Taxation Law Assignment on CGT, Income Tax, and Tax Avoidance

This assignment solution addresses several key aspects of Australian taxation law. It begins by analyzing the application of Capital Gains Tax (CGT) to the sale of collectibles such as antique paintings, historical sculptures, and jewelry, considering factors like acquisition dates, cost bases, and potential CGT discounts. The solution then examines the assessment of income from personal exertion, specifically focusing on the tax treatment of income derived from writing and selling a book, copyright assignments, and manuscripts, referencing relevant case law. The assignment further explores the tax implications of a loan repayment with an additional payment, determining whether this extra amount constitutes assessable income. Finally, the solution touches upon the distinction between tax evasion, tax avoidance, and tax planning, providing a comprehensive overview of the subject matter.

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

1TAXATION
Question 1
i)
The first transaction involves the sale of antique painting by Helen and the assessment of the
same under CGT.
Antique painting needs to be construed as a collectible and is to be given the treatment as
CGT asset as under section 108.10 of the ITA Act 1997. A CGT gain or loss is said to have
accrued under section 102.2 of the Act if the same has been accompanied by a CGT event as
under section 104. 5 of the Act. A CGT event that involves the sale of a CGT asset is
required to be treated as a CGT event of A1 category provided in section 104. 10 of the Act.
The acquisition of the asset is said to have effected at the time when the taxpayer assumes the
ownership in relation to the property under section 109.5 of the Act.
The facts of the scenario does not provide for any express mention of the time at which the
acquisition of the painting has been made by Helen. The painting needs to be purchased prior
to 20th September 1985 for the purpose of being treated as an exempt from CGT computation.
However if the acquisition has been affected after that date it needs to be computed as
collectible. In the present instance the cost base of the painting is $4000 as per section 110.25
of the Act, which implies the first element relating to the cost base. The painting might have
accrued to Helen by succession for gift as the same has not been purchased by her. This
requires a modification of the cost base complying with the market value of painting at the
time of acquiring the same under section 112.20 of the Act. the cost proceed in this case
under section 116. 20 is $12,000. CGT gain will be computed by finding the difference
between the cost proceed as well as the cost base. A 50% discount as per division 115 will be
available to Helen as the asset has been held for a period exceeding one year.
ii)

2TAXATION
The second transaction involves the sale of historical sculpture by Helen and the assessment
of the same under CGT.
Historical sculpture needs to be construed as a collectible and is to be given the treatment as
CGT asset as under section 108.10 of the ITA Act 1997. A CGT gain or loss is said to have
accrued under section 102.2 of the Act if the same has been accompanied by a CGT event as
under section 104. 5 of the Act. A CGT event that involves the sale of a CGT asset is
required to be treated as a CGT event of A1 category provided in section 104. 10 of the Act.
The acquisition of the asset is said to have effected at the time when the taxpayer assumes the
ownership in relation to the property under section 109.5 of the Act.
The facts of the scenario does not provide mentions the time at which the acquisition of the
painting has been made by Helen as December 1993. The sculpture needs to be purchased
prior to 20th September 1985 for the purpose of being treated as an exempt from CGT
computation. However if the acquisition has been affected after that date it needs to be
computed as collectible. In the present instance the cost base of the painting is $5500 as per
section 110.25 of the Act, which implies the first element relating to the cost base. The cost
proceed in this case under section 116. 20 is $6000. CGT gain will be computed by finding
the difference between the cost proceed as well as the cost base. A 50% discount as per
division 115 will be available to Helen as the asset has been held for a period exceeding one
year. In this case there has been a CGT gain of $500.
iii)
The third transaction involves the sale of jewellery by Helen and the assessment of the same
under CGT.
Jewellery needs to be construed as a collectible and is to be given the treatment as CGT asset
as under section 108.10 of the ITA Act 1997. A CGT gain or loss is said to have accrued

3TAXATION
under section 102.2 of the Act if the same has been accompanied by a CGT event as under
section 104. 5 of the Act. A CGT event that involves the sale of a CGT asset is required to be
treated as a CGT event of A1 category provided in section 104. 10 of the Act. The acquisition
of the asset is said to have effected at the time when the taxpayer assumes the ownership in
relation to the property under section 109.5 of the Act.
The facts of the scenario does not provide mentions the time at which the acquisition of the
jewellery has been made by Helen as October 1987. The jewellery needs to be purchased
prior to 20th September 1985 for the purpose of being treated as an exempt from CGT
computation. However if the acquisition has been affected after that date it needs to be
computed as collectible. In the present instance the cost base of the jewellery is $14000 as per
section 110.25 of the Act, which implies the first element relating to the cost base. The cost
proceed in this case under section 116. 20 is $13000. CGT gain will be computed by finding
the difference between the cost proceed as well as the cost base. A 50% discount as per
division 115 will be available to Helen as the asset has been held for a period exceeding one
year. In this case there has been CGT loss of $1000.
iv)
The first transaction involves the sale of picture by Helen and the assessment of the same
under CGT.
Picture needs to be construed as a collectible and is to be given the treatment as CGT asset as
under section 108.10 of the ITA Act 1997. A CGT gain or loss is said to have accrued under
section 102.2 of the Act if the same has been accompanied by a CGT event as under section
104. 5 of the Act. A CGT event that involves the sale of a CGT asset is required to be treated
as a CGT event of A1 category provided in section 104. 10 of the Act. The acquisition of the

4TAXATION
asset is said to have effected at the time when the taxpayer assumes the ownership in relation
to the property under section 109.5 of the Act.
The facts of the scenario does not provide for any express mention of the time at which the
acquisition of the painting has been made by Helen. The picture needs to be purchased prior
to 20th September 1985 for the purpose of being treated as an exempt from CGT computation.
However if the acquisition has been effected after that date it needs to be computed as
collectible. In the present instance the cost base of the picture is $470 as per section 110.25 of
the Act, which implies the first element relating to the cost base. The picture might have
accrued to Helen by succession for gift as the same has not been purchased by her mother.
This requires a modification of the cost base complying with the market value of picture at
the time of acquiring the same under section 112.20 of the Act. The cost proceed in this case
under section 116. 20 is $5000. CGT gain will be computed by finding the difference
between the cost proceed as well as the cost base. A 50% discount as per division 115 will be
available to Helen as the asset has been held for a period exceeding one year.
Question 2
The issue arising from the given situation is whether the income of Barbara from the book
written on being offered by Eco Books Ltd is required to be assessed as an income from
personal exertion.
Income from personal exertion has been contained in the provisions of section 6.1 of the ITA
Act 1997. As per the definition provided by the case of FCT v Myer Emporium Ltd (1987)
163 CLR 399 any income that has been acquired by virtue of personal labour extended the
motive to earn income is required to be treated as an income from personal exertion.
In the present situation the amount of 1300 dollars earned by writing the book as provided by
Eco Books Ltd is required to be subjected to taxation as CGT gain. This is because Barbara

5TAXATION
has exerted personal labour for writing the book. Hence, applying the principles of the case
Scott v Commissioner of Taxation (NSW) (1935) 35 SR (NSW) 215, it can be stated that this
comes under the income from personal exertion.
Copyright is subject to taxation under the CGT regime and needs to be assessed accordingly.
This can be contended from the principles in the case of Californian Copper Syndicate v
Harris (Surveyor of Taxes) (1904) 5 TC 159. Hence the amount of 13400 dollars received by
Barbara for assigning the copyright of the book to the Eco Books Ltd is needed to be assessed
as a capital gain.
The selling of the manuscript of the book for a price of 4350 dollars is required to be treated
as an income from personal exertion. This can be supported with the case of Tennant v Smith
(1892) AC 150.
Again the selling of the manuscript of the interview for an amount of $3200 will treated for
the purpose of taxation as income from personal exertion which can further be supported with
the case of FCT v Cooke & Sherden (1980) 10 ATR 696.
The alternative situation presents the issue that whether the proceeds from the writing of the
book will have the same implications if the same has been written as a hobby and decided to
be sold later on.
Any income that is derived from a hobby will not be accessible in the hands of the individual
paying the tax. This has been provided in the Tax Ruling 97/11.
Under this alternative situation, Barbara will not be imposed with taxation upon the money
received from the book, if the book has been written in his spare time and decided to be sold
afterwards.
Question 3

6TAXATION
Whether Patrick will be imposed with taxation upon the amount he has received by way of
repayment of the loan and an additional amount of 5% of that from David.
As has been discussed in the case of Allied Mills Industries Pty Ltd v FCT (1989) 20 ATR
457 a receipt that a person paying the tax receives is to comply with all the requirements offer
valid income to be treated as a income.
It has been made evident in the case of Jarrold v Boustead 1963 41 TC 701 that a receipt
needs to be compliant with the requirements of income as well as needs to be adding
something in favour to the income of the taxpayer.
It can also be discussed under the principal in the case of Whitaker v Commissioner of
Taxation [1998] FCA 262 any receipt that has been received by the taxpayer as a benefit or
as a favour required to be treated as income assessable in a particular year.
As has been contained in section 6.5 of the Act income from ordinary concept is required to
be treated as ordinary income.
The loan has been extended by Patrick amounting to $52,000 to be repaired after 5 years with
an amount of $58,000 towards David. There has been no agreement regarding any interest
being payable over that loan. However an additional amount of $6,000 has been agreed to be
paid with the loan amount. The additional value has added beneficial interest to the total
taxable income of Patrick. Hence it is required to be treated as an income.
Again the repayment has been made along with additional 5% on the loan amount by David.
This 5% can be treated as a gain towards Patrick. Hence Patrick will be imposed with
taxation upon the amount he has received by way of repayment of the loan and an additional
amount of 5% of that from David.

7TAXATION
Reference
Allied Mills Industries Pty Ltd v FCT (1989) 20 ATR 457
Californian Copper Syndicate v Harris (Surveyor of Taxes) (1904) 5 TC 159
FCT v Cooke & Sherden (1980) 10 ATR 696
FCT v Myer Emporium Ltd (1987) 163 CLR 399
Jarrold v Boustead 1963 41 TC 701
Scott v Commissioner of Taxation (NSW) (1935) 35 SR (NSW) 215
Taxation Ruling 97/11
Tennant v Smith (1892) AC 150
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
Whitaker v Commissioner of Taxation [1998] FCA 262