Taxation Assignment T2 2017: Taxation Theory, Practice & Law HI6028

This document presents a comprehensive solution to a taxation assignment, addressing five key questions. The first question involves calculating net capital gains or losses from the sale of various assets, referencing relevant sections of the ITAA 1997. The second question focuses on Fringe Benefits T...Read More

Taxation Assignment
T 2 2017 Individual Assignment
Student Name: Student ID:
Subject Name: Taxation Theory, Practice & Law Subject ID: HI6028
Date Due : Professor Name:
1 | P a g e

Table of Contents
1.0 QUESTION 1...........................................................................................................3
2.0 Question 2................................................................................................................4
3.0 Question 3................................................................................................................5
4.0 Question 4................................................................................................................7
5.0 Question 5................................................................................................................8
Reference List..............................................................................................................10

1.0 QUESTION 1
Over the last 12 months, Eric acquired the following assets: an antique vase (for
$2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system
(for $12,000), and shares in a listed company (for $5,000). Last week he sold these
assets as follows: antique vase (for $3,000), antique chair (for $1,000), painting (for
$1,000), sound system (for $11,000) and shares (for $20,000). Calculate his net
capital gain or net capital loss for the year.
Answer:
Issue: Sale of assets are defined under section 108-20 of the ITAA 1997, this
particular issue is connected with determining of capital gains or losses derived from
them.
Laws:
i. “Section 108-20 of the ITAA 1997”
ii. “Section 108-10 of ITAA 1997”

Applications: No losses are incorporated on basis of disposal of personal use for the
assets, as “section 108-20 of the ITAA 1997”, loss of $1,000, which is incurred for
sale of home sound system cannot be set off(Kenny 2013).. Any form of collected
losses from sales of shares as per Section 108-10 of the ITAA 1997 cannot be set off
against common gains. As per Section 108-10 of ITAA 1997, offset can be considered
also. There is no current year ordinary capital or any kind of applicable reductions,
Eric gained profit from disposal of ordinary assets. The capital gain for Eric currently
stands at $15,000.
Conclusion: Eric cannot offset losses from collectibles, as he has only gained profit
from such disposal of ordinary assets.
2.0 Question 2
Brian is a bank executive. As part of his remuneration package, his employer
provided him with a three-year loan of $1m at a special interest rate of 1% pa
(payable in monthly instalments). The loan was provided on 1 April 2016. Brian used

40% of the borrowed funds for income-producing purposes and met all his obligations
in relation to the interest payments. Calculate the taxable value of this fringe benefit
for the 2016/17 FBT year. Would your answer be different if the interest was only
payable at the end of the loan rather than in monthly instalments? What would happen
if the bank released Brian from repaying the interest on the loan?
Answer :
Issue: The statement of problem described above is connected with ascertainment of
FBT as per the “Taxation Ruling of TR 93/6”.
Laws: Taxation rulings of TR 93/6
Application:
Computation of Fringe Benefit Tax
Application: Financial organizations makes plans for the purpose of offsetting loan
account, which is often referred to as interest offset agreement, as per taxation rulings

of TR 93/6. Interest incurred by clients are the primary products that are structured for
offsetting them. For the purpose of income tax of profits gained from the account,
clients are not liable for paying any amount(Krever 2013). In case the bank discharges
Brian from refunding interest on loan, in such instances no amount of income tax will
be liable on Brian for payment as per Taxation Rulings of TR 93/6.
Conclusion: Thus, it can be said that Brain will not need to pay any amount towards
income tax liability for interest by the bank.
3.0 Question 3
Jack (an architect) and his wife Jill (a housewife) borrowed money to purchase a
rental property as joint tenants. They entered into a written agreement which provided
that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90%
of the profits from the property. The agreement also provided that if the property
generates a loss, Jack is entitled to 100% of the loss. Last year a loss of $10,000 arose.
How is this loss allocated for tax purposes? If Jack and Jill decide to sell the property,
how would they be required to account for any capital gain or capital loss?
Answer :
Issue: Allocation of losses derived from the rental property as the joint ownership by
Jack and Jill is the issue that is discussed in this case.
Laws:
i. Section 51 of the ITAA 1997
ii. Taxation rulings of TR 93/32
iii. F.C. of T. v McDonald (1987)
Application: The divisionary net proceeds or loss that is generated from rented
property, which is co-owned is subjected to the taxation rulings of TR 93/32.
Evaluation of taxable position for co-owners who are not responsible for carrying
their values within actions is considered primarily (Barton 2013). The taxable position
of the rental property is the case that is considered in current scenario by Jack and Jill.

While Jill is entitled to 90% proceeds from the property, Jack is entitled for 10% of
the property.
Rented property as one partnership for income tax purpose is not considered as one
partnership at the general law. Except in cases where co-ownership accounts for
carrying out value for any business practice. Accordance to the Taxation rulings, TR
92/32 co-ownership of the property, in cases co-ownership is considered as
partnership for the purpose of satisfying income tax only(Morgan, Mortimer and Pinto
2013). Through co-ownership of the property, which is rented out from the allocation
of joint venture proceeds and losses, losses or income gained from such rental
property is managed through co-ownership itself. General law is considered for
income tax purpose and for partnership in current case of Jack and Jill, depicting co-
ownership for the rental property.
Co-owners of the property in cases of rented out properties are not partners in
connection with the “General Law” according to the taxation rulings of TR 92/32.
Partnership that does not have impacts on the shared value of proceeds or loss from
the rented property, are partnership agreement which are either in the form of writing
or oral form (Milton 2013). Jack and Jill will hold the property as joint renters as
application of one common factor Co-owners of the rental property.
In case of “F.C. of T. v McDonald (1987)”, where taxpayer’s wife and he
legally owned two strata title units comprising as joint renters. Net earnings gained
from the property rented out will be distributed as 25% to McDonald and 75% to Mrs
McDonald according to the agreement amongst them (Woellner 2013). But currently
the total loss amount will be carried on by Mr McDonald.
Conclusion: Joint ownership does not accounts as partnership business and that both
Jack and Jill needs to distribute the loss equally.
4.0 Question 4
What principle was established in IRC v Duke of Westminster [1936] AC 1? How
relevant is that principle today in Australia?

Answer : In Australia, the case pertaining to IRC v Duke of Westminster [1936] AC
1 was used for quoting on tax avoidance occurrence. Everyone is allowed for ordering
his affairs for taxation assigning which is made in fitting in the Act principle. The
courts have looked on overall affect for justification of this case as it cannot be held
this ruling was had incentivised others for seeking avoidance of tax with the law’s
current complex structures. The factors have been weakened in subsequent cases with
this taxation assigning being less (Barkoczy 2016). In the WT Ramsay v. IRC
principle an example form the court in upcoming stages appear to be more restrictive
which were adopted. This has not served for the purpose of commercial purpose and
transactions had pre-arranged artificially. For the purpose of extending the transaction
as the total fact a perfect rule emerged was to impose tax (Saad 2014).
In Australia, an individual in case achieves success for making result secured, then
Inland Revenue might arise from their initiative as they cannot be forced for paying
any excess amount of tax, in contemporary cases (Saad 2014). It allows individuals as
well as corporations for structuring financial agreements in accordance to their fixed
objectives for decreasing tax liabilities arising from their structures within the
structure of laws (Braithwaite 2017).
5.0 Question 5
Bill owns a large parcel of land on which there are many tall pine trees. Bill intends to
use the land for grazing sheep and therefore wants to have it cleared. He discovers
that a logging company is prepared to pay him $1,000 for every 100 metres of timber
they can take from his land. Leaving aside any capital gains tax issues, advise Bill as
to whether he would be assessed on the receipts from this arrangement. Would your
answer be different if he was simply paid a lump sum of $50,000 for granting the
logging company a right to remove as much timber as required from his land?
Answer :
Issue: Income from the sale of felled timber is analysed under “subsection 6 (1) of the
Income Tax Assessment Act 1936” is the purview of analysis in this segment.

Laws:
i. “Subsection 6 (1) of the Income Tax Assessment Act 1936”
ii. “McCauley v. The Federal Commissioner of Taxation”
Application: Bill owns a large piece of land where there consists of several pine trees
in the case discussed. Bill wanted to clear it, to use the land for grazing sheep. Then,
Bill discovers an offer for $1000 for every 100 meters of timber from a logging
company. But this logging company could easily grab his piece of land. Under
Income tax, incomes generated from activities of primary production and forestry are
related to taxation ruling related in 95/6. However, receipts from sale of timber that is
derived is limited according to ruling offer. In case tax payers indulge into activities
of forestry industry, constitutes assessable income (Woellner et al. 2016). Tax payer
indulging into activities of forest operations is the primary creator, as per subsection 6
(1) of the Income Tax Assessment Act 1936 the.
Primary production which is referred to as the planting of trees within plantation is
required for felling forest as per “subsection 6 (1), the Income Tax Assessment Act
1936”. Bill here has been regarded as the basic producer as he indulged into the
processes of primary production “subsection 6 (1) of the Income Tax Assessment Act
1936” as it is evidence from the case study. Though tax payers are not concerned
about plantation of trees, forest operations includes felling of trees in a forest or
plantation (Robin 2017).
The whole amount received by Bill from sale of felled timber constituteed assessable
earning, which is of the considered tax payers disposition about the trees that have not
necessarily planted by the tax payer and rendered for the goal of sale forms the part of
assessable income. Thus, Bill being the possessor of large piece of land, did not
planted the trees sold them. The said trees are taken as assessable income of the tax
payers under “subsection 6 (1) of the Income Tax Assessment Act 1936” hence it can
be said that sales combines either completely or partial assets of a business.
Otherwise receipt of sum will be considered as “Royalties” in case 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 according to the section 26
(f) receipt of “royalties” from the tax payer on granting the right to fell the timber on
land obtained by the tax payer (Barkoczy et al. 2016). Bill cannot be considered as

carrying on the trade of forest operations in this case. The case considers that the tax
payers did not planted the trees for sake of gaining profit. As held in McCauley v. The
Federal Commissioner of Taxation payments obtained by the grantor is under the
right of doing such. The amounts received by Bill as royalty combines assessable
income under section 26 (f).
Conclusion: It can hence be concluded that under subsection 6 (1) of the ITAA 1997,
receipt of income from cutting the timber can be considered as taxable proceeds.

Reference List
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.