Taxation Law Assignment: Capital Gains, FBT, Rental Property, Timber

This taxation law assignment addresses several key issues in Australian taxation. The first question explores capital gains and losses from the sale of assets, referencing ITAA 1997 sections to determine whether losses can be offset. The second question examines Fringe Benefit Tax (FBT) related to interest offset agreements, referencing TR 93/6. The third question investigates the allocation of losses from rental property jointly owned by Jack and Jill, referencing section 51 of the ITAA 1997 and TR 93/32. The fourth question discusses tax avoidance principles established in IRC v Duke of Westminster. The fifth question analyzes the assessment of income from the sale of timber, referencing subsection 6(1) of the Income Tax Assessment Act 1936 and the case of McCauley v. The Federal Commissioner of Taxation. The assignment provides detailed analyses, legal references, and conclusions for each question.

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

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Table of Contents
Answer to Question 1:................................................................................................................3
Issue:..........................................................................................................................................3
Laws:..........................................................................................................................................3
Applications:..............................................................................................................................3
Conclusion:................................................................................................................................4
Answer to Question 2:................................................................................................................6
Issue:..........................................................................................................................................6
Laws:..........................................................................................................................................6
Application.................................................................................................................................6
Application:................................................................................................................................7
Conclusion:................................................................................................................................7
Answer to Question 3.................................................................................................................9
Issue:..........................................................................................................................................9
Laws:..........................................................................................................................................9
Application:................................................................................................................................9
Conclusion:..............................................................................................................................10
Answer to Question 4:..............................................................................................................12
Answer to Question 5:..............................................................................................................14
Issue:........................................................................................................................................14
Laws:........................................................................................................................................14

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Application:..............................................................................................................................14
Conclusion:..............................................................................................................................15
References:...............................................................................................................................16

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Answer to Question 1:
Issue:
This issue in the case deals with the determination of capital gains or losses which is
derived from sale of assets from section 108-20 of the ITAA 1997.
Laws:
i. Section 108-20 of the ITAA 1997
ii. Section 108-10 of ITAA 1997
Applications:
Under section 108-20 of the ITAA 1997, loss of $1,000 is incurred for sale of sound
system which cannot be permitted for the considered set off, as no losses can be considered

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based on the disposal of personal use assets. In accordance with the section 108-10 of the
ITAA 1997, the collectable losses cannot be set off against the common gains in the form of
sales of shares (Kenny ,2013).Additionally, when the offset is taken as per Section 108-10 of
ITAA 1997. As Eric has gained profit for disposal of ordinary assets and no current year
ordinary capital or other kind of applicable reductions. Additionally, the capital gain for Eric
has current stands as $15,000.
Conclusion:
It can be concluded that Eric cannot offset the loss from collectibles since he has only
gained profit from the disposal of ordinary assets.

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Answer to Question 2:
Issue:
The below stated issue is concerned with the ascertainment of FBT in accordance
with the “Taxation Ruling of TR 93/6”.
Laws:
i. Taxation rulings of TR 93/6
Application
Computation of Fringe Benefit Tax

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Application:
The taxation rulings of TR 93/6 states that the financial institution often plan for
offsetting the loan account that is referred to as interest offset agreement. These products are
structured so that the interest is offset which is incurred by clients (Krever ,2013). Therefore,
the clients are not paying any amount of tax with respect to profits. According to the
Taxation Rulings of TR 93/6, if the bank discharges the Brian from refunding interest on
loan then no amount of income tax Brian will be liable for paying.
Conclusion:
It can be concluded that will not be required to pay any sum of income tax liability if
he is released from paying interest by the bank.

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Answer to Question 3
Issue:
This issue is concerned with the allocation of loss derived from the rental property as
the joint ownership by Jack and Jill.
Laws:
i. Section 51 of the ITAA 1997
ii. Taxation rulings of TR 93/32
iii. F.C. of T. v McDonald (1987)
Application:
According to the taxation rulings of TR 93/32, it is consists of the explanation of the
divisionary net income or generated loss from the rental property (Barton ,2013). The current
scenario in Jack and Jill considers the evaluation of taxable position of the rental property.
Jack is entitled for 10% of the property and Jill is entitled for 90% from the property.
In accordance with the Taxation rulings, TR 92/32 Co-ownership of rental property is
known as one partnership for income tax purpose but this is not considered as one partnership
at the general law except the ownership accounts for carrying value for any business practice,
where the Co-ownership is considered as the partnership for satisfying the purpose of income
tax only losses (Morgan, Mortimer and Pinto,2013). The current condition of Jack and Jill
shows the co-ownership for the rental property between them which is based on the income
tax purpose and cannot be regarded as the partnership in consideration with the general law.
The taxation rulings of TR 92/32 states that co-owners of the rental property are

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usually not considered partners at general law (Milton,2013). In this case the partnership
agreement is either in the form of writing or oral that doesn’t have effect on the shared value
of income or loss from the considered property. Therefore, Co-owners of the rental property
Jack and Jill will hold the property as the joint renters as one common factor.
As held in the case of F.C. of T. v McDonald (1987) 18 ATR 957, the taxpayer’s wife
and he legally owned two strata title units as the joint renters (Woellner,2013). The
agreement confirmed between them states that the net profit gained from the rental property
will be distributed as 25% to McDonald and 75% to Mrs McDonald. Now the total loss
amount will be borne by Mr McDonald.
Conclusion:
It can be concluded from the above discussion that both Jack and Jill are required to
distribute the loss equally and joint ownership does not accounts as partnership business.

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Answer to Question 4:
IRC v Duke of Westminster [1936] AC 1 was considered as the occurrence of tax
avoidance. This case is established as the principle that states that each man will be allowed
to order the affairs for allowing the taxation assigning which is made as per the fitting Act.
This taxation assigning is less than it (Barkoczy,2016). Although it cannot be considered for
this ruling has been attractive to others for seeking the avoidance of tax with respect to the
complex structure of law and these are weakened by the subsequent cases where the courts
have looked on the overall impact. Giving an example from the court in the upcoming stages
is very restrictive and was adopted under the WT Ramsay v. IRC principle. In this case the
transaction has pre-arranged artificially and this is served not in the form of commercial
purpose (Braithwaite, 2017).
In this situation, this principle within Australia tells that if the individual achieves
success for making the results secured, then the Inland Revenue might take initiative and they
cannot be forced to pay any increased amount of tax (Saad ,2014).

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Answer to Question 5:
Issue:
In this scenario the assessment of income from the sale of timber is analysed under
subsection 6 (1) of the Income Tax Assessment Act 1936.
Laws:
i. Subsection 6 (1) of the Income Tax Assessment Act 1936
ii. McCauley v. The Federal Commissioner of Taxation
Application:
In this scenario, it is found that Bill owns a large piece of land which has several pine
trees. Bill initially aimed to use the land for grazing sheep and wanted to clear it. Bill
discovers a logging company that prepared to pay him $1000 for every 100 meters of timber.
The taxation ruling related to 95/6, set down the income tax consequences generating from
the activities of primary production and forestry (Woellner et al, 2016). The ruling offers the
limit to which the receipts that is derived from the sale of timber. This aspect constitutes the
assessable income where the tax payers are indulged into the activities of forestry industry.
According to subsection 6 (1) of the Income Tax Assessment Act 1936 the tax payer is
indulged into the activities of forest operations is known as the primary creator
(Robin ,2017).
Being the possessor of large piece of land, bill did not planted the trees but the whole
amount of receipts that was derived by Bill from the sale of felled timber constitutes
assessable earning of the considered tax payers disposes about the trees that have not
necessarily planted by the tax payer and rendered for the goal of sale forms the part of

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assessable income. In spite of these facts, the considered sales combines either completely or
partial assets of a business, the considered trees are taken as assessable income of the tax
payers under subsection 6 (1) of the Income Tax Assessment Act 1936.
Conversely, if the tax payer was simply paid a lump sum of $50,000 by surrendering
the right to the logging organization for removing the necessary amount of timber, then that
receipt of sum will be considered as “Royalties”. In agreement with the section 26 (f) receipt
of “royalties” from the tax payer on granting the right to sell the timber on land obtained by
the tax payer (Barkoczy et al ,2016). Under this kind of situations, Bill will not be considered
as carrying on the trade of forest operations. As held in McCauley v. The Federal
Commissioner of Taxation payments obtained by the grantor is under the right of doing so.
The amounts those are receipted by Bill as royalty combines assessable income under section
26 (f).
Conclusion:
It can be concluded that receiving income from cutting the timber will be considered
as taxable proceeds under subsection 6 (1) of the ITAA 1997.

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References:
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax
Pack 3 2016. Oxford University Press Australia & New Zealand.
Barton,2013. Management of the Australian Taxation Office's property portfolio. ACT:
Australian National Audit Office.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Milton, 2013. The taxpayers' guide 2013 & 2014. Qld.:Wrightbooks.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Woellner, R. 2013. Australian taxation law select 2013. North Ryde, N.S.W.: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.