Comprehensive Tax Implications of Various Transactions

The assignment delves into three primary areas: assessing capital gains from various property transactions with examples provided, analyzing fringe benefit taxation for both employer and employee perspectives, including specific monetary figures, and exploring tax implications of timber income wh...Read More

HI6028 Taxation Theory, Practice &
Law
T2 2017 Individual Assignment

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Issue........................................................................................................................................3
Provision................................................................................................................................3
Application.............................................................................................................................3
Conclusion..............................................................................................................................4
Question 2..................................................................................................................................4
Issue........................................................................................................................................4
Provision................................................................................................................................4
Application.............................................................................................................................4
Conclusion..............................................................................................................................5
Question 3..................................................................................................................................5
Issue........................................................................................................................................5
Provision................................................................................................................................5
Application.............................................................................................................................5
Conclusion..............................................................................................................................6
Question 4..................................................................................................................................6
Case facts...............................................................................................................................6
Developed tax principal.........................................................................................................6
Relevance in present tax case laws........................................................................................6
Question 5..................................................................................................................................6
Issue........................................................................................................................................6
Provision................................................................................................................................7
Application.............................................................................................................................7
Conclusion..............................................................................................................................7
References..................................................................................................................................8

LIST OF TABLES
Table 1: Statement showing computation of net capital gain....................................................4
Table 2: Statement showing computation of taxable fringe benefit..........................................5

QUESTION 1
Issue
In the given situation, Eric has purchased and transferred following assets at the following
price in last 12 months:
Assets Cost of Acquisition Sales Consideration
Antique vase $2,000.00 $3,000.00
Antique chair $3,000.00 $1,000.00
Painting $9,000.00 $1,000.00
Home sound system $12,000.00 $11,000.00
Shares in a listed company $5,000.00 $20,000.00
The issue is to compute capital tax for Eric by considering above transactions.
Provision
As per Australian taxation provisions, in order to compute capital gain or loss for a particular
transaction, it is very important to determine holding period of an asset. According to the law;
if the holding period of an asset is equal to or more than 12 months then “Indexation Method”
is used to determine capital gain and if the holding period of an asset is less than 12 months
then “Other Method” will be used to compute capital gain (Working out your capital gain,
2017). In this method taxable amount is computed by reducing Cost of Acquisition from
Sales Consideration.
Application
In the above case, Eric has holding period of fewer than 12 months hence other method will
be used to compute gain or loss.
Table 1: Statement showing computation of net capital gain
Assets Cost of Acquisition Sales Consideration Loss or gain
Antique vase $2,000.00 $3,000.00 $1,000 (gain)
Antique chair $3,000.00 $1,000.00 $2,000 (loss)
Painting $9,000.00 $1,000.00 $8,000 (loss)
Home sound system $12,000.00 $11,000.00 $1,000 (loss)
Shares $5,000.00 $20,000.00 $15,000 (gain)

Net capital gain $5,000
Conclusion
Capital Gain amounts to $15,000 for Eric. All the losses are compensated from a number of
profits earned by him.
QUESTION 2
Issue
In the present case, Brian is an employee of the bank and in perquisite, he obtains a loan of
$1m at a special interest rate of 1% p.a. and the same would be payable in monthly
instalments. From the above loan, 40% of the amount was used to produce another income.
From the above-stated transactions issue is to determine the taxable income in the hands of
Brian and consequence if he paid entire interest at the end of tenure while repayment of the
loan and if his liability of payment of interest is relinquished by the bank.
Provision
According to the rules of Australian taxation provisions, fringe benefits provided by the
employer are liable to be taxed. Australian taxation provisions contain particular rules for
valuation of fringe benefits for each type of benefit (Reportable fringe benefits – facts for
employees, 2016). In the event of loan, Fringe benefit takes place where less interest or no
interest is charged on loan. Valuation of benefit in the event of loan is the difference between
interest rate charged and statutory interest rate. Statutory Rate of interest for 2016 is 5.65%.
Application
In the present case, Brian was provided with a loan at a special rate so same will be
considered a fringe benefit on which tax is to be paid. By applying the above rule
computation of taxable amount for the Brian is as follows:
Table 2: Statement showing computation of taxable fringe benefit
Particulars Amount
Interest as per Statutory Interest Rate ($1,000,000* 5.65%) $56500
Less: Interest charged by Bank ($1,000,000* 1%) $10000
Taxable Fringe Benefit $46500

Conclusion
It doesn’t make any difference of what amount is invested for producing another income or
how the repayments were made so entire difference will be taxable, i.e. $46500. Further; the
taxable amount will remain unaltered from the fact that entire interest will be paid at the end
of tenure during repayment of the loan. In other cases where no interest would have charged
by the bank than $56500 would have been a taxable fringe benefit.
QUESTION 3
Issue
In the present case; Jack and her spouse Jill purchased a rental property from the funds which
were borrowed as joint tenants. For this, they had a written agreement among themselves
which states that profits will be shared in proportionate of 1:9 whereas loss won’t be shared.
All the losses if accrued will be borne by the husband itself. Last year there was a loss of
$10000, so this case deals with the tax treatment of accrued loss. In this case study first issue
is tax implication of loss and second issue is tax implications when the property would be
transferred.
Provision
According to the law rental income and expenses are divided among the co-owners varies
depending on whether co-owners are joint tenant or tenants in common or there is a
partnership among them for carrying out rental property business. If the co-owners are joint
tenant then income and expenses would be attributed in the proportionate of 1:1 because they
both hold an equal interest in the property but if they are tenants in common than they both
hold an unequal interest in the property then in that case revenues and expenses will be
apportioned the ration of their interest in the property (Tax Ruling TR 93/32. Income tax:
rental property – division of net income or loss between co-owners, 2017). However cited
does not apply when an individual does not carry business on a regular basis or are joint
tenants in the rental property.
Application
In the present case, Jack and her wife purchased a rental property as a joint tenant and further
they decided to share the profits from the rental property in the ration of 9:1 and total losses
will be borne by jack. Jack and Jill both have an equal interest in the property since they have
purchased it as a joint tenant. Hence, in this case, Jack is not entitled to claim the total loss.
Both Jack and Jill will equally attribute the loss to themselves.

Conclusion
Jack is not entitled to claim the total loss. Further; same provisions will be applied for
allocation of capital gain or loss when the property would be transferred.
QUESTION 4
Case facts
In this cited case, Duke of Westminster was providing a salary of $3 per week to his
gardener, after that duke and his gardener mutually agreed that duke would make payment of
equivalent amount instead of salary or wages (Bloom, 2015). As per the law applied for the
tax year, gardener’s wage must not increase the deduction of tax; however, the contract
significantly decreased Duke’s liability to a certain level.
Developed tax principal
In accordance with the case, the principle declared that:
All individuals possess the right/authority to supervise their personal affairs in order that the
tax goes to the minimum level and reduce the liability upon tax.
Relevance in present tax case laws
The proposed case stated that the tax evasion could only be practised if there is the
introduction of statue law and the act of general covalent principle that reduces the liability of
Duke if it is permitted and agrees to make payment on a yearly basis. Additionally, it is
declared that any business entity adopts any of the tool is totally responsible for the tax profit
reduction or is not permissible (Evans, 2015). Hence, courts must keep a constant eye on the
common economic states and jurisprudence to meet the commitment regarding tax planning,
purposely for tax evasion. Ultimately, courts should not overlook such cases and declared this
principle as irrelevant and null.
QUESTION 5
Issue
Bill has a large piece of land. There are many huge and tall pine trees on that land. Bill wants
to clear the land as his intention was to use it for grazing of sheep. A logging company was
ready to pay a good amount of $1,000 for every 100 metres of timber that it will take away
from his land. Thus; the issue is to determine the taxability of amount received in against of

providing timber and tax implication if he gets lump sum amount of $50,000 for granting the
right to the logging company for removal as much timber as required by them from his land.
Provision
According to point 22 of provision TR 95/6; timber sold by an individual is taxable even if it
is in the non-ordinary course of business (Poore, 2013). Assessability of such income is under
section 36-1. In Similar ruling, it has been stated that if right is sold by an individual for
removal of timber, then income earned will be under section 25-1.
Application
Income Assessability Section
$1,000 for every 100 metres
of timber
Yes Under section 36-1
Lump sum amount of
$50,000 for granting right to
the logging company for
removal as much timber as
required by them from his
land
Yes Under section 25-1
Conclusion
By applying cited provisions, it can be said income from timber will taxable either it is in the
form of $1,000 for every 100 metres of timber or Lump sum amount of $50,000 for granting
the right to the logging company. However, Assessability of income will be in the different
section.

REFERENCES
Books and Journals
Bloom, D., 2015. Tax avoidance-a view from the dark side. Melb. UL Rev., 39, p.950.
Evans, S., 2015. It's' Clean Hands' Again: The Dirtiness of Not Paying Tax Considered in the
Supreme Court.
Poore, D., 2013. No timber without trees: sustainability in the tropical forest. Routledge.
Online
Reportable fringe benefits – facts for employees. 2016. [Online]. Retrieved from <
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employees/Reportable-
fringe-benefits---facts-for-employees/>.
Tax Ruling TR 93/32. Income tax: rental property – division of net income or loss between
co-owners. 2017. [Online]. Retrieved from <http://law.ato.gov.au/atolaw/view.htm?
docid=TXR/TR9332/NAT/ATO/00001#P24>.
Working out your capital gain. 2017. [Online]. Retrieved from <
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
Working-out-your-capital-gain/>.