Taxation Theory, Practice & Law: Case Studies and Principles

This assignment delves into various aspects of taxation through a series of case studies. It begins with the calculation of net capital gain or loss, followed by an analysis of fringe benefit tax, particularly focusing on a scenario involving a bank officer's loan and its tax implications. The assignment then explores loss allocation for tax purposes in a joint property ownership case, considering the roles of partnership and relationship acts. Furthermore, it discusses the principle established in IRC v. Duke of Westminster, analyzing the legal implications of payments made under a deed. Finally, the assignment concludes with advice on capital gains tax issues, offering a comprehensive understanding of taxation theory, practice, and relevant legal principles.

TAXATION THEORY, PRACTICE & LAW

Table of Contents
Introduction......................................................................................................................................3
Question 1: Calculating net capital gain or net capital loss.............................................................3
Question 2: Calculating Fringe Benefit Tax for the year 2016-17 and discussing the impact on
Brian if he become free from the payment of interest on loan........................................................4
Question 3: Describing the loss allocated for tax purpose in case of Jack and Jill and
demonstrating the situation if they decide to sell the property........................................................6
Question 4: Discussing the principle established in IRC v. Duke of Westminister [1936] AC......7
Question 5: Providing advice to Bill related to capital gains tax issue...........................................9
Conclusion.....................................................................................................................................10
Reference List................................................................................................................................11
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Introduction
In this task, the specialist has planned to show the tax collection arrangement of a specific nation
with the assistance of five diverse contextual investigations. It has likewise been expected to
look for finish comprehension of ramifications of tax assessment with these given case
references. Notwithstanding these, the researcher has chosen to take assistance from standards
and laws gave by the overseeing body and certain enactment.
Question 1: Calculating net capital gain or net capital loss
Eric has acquired certain shares and assets in the course of the most recent a year and he sold
these shares and asset a week ago in the same year. If the shares or asset are held for a year or
not as much as a year then it will be called as short-term asset. Likewise, if the respective things
are held for over a year, it will be called as long-term assets (Yinger et al. 2016). For this
situation, Eric has held them for not as much as a year and sold them around the same time.
Thus, it can be said that net capital losses or gain will be calculated in the context of short-term
assets in case of Eric.
Calculating short-term capital losses or gains
For the year ended on 20XX
Asset purchased during the
year
Amount ($) Asset sold during the year Amount ($)
Sound System 12000 Sound System 11000
Painting 9000 Painting 1000
Antique chair 3000 Antique chair 1000
Shares of listed company 5000 Shares of listed company 20000
Antique vase 2000 Antique vase 3000
Asset purchased (Total) 31000 Asset sold (Total) 36000
In order to calculate short-term capital gains following formula is used-
Short capital gains in current year = Total asset sold – total asset purchased
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= $36000- $31000
= $5000
Question 2: Calculating Fringe Benefit Tax for the year 2016-17 and
discussing the impact on Brian if he became free from the payment of interest
on loan
As observed from the case of Brian, he has gotten a credit as a piece of his compensation bundle
for a long time, since he is a bank official, he got advance added up to $ 1 million at a unique
rate of 1%. 40% of the advance was utilized for money creating purposes and for meeting all
premium installment commitments. For this situation, Brian has gotten FB or Fringe Benefit on
the advance sum for the year 2016-2017. Furthermore, it can likewise be seen that credit has
been given on 1 April 2016. The calculation of assessable wage of Brian for the year finished on
30th June 2017 is given beneath.
Details of loan taken by Brian Specifications
Date of disbursement of loan 1st April 2016 (the loan is taken for 3 years)
Rate of interest 15%
Sanctioned loan amount $1 million
Usage of loan amount ($1 million * 40%) = $400000
Repayment mode Monthly installment
Installment to be paid for next 15 months $(1000000 * 1% /12) * 15
= $ 12500
Computing taxable income to be bear by Brian for the year ended on 20106 – 2017
Particulars Amount (in $)
Income 100000
Less: Installments (Interest) 400000
Less: Installments (Principal) 10000
Less: Expenses 250000 (333334-83334)
Taxable income (Total) 340000
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Thus, from above computation it can be said that the total taxable income of Brian is $340000
including monthly installments along with principal. As Brian will pay installments for repaying
loan his taxable income will reduced by $21667. On the other hand, taxable income of Brian will
differ as calculated if he will pay installment at the end of loan.
Computation of taxable income for alternative case-
Particulars Amount (in $)
Income 1000000
Less: Expenses 400000
Taxable income 600000
Hence from above calculation it has been clear that if Brian pay monthly installment it will be
beneficial for him because his taxable income will have reduced and consequently his tax
liability will also reduce.
Despite what might be expected, if on the off chance that bank discharges Brain from
reimbursing the loan interest, he would then need to pay just the principal. As inspired by Lignier
and Evans (2012), for this situation Brian's costs would somewhat go down, yet he at that point
can't guarantee incidental advantage on the credit and he should pay impose on the assessable
salary, which is registered beneath.
Taxable income for 2016-2017
Particulars Amount (in $)
Income 1000000
Less: Installments (only principal) 400000
Less: expenses (333334-83334) = 250000
Taxable income (Total) 350000
As influenced from Halberda (2014), it can obviously be seen that Brian needs to pay impose tax
on three distinct cases. On the off chance if he needs to pay installments (interest and principal
both), he needs to pay charge on $ 340,000. Then again, if was discharged from paying loan
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interest then he needs to pay impose on $ 350,000. In any case, on the off chance that if the
portion ought to be paid toward the end of tenure of loan he needs to pay impose on $ 600,000.
Question 3: Describing the loss allocated for tax purpose in case of Jack and
Jill and demonstrating the situation if they decide to sell the property
Jack is architecture and his life partner is just a housewife together acquired cash to buy a
property for leasing reason as joint occupants. Strangely both a couple have entered an
agreement where, it has been chosen that if any benefit emerges 10% of that benefit will be
qualified for Jack and rest will be qualified for his better half Jill. Actually, if any misfortune
happens, Jack will bear 100% of the misfortune. In any case, in the most recent year the
investment property has produced loss of $ 10,000 and according to agreement, Jack will bear
the entire misfortune.
As per the Relationship Act 2008, Section 35 (2), a man is not said to be the household
accomplice of someone else on the ground of relationship of co-tenure (Fochmann et al.2012).
On the other hand, as per the Partnership Act 1958, section 5(1); association might be
characterized as the connection between at least two gatherings, who are carrying on a similar
business with a mean to gain benefit. Australian Partnership Act likewise portrays the idea of
association in the event of joint tenure and gives certain arrangements with respect to the idea of
tenure or property identified with the joint occupancy, where it is said that Joint inhabitance
residency in like way joint property ordinary property or part proprietorship does not of itself
influence an association as to anything so to held or had whether the occupants or proprietors
share or do not share any advantages made by the usage thereof (Kamleitner et al.2012).
Gross returns sharing does not of itself make an affiliation whether the general population
sharing such returns have or have not a joint or essential right or excitement for any property
from which or from the usage of which the benefits are gathered (Braithwaite, 2017). In addition
to this, advantages receipt by a man from the offer of a business is at first sight affirm that that
individual is an associate in the business, however receiving of such an offer or of a portion
subordinate upon or varying with the advantages of a business does not of itself make that
individual an accessory in the business (Forman and Mackenzie, 2012).
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In case of Jack and Jill it was observed that they have domestic relationship in real life and
agreed on contract to share profit in 1/9 part of the total amount received. However, in case of
loss only Jack will suffer from whole loss and needs to bear entire loss amount. Regarding to the
arrangements made in Relationship Act and Partnership Act, one might say that Jack and Jill are
no uncertainty in household relationship yet if there should arise an occurrence of relationship of
Joint occupancy, Partnership Act gets pulled in, where they are thought to be in association
connection since the idea of business is same, likewise both are qualified for benefit, yet if there
should arise an occurrence of misfortune, just Jack needs to hold up under the entire misfortune.
In association with the respective act, arrangement for organization is given that every one of the
accomplices is qualified for benefit and not misfortune (Forman and Mackenzie, 2013). On the
off chance that any accomplice alone bears the entire misfortune yet in addition gets offer of
benefit will be additionally be called accomplice.
In this manner, the loss of $ 10,000 will totally bear by Jack and he is qualified for get reduction
tax due to loss at the end of year. On the other side, if both the accomplices choose to offer the
property, they initially need to recuperate misfortune emerged from that property then they can
offer the property (Daley and Wood, 2015). In any case, for this situation, there is no degree for
recuperation of misfortune; therefore, they need to offer the property for capital misfortune.
Further, this capital misfortune will be balanced with short-term or long-term capital gains.
Question 4: Discussing the principle established in IRC v. Duke of
Westminster [1936] AC
Facts of the case IRC v. Duke of Westminster 1936
Duke executed activities with individuals then in his use (tallying his grower) in which he
covenanted to pay to them certain step by step totals for a period of seven years or the joint
presences of the social events. The deeds related that the portions were made in affirmation of
past organizations constantly rendered to the Duke and that the Duke needed to make course of
action for the person notwithstanding that he may continue in the Duke's organization (in which
event he will be fit the bill for remuneration in respect of such future organization) or may stop
working for Duke.
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Letters of elucidation (which were perceived by the agents) were sent to each specialist lighting
up him that he could affirm full remuneration for future work, however that it was typical before
long that he would be content with the course of action made by the deed notwithstanding such
total (accepting any) as might be essential to pass on the total portions up to the level of the
compensation or wages he had recently been getting.
As opined by Forsyth et al. (2014), the recipients at the time the deeds were executed were
tolerating settled wages or remunerations and after executing the deeds continued in the Duke's
business and continued getting such totals as, with the entire payable by deed, pay amount or
measures the wages before the deed and no more further deals were entertain.
Issue of the case
In case the aggregates paid under the deed in respect of periods in the midst of which the general
populations were in the Duke's use were remuneration for organizations, they cannot be deducted
while evaluating the Duke's hazard for surtax. If, of course, the totals were yearly portions, they
were deductible. Hence it can be said that the major issue was that if the installation under the
agreement or deed will be considered or not considered as compensation for administration.
As opined by Bennett (2016), it was unquestionable that the deeds were passed on into reality
keeping in mind the end goal to enable the Duke to diminish his surtax commitment.
The disposition
The portions were not pay for organizations. Three of the five Lords contemplated that the letter
was not an understanding, only an outpouring of desire or retribution and four of the five Lords
assumed that, paying little heed to the likelihood that it was an understanding, it was basically an
understanding that the person's pay for future organizations won't be full pay yet quite recently
the additional sum suggested in the letter. The fifth Lord, in negate, gathered that the deed and
letter should be seen together as a fundamentally keeping up the present contract of organization
rather than radically modifying it. Most of the Lords rejected the proposal that in wage cases
there is a rule that the court may ignore the legitimate position and regard the issue related to
substance. The substance is the thing that occurs in view of the legitimate rights and
responsibilities of the social affairs discovered upon standard legal gauges.
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Principles recommended from the case
There is a specific offense relating to the 'beguiling evasion of wage force' in the Taxes Acts,
which was at first exhibited in 2000 (Collins, 2016). Nevertheless, this institution is very little of
the time used, as the Revenue oftentimes needs to rely upon the uniquely based law when they
prosecute (Bloom, 2015).
Once in a while, you may find that a national is prosecuted under the Theft Act for false
accounting (or maybe the Fraud Act 2006) yet most of expense evasion cases are brought under
the standard law criminal offense of 'cheating general society pay.
There is no most prominent discipline for such an offense if found at risk then the party could be
sentenced to life confinement and what's more reimbursing the Revenue (Krebs, 2016). Dennis
Healey, past Chancellor, comprehensively depicted the refinement between force evading and
charge evasion as being "the thickness of a correctional facility divider".
Question 5: Providing advice to Bill related to capital gains tax issue
For this situation, it has been discovered that the Bill needs to graze sheep in the land which he
claims. Yet, the issue here emerges is with the tall pine trees in his territory which should be
cleaned up. Afterward, Bill found that a logging organization is prepared to pay him $1,000 per
100 meters of timber which can be taken from his property. As indicated by the pertinent
arrangements of offer of Sales of Goods Act 1954 of Australia, the agreement of offer can be
made in composing which can be with or without seal or by listening in on others' conversations
or incompletely in composing and mostly by listening in on others' conversations (Harding,
2014). The cost in the agreement of offer can be considered as settled if both the gatherings
concur with each other. One issue emerges here, the purchaser may not get the installment
subsequent to satisfying merchants require (Willis, 2015). Presently for this situation Bill is
considered as vender will's identity getting paid by a logging organization for the leeway of trees
in his property. In the event that Bill concurs upon the installment offered to him by the
organization he will be getting great sum. For example, let the estimation of Bill's property be in
meters, and it is accepted that 4500 meters is covered with timber then he will get,
$1000 for 100 meters
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= (1000 / 100) = $10 for 1 meter
Thus for 4500 meters he will receive (4500 *10) =$45000
Hence without investing Bill is getting huge amount which is obviously a great deal for him. On
the other hand, he will get $50000 from logging company in lump amount for clearance of
timber. The organization offering him such a tremendous sum for the leeway, imagine a scenario
in which the proprietor of the land concurs upon this where both the gatherings have no clue
about how much region does timber spreads or how much timber the organization needs.
As per perceptions which have been discovered concentrate on the above case, one might say
that if Bill is offered a single amount of $50,000 by the organization for the freedom of timber it
will be the best arrangement. Since if Bill consent to get paid $1,000 for each 100 meters then it
would be a misfortune for him according to the expected figuring above where he will be getting
$45,000 for 4500 meters of land that timber covers.
Conclusion
Endeavors have been made to assess the distinctive case references as for the tax assessment law.
In light of the assessment it has been discovered that in the main case study Eric has earned
capital pick up of $ 5,000 and from the second contextual analysis, it can be presumed that on the
off chance that if the portion ought to be paid toward the finish of the credit residency, Brian
needs to pay charge on $ 600,000.
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Reference List
Bennett, R. J. (2016). Interpreting business partnerships in late Victorian Britain. The Economic
History Review, 69(4), 1199-1227.
Bloom, D. (2015). Tax avoidance-a view from the dark side. Melb. UL Rev., 39, pp. 950- 955
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Collins, J. (2016). Fraud by Abuse of Position and Unlicensed Gangmasters. The Modern Law
Review, 79(2), 354-363.
Daley, J. and Wood, D., 2015. Fiscal challenges for Australia. Grattan Institute.
De Henau, J. and Himmelweit, S., 2013. Examining public policy from a gendered intra-
household perspective: Changes in family-related policies in the UK, Australia and Germany
since the mid-nineties, pp. 1-27
Fochmann, M., Kiesewetter, D. and Sadrieh, A., 2012. Investment behavior and the biased
perception of limited loss deduction in income taxation. Journal of Economic Behavior &
Organization, 81(1), pp.230-242.
Forman, J.B. and Mackenzie, G.D., 2012. Optimal rules for defined contribution plans: what can
we learn from the US and Australian pension systems. Tax Law., 66, pp.613-625
Forsyth, P., Dwyer, L., Spurr, R. and Pham, T., 2014. The impacts of Australia's departure tax:
Tourism versus the economy?. Tourism Management, 40, pp.126-136.
Halberda, J. (2014). Mistake of law and mistake of fact in English law of
restitution. TijdschriftvoorRechtsgeschiedenis/Revue d'Histoire du Droit/The Legal History
Review, 82(3-4), 261-283.
Harding, M., 2014. Personal tax treatment of company cars and commuting expenses.
Kamleitner, B., Korunka, C. and Kirchler, E., 2012. Tax compliance of small business owners: A
review. International Journal of Entrepreneurial Behavior & Research, 18(3), pp.330-351.
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Krebs, M. (2016). Analysis of the CSARS v NWK case and its effect on the substance over
form-doctrine.
Lignier, P. and Evans, C., 2012. The rise and rise of tax compliance costs for the small business
sector in Australia.
Willis, J. (2015). Fraud and the indefeasibility of a joint tenant's title. Bar News: The Journal of
the NSW Bar Association, (Winter 2015), 14, pp. 25-39
Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The
theory and estimation of intrajurisdictional property tax capitalization. Elsevier.
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