BX3112 Taxation Law SP 22: Analysis of Capital Gains and Tax Issues

This assignment solution addresses key aspects of taxation law, including the computation of capital gains and losses from various transactions such as the sale of a car and shares, the treatment of non-compete fees, and the implications of gifting shares. It also delves into the determination of assessable income for partners in a firm, considering salary, interest on capital, and business costs. Furthermore, the assignment analyzes the taxability of trust income in the hands of beneficiaries and the trustee, along with the computation of individual tax liabilities, including potential medical expense claims. Finally, it examines the tax treatment of redundancy payments, outlining the calculation of taxable amounts based on base and service amounts, referencing relevant sections of the Australian Income Tax Act and Australian Tax Office guidelines. The document provides detailed calculations and legal justifications for each scenario.

BX3112 SP 22 Taxation Law
Question 1
Computation of Capital Gain/Loss
Sl
No Particulars Amount Amount
1 Sale of Car 26000
Cost of acquistion 35000
Loss on sale 9000
Treatment for taxation No treatment
2 Gifting of shares
Cost of Acquisition 75000
Value on date of transfer 50000
Loss on transfer -25000
Treatment for taxation- capital Loss -25000
3 Sale of Shares
Cost of Acquisition 60000
Value on date of transfer 100000
Gain on transfer 40000
Treatment for taxation- capital gain 40000
4 Non-compete fees 50000
Treatment for taxation- capital gain 50000
5 Total Capital Gain 65000
6 Discount 32500
7 Taxable Capital Gain 32500
In termsof Section 118.5 of Income Tax Assessment Act,1997 no capital gain or loss shall
arise on disposition of car and hence the same has not been considered for analysis.
(INCOME TAX ASSESSMENT ACT 1997 - SECT 118.5 )
Further, if shares are gifted to relative the same shall be treated as taxable event in terms of
Australian Tax office. (Commonwealth of Australia)
Also, disposition of share is a Capital Gain Tax event in terms of Section 102-20 of Income
Tax Assessment Act,1997. (Commonwealth Of Australia)
Non-Compete fees shall be treated as Capital Gains in term of TR 94/D33.

Question 2
Determination of Assessable Income for Partners
Sl No Particulars Amount Anne Brian
1 Gross Receipt 250000
2 Salary paid to Anne 40000 40000
3 Interest on capital 10000 10000
4 Interest on commercial loan 20000 20000
5 Business costs 100000
6 Profits(1-[2+3+4+5]) 80000 40000 40000
7 Assessable Income 90000 60000
In terms of Australian Income Tax office, the income of the partnership firm is taxable in the
hands of the partner.
Profit has been computed by subtracting above[2,3,4,5 from1]
Question 3
The net income a trust is computed by deducting the deductions if any form its income.
Further, it is presumed that trustee of the trust is an Australian Resident. (Commonwealth of
Australia)
In terms of Australian Tax office, income of the trust is taxable in the hands of beneficiary of
the trust on the basis of share of beneficiaries. However, in case of discretionary trust the
share of the beneficiaries is not defined and at the discretion of the trustee of the trust.
Further, the taxability of the income is in the hands of the beneficiaries.
Thus, Mr .Luke shall be responsible for tax on the part received by him i.e. AUD 10,000/-;
For Ms. Pauline on AUD 25,000/- , trustee shall be taxed.
Jane on AUD 416/-
Frank on AUD 5,000 and AUD 20,000
In addition, Mr. Luke can file a family tax return and claim medical expense of 20% in
excess of AUD2218 if the family Adjusted Taxable Income for the year is less than AUD
1,80,000/- (The Phase Out of the Medical Expenses Tax Offset, 2017)
Further for balance of amount not distributed by the trust, the same shall be taxable at
maximum marginal rate in the hands of the trustee. (morestephens)

Computation of Tax Liability
Sl
No Particulars Amount Amount
1 Mr Luke 10000
2 His wife
3 Children 25416 35416
4 Medical expense 556
5 Taxable Income 34860
6 Income Taxable in hands of Trust 59584
Further, no claim under DTAA shall be available as no tax has been withheld in Cayman
Islands.
Question 4
In terms of Australian Tax Office, redundancy payment is not taxable up to a threshold
specified. Further, the redundancy must be genuine under the Australian Income Tax Act.
The same can be calculated by using a formula Base Amount+ (Service amount * Years of
service). (Redundancy and early retirement, 2018) The computation of the same has been
provided here-in-below:
Computation of taxability of redundancy payment
Sl No Particulars Amount Amount
1 Redundancy Payment received 100000
2 Deduction Allowed
Base Rate 10399
Service Amount 5200
Year of service 10 62399
3 Taxable Amount 37601

References:
Commonwealth of Australia. (n.d.). Shares: helping you to avoid common mistakes. Retrieved
September 10, 2018, from www.ato.gov.au: https://www.ato.gov.au/Individuals/Investing/In-
detail/Investing-in-shares/Shares---helping-you-to-avoid-common-mistakes/
Commonwealth of Australia. (n.d.). Trust income. Retrieved September 9, 2018, from
www.ato.gov.au: https://www.ato.gov.au/General/Trusts/Trust-income/
Commonwealth Of Australia. (n.d.). www.ato.gov.au. Retrieved September 10, 2018, from
Draft Taxation Ruling: https://www.ato.gov.au/law/view/document?docid=DTR/TR94D33/NAT/ATO/
00001#P70
INCOME TAX ASSESSMENT ACT 1997 - SECT 118.5 . (n.d.). Retrieved September 10, 2018, from
http://www5.austlii.edu.au: http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.5.html
morestephens. (n.d.). Trust. Retrieved September 10, 2018, from
http://australia.moorestephens.com:
http://australia.moorestephens.com/MediaLibsAndFiles/media/australia.moorestephens.com/
Documents/Corporate%20Documents/MS%20Western%20Australia/What-is-a-Discretionary-
Trust.pdf
Redundancy and early retirement. (2018, june 25). Retrieved September 10, 2018, from
www.ato.gov.au: https://www.ato.gov.au/business/your-workers/in-detail/taxation-of-termination-
payments/?page=4
The Phase Out of the Medical Expenses Tax Offset. (2017, july 13). Retrieved September 10, 2018,
from www.onlinetaxaustralia.com.au: https://www.onlinetaxaustralia.com.au/phase-medical-expenses-
tax-offset/