Taxation Law: Assessment of Assessable Income and Tax Liability

This taxation law assignment analyzes several scenarios related to Australian taxation. It begins with a discussion of personal exertion income, including copyright payments and the sale of stories, referencing relevant case law and the ITAA 1997. The assignment then calculates car fringe benefit tax using the statutory formula. Next, it examines the tax implications of a parent lending money to a son, including interest payments and gift tax regulations. Finally, the assignment calculates capital gains and losses from the sale of property, considering different scenarios based on whether the property owner is an individual or a corporation, and discusses the tax implications of selling property to a daughter. The conclusion summarizes the application of Australian taxation law to these various situations.

Taxation Law

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Explaining whether payments will be covered in personal exertion. Would solution be
different if story was written and sold by her later?...............................................................1
Question 2........................................................................................................................................1
Computation of car fringe benefit tax using statutory formula..............................................1
Question 3........................................................................................................................................2
Explain effect on assessable income of the parent.................................................................2
Question 4........................................................................................................................................2
A) Calculation of net capital gain or net capital loss..............................................................2
B) Property sold to daughter ..................................................................................................3
C) Property owner is corporation and not individual person.................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
The taxation law of Australia levies proper tax obligation on the income attained through
any source. Present report deals with computation of tax on various scenarios and application of
ITAA Act 1997 is provided for easing off tax liability. Car fringe benefits calculation is also
done with respect to statutory formula governed by ATO.
Question 1
Explaining whether payments will be covered in personal exertion. Would solution be different if
story was written and sold by her later?
The Section 393-10 of ITAA Act 1997 can be applied relating to income garnered by
way of commission, salaries and bonus. Furthermore, income attained through pensions, subsidy
received, fees are covered under the head of personal exertion. Sale of property and
accomplishing income is also treated in this context. One of the main reason for classifying
under such head is that payments are attained in lieu of tax payers as they have provided time
and contributed in imparting services to company (Pearson, 2017).
By taking into account case study of Hilary, provisions of Act applies effectively. It can
be interpreted that three payments are received. First is copyright payment amounting to 10000
which is classified as income under personal exertion. Other two payments such as payment of
manuscript to Mitchell Library of 5000 and photographs of mountain climbing of 2000. In
relation to this, case of rent V FCT (1971) 125 CLR 418 may be cited in which taxpayer sold
copyright of story of her spouse and Court has proven, capital gain was not attained. Instead,
assessable income had been made because time was devoted. Thus, it applies to case of Hilary as
well. These payments are made in accordance to hard work and dedication performed by Hilary
and thus, these are treated under personal exertion only. Moreover, the solution would be same if
story is written by her and sold in the market (Wada, and et.al, 2017).
Question 2
Computation of car fringe benefit tax using statutory formula
The taxable value in case of Eric related to car fringe benefit can be easily calculated.
Base value = 50000, Employee contribution = 1000. Kilometres will not be taken under statutory
formula. Car was available for 183 days and from this, number of days car was unavailable can
be computed by 365 – 183 = 182. Hence, by using formula, gross value = 5013.69 and from this,
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value of contribution made by employee is deducted of 1000, total taxable value amounts to
4013.69.
Question 3
Explain effect on assessable income of the parent
The effect on income parent as she had lent 40000 to her son which need to be repaid
after tenure of five years. On the other hand, son has repaid 50000 which is 10000 in excess of
amount lent to him by his mother. This extra payment will be taxable as it was not gift instead
was a loan. However, capital of 40000 will not be taken as a part of assessable income of mother
(Assessable income. 2018). The interest to be received would form part of tax at end of five year.
It can be analysed from the case study that no formal agreement was made for granting loan and
as such, interest income will be exempted and thus, 40000 will be exempted as well.
However, loan is repaid by son after two years having interest amount gained of 4000 and
it will be treated as assessable income. It need to be filed in second year income tax return form
and thus, tax need to be paid on the amount. The mode of payment is through presenting cheque
which does not make any effect on assessable income. The regulations provided by ATO lists out
that gift tax rules affects payment related to pension and it further maximises assessable income.
The parent can be allowed tax limit on gift of 10000 per year or 30000 in 5 years which ever is
less of both. When limit is crossed, then income is subject to tax (Lai and et.al, 2018).
Question 4
A) Calculation of net capital gain or net capital loss
The capital gains are achieved out of the gain made from any sale of property or at times
losses are incurred as well. It can be analysed from the case of Scott that he had purchased land
amounting to 90000 and construction cost was amounted to 60000. Now, he sold the same in ab
auction and thus, capital gain or loss can be carried out in the best possible manner.
Particulars Amount
Land Valuation 90000
Construction Expense 60000
Total cost 150000
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Amount garnered through auction 800000
Capital gain 650000
Less: Tax applicable on such gains
(50 %)
325000
Net capital gain 325000
It can be interpreted that Scott has to pay 325000 as tax is levied on capital gain garnered
by him. This is governed by Section 104-10 of ITAA (Income Tax Assessment Act) 1997.
B) Property sold to daughter
The owner if going to sell his property to her daughter, then treatment of tax will be
different. Amount of 200000 to be sold is treated as gifts and grants and as such, income is not
taxable in hands of person who has received such amount in this category. These regulations are
governed by ATO (Australian Taxation Office) and thus, no income tax is payable to the
government (Lauchs and Keane, 2017).
C) Property owner is corporation and not individual person
The applicable tax rate when capital gains are achieved by the individual is 50 % and as
such, tax need to be paid on the amount gained through sale of property. On the other hand,
when same capital gain is accomplished by corporation, then 30 % tax is levied.
CONCLUSION
Hereby it can be concluded that Australian taxation law provides guidelines for the
computation of tax in the best possible way. Furthermore, various sections of laws help to
compute taxes so that individual or company may be able to pay its tax burden in effective
manner.
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REFERENCES
Books and Journals
Lai, F. Y. and et.al., 2018. Measuring spatial and temporal trends of nicotine and alcohol
consumption in Australia using wastewater‐based epidemiology. Addiction.
Lauchs, M. and Keane, R., 2017. An analysis of the Australian illicit tobacco market. Journal of
Financial Crime. 24(1). pp.35-47.
Pearson, G., 2017. Further challenges for Australian consumer law. In Consumer Law and
Socioeconomic Development (pp. 287-305). Springer, Cham.
Wada, Y., and et.al, 2017. A humanized mouse model identifies key amino acids for low
immunogenicity of H7N9 vaccines. Scientific Reports. 7(1). p.1283.
Online
Assessable income. 2018. [Online]. Available through
:<https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/>.
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