Analyzing Amber's 2018 Transactions Under Income Tax Law (ITAA)

This case study examines the tax consequences of Amber's financial transactions in 2018, focusing on the sale of her chocolate shop, a restrictive covenant agreement, and the sale of an inherited apartment. The analysis is based on the Income Tax Assessment Act 1997 (ITAA) and relevant case law, including FCT v Murry and Jarrold v Boustead. The study identifies CGT events related to the business sale and restrictive covenant, determining their taxability. It also assesses Amber's eligibility for a partial main residence exemption on the apartment sale. The conclusion outlines Amber's tax liabilities and entitlements based on these transactions, emphasizing the importance of understanding CGT events and exemptions under Australian tax law. Desklib offers a variety of solved assignments and past papers for students.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Issue............................................................................................................................................2
Laws...........................................................................................................................................2
Application:................................................................................................................................4
Conclusion:................................................................................................................................5
Reference....................................................................................................................................6

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Issue
In this report, the yearly transaction of Amber for the year 2018 will be discussed and
the tax consequences for the transactions will be evaluated in accordance with the legislations
stated in the Income Tax Assessment Act 1997. It is required to identify which of these
transactions can be regarded as capital gains taxation and the important sections of ITAA will
be referred in order to evaluate the statement.
Laws
In accordance with the section 102-5 of ITAA 1997, the assessable incomes gained by
an individual needs to be recorded in order to measure the total tax payable by the individual.
The income needs to be incurred as a capital gain in order to be considered as a taxable
income. The capital gains taxation measurements determine whether the income gained by
the individual will be considered as a profit or loss (Sharkey, 2015). In order to identify the
capital gains or loss, section 102-20 needs to be considered in order to evaluate the CGT
event A1. Another important section to dispose the CGT event in the incurred income is the
section 104-10 of ITAA 1997.
In order to evaluate the CGT event C2 which is particularly associated with the
intangible assets, section 104-25 needs to be considered. This section determines the end or
expiry of an intangible assets or the end of ownership of the assets. In order to calculate the
goodwill associated with the assets, it is needed to consider the CGT event C1. But this CGT
measurement can only occur when the business is permanently ceased or the lifespan of the
asset is permanently ended. In order to evaluate the disposal over the goodwill or the interest
over the goodwill, the taxation ruling 1999/16 needs to be considered. The CGT event C1
cannot be considered as a temporary closure in case of the business is permanently ceased
(Becker et al., 2015).
Some other case laws that are required to evaluate the taxation consequences of
Amber, In the case of FCT v Murry, the citation states that the goodwill is considered as
evidence where the assets are capable of generating the revenue. The asset is regarded as an
intangible if such conditions prevail in the operation of the business. For another instance, the
goodwill must be regarded as a CGT assets as per the guideline is stated in the section 108-5

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(2). In the case of IRC v Muller and Co Margarine Ltd, it is stated that the nature and the
character of the business decides the type of goodwill incurred from the assets. Thus, the
amount received from the selling of goodwill will be concluded in the capital gain
(Burkhauser et al., 2015).
In order to evaluate the restrictions among the purchaser in accordance with the
competitiveness of similar business, it is required to follow the legislations stated in the
Taxation ruling 1999/16. In this legislation, it is stated that in case of having an agreement
between the seller and the purchaser, the seller cannot attract the clients of the purchaser for a
similar business towards them (Parker, 2018).
However, in order to figure out whether the income gained from the agreement of
restriction can be regarded as a taxable income or not, it is required to consider the
legislations stated in the case law of Jarrold v Boustead. In the citation of the case, it is stated
that in case of incurring such income from this particular type of agreement, the income will
be considered as a taxable income in accordance with TR 1999/16.
For another instance, the goodwill can be represented over the CGT assets in case of
any restrictive covenants are vested upon the purchaser. This covenant will be regarded as the
CGT event D1 in accordance with the section 104-35 of ITAA 1997. In this particular case,
the conditions or the legal right that is created by the taxpayer will be vested upon the other
entity (Saad, 2014). But this transaction will not be regarded as an income in case any of the
party does not wish to continue the contract in return of getting paid by the entity. In such
cases, the total income vested from the contract will be regarded as the CGT event D1 and
thus will be imposed by a trade agreement (Wilkins, 2015).
In the last part, it is required to state the consideration about the taxation
consequences of the multiple residence of the taxpayer. In this segment, the primary dwelling
place of the taxpayer is regarded as the main residence and this residential status is dependent
on certain criteria. In order to figure out the primary residence of the taxpayer, it is required
to understand the legislations stated in the section 118-110 and taken into consideration by
the citation of the Taxation Commissioner (Endres & Spengel, 2015). The primary
requirement for stating a main residency of a tax payer is to figure out the total period of
physical occupancy by the taxpayer in that particular property. Apart from that, as it is stated
in section 118-110 of the ITAA 1997, the incurred exemption received from the residential
status will be considered as a CGT event in case of obtaining some capital gain or loss from

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that exemption. This exemption can only be considered in case of the CGT assets are being
generated from the main residency of the tax payer. A partial exemption will also be allocated
to the taxpayer in case of the residential status of the taxpayer in the main residency is
temporary (Hanlon et al., 2015).
Application:
Sale of shop:
In the given case it is clear that Amber was the owner of the chocolate shop that was worked
from Sydney. However, the choice to offer the shop was activated by the introduction of a kid
in 2018 for a sum t of $440,000 out of which $280,000 was from goodwill. The taxation
ruling "TR 1999/16" can be connected to the circumstance here. Considering the choice of
court in the event of "FC of T v Murry (1998) and section 104-25(1) of the ITAA 1997", a
CGT event occurred when Amber sold the business. The individual playing tax went into
contract that evented to the finish of benefits of the business. The revenues obtained from the
advantages and goodwill is a proof of such business. Amber stopping such business was a
voluntary demonstration (Bankman et al., 2017). The sale of such business offered ascend to
a CGT event which can be taxable or even not taxable that will be resolved from the
proportion of other chose cases under a similar demonstration.
As indicated by the instance of "IRC v Muller and co Margarine LTD (1901), amber needs
to incorporate the net capital income in her taxable income that was gained from the sale of
her business. In this way the sum got from the sale of chocolate shop frames some portion of
taxable income under section 104-10(1)".
Restrictive Covenants:
Later in a similar case Amber was required to consent to a contract that would put
confinement in regards to working same sort of business inside 5-mile range for the following
5 years. For entering in such a contract, she got a measure of $50,000. This sum would be
viewed as CGT event. Be that as it may, considering the instance of "Jarrold v
Boustead(1964)", the entirety Amber got for restrictive pledge can't be viewed as a piece of
income or it measures of CGT event D1 (Frey & Feld, 2018).
Considering the instance of "Dickenson v FC of T(1958)", the sum was gotten keeping in
mind the end goal to not let her not participate in business. After such a declaration the buyer

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has the rights identifying with the CGT resource of Amber and under "section 104-35(1)",
the measure of $50,000 gotten by Amber would be dealt with as CGT event D1. In this way
the receipt of such a sum characterizes the limitation of Amber from not contending in same
sort of business.
Sale of Apartment:
In events, emerging later on Amber got the house from her uncle who obtained such
property in September 2013 and the contract of offering the same was entered in to by Amber
in May. For exemption the abode needs to frame some portion of the principle residence of
Amber and it relies upon an issue of actuality (Enste, 2018). This can be demonstrated on the
grounds that Amber dwelled in that house as the principle residence. Accordingly, the case
laws recommend, that, sale of shop and business result in capital gain that is taxable yet the
capital gain that is earned from restrictive pledge is not taxable as their inclination is unique.
The tax commissioner clarifies, that Amber and her family dwelled in that property
for a long time and under section 118-110(1) can be considered as there as physical
inhabitance for the whole time of ownership. Along these lines, a piece of exemption can be
guaranteed as it was her principle residence as it was acquired from her uncle. So Amber is
entitled to fractional exemption as it was her home and primary residence all through the time
of ownership. Along these lines, again we can see that there is arrangement that gives
exemption yet not full rather halfway.
Conclusion:
So, to conclude was can state that Amber is liable to pay tax on the sum she got from
the sale of the shop under section 104-10(1). While the measure of $50,000 got as restrictive
contract will frame some portion of CGT event D1 and won't be a piece of taxable income.
The receipt made a restrictive trade agreement. Subsequently she is qualified for partial
exemption as it was the fundamental residence all through the time of ownership.

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