Taxation Consequences Analysis: Our Earth Pty Ltd and Sam

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Accounting
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Table of Contents
Introduction....................................................................................................................................3
Question 1: Advice Our Earth Pty Ltd of the taxation consequences of the above
transactions....................................................................................................................................4
Question 2: Advise Sam of the taxation consequences of the above transactions...................8
Conclusion....................................................................................................................................10
References.....................................................................................................................................11
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Introduction
The report work addresses on the elaborated and in-depth understanding on the varied sets of the
legal parameters that can be adopted by the authority concern of the Earth Pty Ltd. in respect to
the various drawbacks that can be faced by the concerned company in case of any irrelevant
working with the competitive company (Coffee Bean Pty Ltd.). In addition for the purpose of the
effective management of the work suitable laws relating to taxation has been discussed. Further
provided, suitable analysis and relevant issues that are observed in the working patterns of the
Earth Pty Ltd. have been addressed. The overall report highlights on the suitable
recommendations and suggestions that can assist in the better command and supervision on all
the aspects leading to systematic working.
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Question 1: Advice Our Earth Pty Ltd of the taxation consequences of the above
transactions.
Based in Australia, Earth Pty Ltd. is one of the leading manufacturers of a specially designed
biodegradable coffee cups that is made from the sustainable materials. The company is the
however, the sole supplier to coffee shops in Australia. The company is conducting its business
activities in as smooth manner such that a suitable and secured position can be attained by the
company in the wide market.
The essence of a contract is agreement between parties or the "meeting of minds". The essence
of contract law is that it is a complex of inter-relating rules for working out all of the problems
associated with contracts, including if an agreement exists, what the enforceable limits of that
agreement are, and so on.
Contract law protects Australian tax payer r rights in every agreement. Contract law plays a vital
role as Australian tax payer doesn’t know what the other party is planning; it may be right or
may be wrong (Moretto, et. al., 2014).
Contract law is in some ways meant to be understandable to the layman, in that it attempts to
enforce the common understanding of the parties to an agreement -- and that understanding is
sometimes better expressed in the kind of language the parties are most familiar with. For the
most part it is possible to write enforceable contracts in plain English, and sometimes it can even
result in them being more enforceable, because it undermines any argument later that one of the
parties didn't understand what he/she was agreeing to. On the other hand, there are certainly a
fair number of stock legal/contract phrases that have acquired a lot of historical meaning, and
have little or no standard lay meaning, and are sometimes necessary for a particular kind of
agreement or to achieve the desired result.
Below outlined is the importance of contract law:
 A contract is a written document that describes the full understanding of the business relationship
and scope of the work so that no one can claim for anything.
 Contracts minimize the risk.
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 Contracts are the opportunity to agree to confidentiality and non-disclosure provisions that help
to protect sensitive information.
Various disputes and disagreements may arise between businesses, but in this case, contract help
parties to compensate for their damages.
Generally any law is binding; otherwise it wouldn’t be a law. Contract law - hardly surprising - is
the field of law that deals with contracts. Depending on Australian tax payer r
jurisdiction contract law will sometimes have mandatory rules on certain subjects, where the
parties cannot - or only under certain circumstances - make different arrangements, it may have
rules that are only relevant in absence of other stipulations in a contract and it may leave certain
subjects entirely up for stipulations of the party. So if Australian tax payer ’d like to know if
certain rules are mandatory, there is no universal answer to that.
However, while working in the competitive environment, the authority concern of the Earth Pty
Ltd. discovered that the Coffee Bean Pty Ltd. one of the competitive firms is contracting with a
company oversees for the manufacture on the similar cup based on the similar design at
comparatively low price that is being offered by the Earth Pty Ltd. Further provided, it was
elaborated by the management of the Earth Pty Ltd. that the Coffee Bean Pty Ltd. has not
informed their customers about the originality of the product leading to the misrepresentation of
the facts (Carnegie, 2014).
In this regard, the management concern of Earth Pty Ltd. decided to take over legal actions
against the Coffee Bean Pty Ltd. as the company has the designed patent over the cup. A patent
is an intellectual property right. As per the provision of the patent law, the concerned right gives
the owner of the right an exclusive authority to exclude the other party from making use, selling
and importing the patent product design for a limited period of time that is usually for the period
of twenty years. The patent right provides series of the benefits that can assist in the attainment
of the better position in the wide market scenario. From the pint of taxation the patent holder
(Earth Pty Ltd.), will get the following benefits within respect to the misconduct of the other
competitive company that majorly and primarily include:
 The concerned company can sue the other company for the infringement of his patent invention.
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 With the patent provisions, patent holders can secure their business process from all the barriers
and aspects leading to systematic operations.
 With the provisions of the patent law the authority concern of the Earth Pty Ltd., can attain an
effective increment on the assets over a period of time. This will further assist in the better
attraction of the customers in terms of the activities of the related to the competitors.
As per the context provided due to the infringement, the authority concern of the Earth Pty Ltd.
files a suit on the Coffee Bean Pty Ltd. As a result of the jurisdiction with respect to the given
case the following expenses were borne by the default company due to misrepresentation of the
facts:
 Coffee Bean Pty Ltd. borne $300000 damages for the infringement of the design patent.
 In addition, $200000 for the expected loss revenue for the period of 12 months when the
concerned company has been using the patent product.
 Interest paAustralian tax payer ts in relation to the damages amount to be $15000 were also
borne by the Coffee Bean Pty Ltd.
 Further provided, the management concern of the Earth Pty Ltd. also gets the reimbursement of
$40000 with respect to the legal fees
In addition, it can be determined that the compensation received buy the authority concern of the
Earth Pty Ltd. is capital in nature. This is because of the fact that it possesses instinct features
that majorly and primarily include:
 The transactions or the amount that involves a substantial period of more than 12 months come
under the aspect of capital transactions.
 In addition, all the amount of the benefit received as compensation by the Earth Pty Ltd. is not
chargeable to the tax as it received out of the results related to the provisions of the patent law.
 Further provided, such transactions not occur in the normal course of the business.
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 Such transactions are not performed by the business corporate intentionally, they occur due to
some unusual circumstances.
With the overall analysis, it can be determined that the taxation authorities face series of the
barriers with respect to the governing of the Earth Pty Ltd. As per the provisions of the patent
law provisions the authority concern of the company must ensure proper focus on the aspects
related to the infringement of the patent design so as to attain a better and elaborated command
on the work operations. This will overall assist in the attainment of the better and secured
position in the market arena.
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Question 2: Advise Sam of the taxation consequences of the above transactions.
Before discussing the taxable provisions, it is imperative to throw some light on the given case.
Certain transactions have been incurred in a definite and a specified sequence of manner
enabling the understanding of relevance and sequence of the giveb transactions and that too in
the chronological manner.
CGT (Capital Gain Tax) is calculated on each “CGT event” separately, but Australian tax payer
can deduct the loss from the gain as long as the “CGT event” has occurred. i.e. for
Shares/Stocks, CGT events is normally based on FIFO (First in First Out) method, and after the
sale is finalized.
Liability of capital gain will be determined in the given case of Sam. There are different
perspectives of arriving at the required capital gains. One of the widely used of computing the
capital gains is the CGT discount method. However, the CGT method is applicable only when
the partly payment is received at the time of finalization of the sale or at the time of entering into
the contract.
Australian tax payer pay cap gains on transactions that are gains. If Australian tax payer buys
100 shares at ten bucks per share and subsequently sells at 11 bucks a share, Australian tax payer
pay cap gains on the difference. (1100–1000=100). If Australian tax payer then buy another
hundred shares at, let’s say, 12 bucks, and it goes down to three bucks, nothing happens as far as
taxes go. If Australian tax payer sell it at three bucks, Australian tax payer have a 9x100 =$900
cap loss to use as a write off.
So, at the end of the year, Australian tax payer add up cap gains and losses ( simplified a bit) and
if Australian tax payer have more cap gains, Australian tax payer pay tax on that, if Australian
tax payer have cap losses, Australian tax payer can use that for future write offs.
There are different ways of computing the required or desired capital gains. Afterwards, the
assessee or income tax payer can pay the income tax derived or arrived in the two options.
Obviously, the income tax payer will choose the option under which he will have to pay lower or
fewer taxes.
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Many a times, the assessee face difficulty in cultivating and ultimately a time will come where
the land owner decides to finally sell off the land in the most profitable manner. For this purpose,
a careful analysis needs to be made in the desired manner. Sometimes, the owner of the land
makes changes in the land so that it can be sold in the desired manner (Austill, 2018).
The amount received as compensation will be taxable in the hands of the land owner and for this
purpose the amount incurred towards purchase and other incidental expenses will be allowable as
deduction and accordingly the net amount will be taxable. Selling the land by any means is
covered in this provision. Accordingly, such sale can be conducted by subdivision or by any
other means. It is crucial to properly compute the cost that can be claimed off (Australian
taxation office, 2018).
Also, net sales consideration will be computed by deducting the costs incurred in disposal and
other costs incidental in selling and disposing off the sale. It is the primitive importance to focus
on the computing or deriving the net cost of sales. This will help indirectly in the correctly
determination of correct and accurate taxable capital gains. Also, only those expenses will be
considered or deducted which have been incurred in relation to disposing off the concerned asset.
In the given case, the asset has been sold on or after 20th September, 1985, the aforementioned
asset will not be considered as a CGT event. Thus, benefit cannot be claimed by the concerned
assessee in the given case, i.e., Sam in the given case.
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Conclusion
From the discussion provided throughout the report it can be determined that the Earth Pty Ltd.
must focus on the effective and elaborated understanding o the legal aspects related to taxation
so as to avoid all sorts of the barriers. Further provided, the assessment work concludes on the
various issues that can be faced by the Earth Pty Ltd. in case of the irrelevant or unethical
working being performed by the competitive firm (Coffee Bean Pty Ltd.). This will assist the
authority concern of the Earth Pty Ltd. in the systematic and smooth flow of operations. The
overall report in this regard provides series of the recommendations so as to assist the Earth Pty
Ltd. in the effective management of the work operations leading to better and secured position in
the market arena.
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References
 Austill. (2018). INCOME TAX ASSESSMENT ACT 1997 - SECT 82.135 Payments that are not
employment termination payments. [online] Available at:
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s82.135.html [Accessed 30th
April, 2019].
 Australian taxation office. (2018). Amounts not included as income. [online] Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Amounts-
not-included-as-income/ [Accessed 30th April, 2019].
 Australian taxation office. (2018). Capital gains tax. [online] Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 30th April, 2019].
 Carnegie, G., (2014). Pastoral accounting in colonial Australia: a case study of unregulated
accounting. Routledge.
 Moretto, N., Kendall, E., Whitty, J., Byrnes, J., Hills, A.P., Gordon, L., Turkstra, E., Scuffham,
P. and Comans, T., (2014). Yes, the government should tax soft drinks: findings from a citizens’
jury in Australia. International journal of environmental research and public health, 11(3),
pp.2456-2471.
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