
Hochstrasser v Mayes 1960 AC 376
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997
Whitaker v Commissioner of Taxation [1998] FCA 262