Holmes Institute HI6028 Taxation Law Individual Assignment - T3 2019

This assignment solution addresses key aspects of Australian taxation law, focusing on income tax and capital gains tax (CGT). It examines the taxability of various income sources, including salary, tips, and gifts, referencing the Income Tax Act 1936 and 1997. The solution analyzes a case study involving an accounting student working in a restaurant and receiving different forms of income and gifts. The assignment also delves into CGT, explaining its application to the sale of capital assets, including furniture, paintings, cars, and business assets. It outlines different methods for calculating CGT, such as the indexation and discounting methods, and applies these principles to a scenario involving an Australian resident selling assets after retirement. The solution provides legal analysis, issues, and conclusions for both scenarios, supported by relevant case law and legislation. References are included to support the arguments presented, demonstrating a comprehensive understanding of Australian taxation principles.

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

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
References..................................................................................................................................7

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Answer to question 1:
Law: If the income comprises of bonuses, allowances or commissions, if all these is forming
the part of income as per the Income Tax Act 1936 and 1997, then under that act it will
always be taxable which will have to be paid by the individual. The cash remuneration is
inclusive of the gross assessable income of that particular individual at the time of paying
taxes at the time of employment period (Lee 2018). There are several allowances that are
included consists of allowances from attendance, allowances from travel and many more
which does vary from organization to organization. The income that is being received by the
employee can be received in any form that includes cash, direct transfer of amount to bank
account. The tax that has to be paid by the individual includes income from full time job, part
time job and also from other sources (Cassidy and Cheng 2017). Thus, all the Australian
resident does have to pay taxes after certain amount regardless of the sources they are earning
from. Some of the tax payers does have exemption if they have work more than 90 days. Also
the foreign resident does have to pay taxes if they have earned from Australia.
Also as per the Income Tax Act 1997, in the income tax return, the tax payer does
have to show the tip which has been received from the consumers at the time of working. If
the proprietor does provide some expenditure on the entertainment purpose, then for that
amount the tax payer does not have to pay certain taxes as it is not taxable under the
following act. In the other case, if the tax payer is receiving any gift then it will be taxable
under that act, and which can be deductible if it is being received willingly (Cassidy 2017). It
the tax payers does have a proper record, then they can apply for the deductions that may be
inclusive of any kind of cash and gifts. If the value of gift is more than $ 2, then it may
happen that they can claim any deduction which may have received form any relatives or
family members that can be a part of assessable income.

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Issues: One of the student of Holmes institution namely Emmi, study accounts and
simultaneously work in restaurant at Melbourne. At the time of working in restaurant, Emmi
does receive salary amounts to $ 25,000 and tips from the consumer amounts to $ 335. An
expensive perfume has been received by her, which has been given by the organization to her
as a Christmas gift, which after sometime she has given that to her mother (Voogt 2019). For
the purpose of meal and entertainment, the business owner does have some expenses of $
380. This has been given to her as a reward at the time of working in Emmi. She has also
received $ 15,000 as a gift from her father.
Conclusion: Some of the earnings, are forming assessable income of Emmi as per the
Income Tax Act 1997. The tips that are being received by Emmi, also form a part of
assessable income. If the gift is being received from customer, then that will not come under
the income category and also it is not related to as an earning (Tucker and Hutchens 2019).
The expenses that are being made by restaurant upon Emmi, will not be considered as
assessable income. The cash which has been received by Emmi as a Christmas gift from her
father, which amounts to $ 15,000 will also not be considered as assessable income, as it is
related to personal and it is also not generating any income.
ITEMS AMOUNT AMOUNT
Tips from the customer $335
salary income $25,000
Expensive perfume gift $250
less: deductable ($250) nil
Rewards from the employe in the from of meal $380
less: deductable ($380) nil
Gift from father $15,000
less: dedcutable ($15,000) nil
Total assessable income for the year $25,335
Comoutation of Assessable income

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Answer to question 2:
Law: The capital gain tax that has to paid upon the sale of capital assets come under the
Income Tax Act 1997, section 104-5. This category of tax has been paid upon the net amount
that has been left and after the deduction of sale price from the cost price of assets. Fixed
assets, stock, mutual funds and others are come under the capital assets. This tax has to be
paid by any individual at the time of selling the capital assets and if they earn profit from that
transaction (Sawyer and Sadiq 2017). If there is any possibility of loss from at the time of
selling the capital assets, then it will have settled with the capital loss from any previous
capital gain or will be carry forward for that time period. The capital gain tax is being taken
part of the income tax.
It is essential to become the owner of assets for paying the capital gain tax. So, it is
vital to have a record of all the assets and if it related to the transactions. It will be determined
specifically if the assets are being owned specifically (Tucker 2018). There has been disposal
a contract if there is any selling of any capital gain or loss. At the time of selling the assets, if
there has been ant capital loss or gain then it will be settled in the tax return.
There are few methods in calculating capital gain which are described below:
 Indexation Method: The assets which is being more than 12 months held by an
individual, then this method is being applicable only if the asset is being acquired before
12st September, 1999. It is being calculated though deducting the induction cost from the
net sale proceeds (Gravelle 2018). Through the implication of this method, cost base is
being increased through the use of this indexation method.
 Discounting method: The taxpayer can apply this method if the asset is being held for
more than 12 months. The evaluation is being done through deducting the cost price from

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the sale price and after that there has been reduction of net amount by 50 percent. The
method is being applicable by the individuals those who will not follow the method of
indexation.
 Other methods: The method is being applicable at the time when individual hold the
asset more than 12 months and it is one of the simplest method compared to the other
methods. In order to analyze this method, the cost price is being deducted from the sale
price.
Issues: An Australian resident who is originally from China, named Liu has decided to sold
off all her assets which belongs to Australia after her retirement in order to go back to her
native place (Martin 2018). The assets which she has sold off, comprises of a furniture
amounts to $ 4800, paintings amount to $ 28,000, car purchased for $ 37000 and house that
costs $ 55,000. She has also decided to sale the equipment’s and whole business as she has a
small business related to photography.
Conclusion: As per the Income Tax Act 1997, under section 104-5, the treatment of capital
gain has been applied on the assets are explained here:
a) The house that has been purchased by Liu, in the year 1981 which amounts to $ 55,000,
will not come under the capital gain taxability, since the house was owned before the
application for the Capital Gain Tax.
b) As per the section A1, Liu has to show the tax return at the time of selling the small
business of photography and at the time of paying the capital tax that is to be paid if there
is profit.
c) A car was purchased by Liu for $ 37,000 in the year 2011, that will not be a part of capital
tax gain as there are some rules of exception that is being applicable on the car if the
carrying capacity is less than nine.

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d) At the time of selling the furniture, Liu has not been qualified for the Capital gain tax as
per the section A1, which will be considered as personnel time as per the value is less
than $ 10,000.
e) Liu has to sale her paintings, it is being considered as the art piece under section A1, as
per the capital asset. Thus, it is qualified for capital gain tax which comes under Income
Tax 1997.
ITEMS AMOUNT AMOUNT
sale of house nil
sale of car nil
sale of business 125,000.00$
less: purchase of equipments 63,000.00$ 62,000.00$
sale of furniture nil
sale of paintings 8,000.00$
less: purchase 1,000.00$ 7,000.00$
total capital gain 69,000.00$
less: 50 % discount 34,500.00$
34,500.00$
less: capital gain tax 3,097.00$
net capital gain after tax 31,403.00$
COMPUTATION OF CAPITAL GAIN TAX

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References
Cassidy, J. and Cheng, A., 2017, January. Legislative Responses to GST Tax Avoidance in
Australia and New Zealand: Lessons for China?. In 2017 International Conference of
Chinese Tax and Policy: The Function of Tax in the New Wave of Economic Development in
China.
Cassidy, J., 2017, January. A GST with GRRRRRR: Legislative responses to GST tax
avoidance in Australia and New Zealand. In Australasian Tax Teachers Association
Conference 2017.
Gravelle, J.G., 2018. Indexing Capital Gains Taxes for Inflation. Current Politics and
Economics of the United States, Canada and Mexico, 20(3), pp.513-545.
Lee, J., 2018. The Effectiveness of Part IVA of the Income Tax Assessment Act 1936 (CTH):
Time for a Not Merely Incidental'Purpose Test. J. Austl. Tax'n, 20, p.1.
Martin, F., 2018, May. Tax deductibility of philanthropic donations: reform of the specific
listing provisions in Australia. In Australian Tax Forum (Vol. 33, No. 3).
Nolan, M., 2018. Income Tax and Transfer Policy Changes in New Zealand: 1988-2013.
Sawyer, A.J. and Sadiq, K., 2017. Reflections on New Zealand’s ‘Experience’with Capital
Gains Taxation.
Tucker, J. and Hutchens, B., 2019. Tax files: Case law update-tax considerations following
marriage breakdown. Bulletin (Law Society of South Australia), 41(5), p.34.
Tucker, J., 2018. Tax files: Allocation of profits within professional firms. Bulletin (Law
Society of South Australia), 40(8), p.42.

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Voogt, T., 2019. Income tax and trust law perspectives of the practical disregard of legal
form in discretionary family trading trusts.