Taxation Law Assignment: Income Tax, Capital Gains, and Trusts

This Taxation Law assignment analyzes the tax implications of a livestock trading account, capital gains arising from the disposal of partnership interests, and the creation of a trust. The solution includes a livestock trading account, detailing income reconciliation, expenses, and assessable income. It then examines the application of Part IIIA of the Income Tax Assessment Act 1936 to the disposal of partnership assets, considering capital gains tax (CGT) and small business concessions. The assignment also explores the CGT consequences of establishing a trust for beneficiaries, including the role of the trustee and the taxation of net capital gains. Finally, it discusses income averaging and capital allowances for primary producers, providing insights into tax planning strategies and relevant rulings. The assignment covers various aspects of Australian taxation law, including income tax, CGT, and trust law.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................2
Answer to question 3:.................................................................................................................5
Answer to question 4:.................................................................................................................6
Reference List:...........................................................................................................................8

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Answer to question 1:
Livestock Trading Account
Livestock Trading Account
In the Books of Rob and Jane
For the year ended 30th June 2017
Particulars Amount ($) Amount ($)
Income Reconciliation
Receipts
Livestock trading (A) $ 99,850.00
Proceeds from sale of Cattle (B) $ 1,63,000.00
Agreement Fees received ( c ) $ 7,800.00
Net Income from Business (D) $ 2,70,650.00
Income Reconciliation Adjustment
Opening balance of livestock pool ( E ) $ 51,000.00
Sub Total (F) ( D+E ) $ 3,21,650.00
Expenses Reconciliation Adjustment
Hay bought to feed cattle $ 5,600.00
Repairs ans Service of farm equipment $ 1,300.00
Salary to Rob $ 20,000.00
Salary to Jane $ 20,000.00
Sub Total (G) $ 46,900.00
Expense subtractions:
Construction of new fencing (H) $ 8,000.00
Total Assessable Income (I) $ 2,66,750.00
Tax on Taxable Income $ 73,356.25
Medicare Levy $ 5,335.00
Net Tax Payable $ 78,691.25

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Answer to question 2:
Part IIIA of the Income Tax Assessment Act 1936 lays down the provision of capital
gains and losses arising from the partnerships (Pinto, 2011). In particular the taxation rulings
of TR IT 2540 lays down the provision relating to the disposal of the partnerships assets and
dealings by the partners concerning the interest that is held by them in the partnership
(Barkoczy, 2016). As evident from the following case of Rob and Jane who wants to dispose
the interest in partnership business in the upcoming year 2018. According to the viewpoint of
their business broker the partners Rob and Jane has better chances of disposing their interest
in partnership business together with their assets and trading stock for approximately $5
million.
As per the view stated in the FCT v. Everett (1980) 143 CLR 440, a partnership cannot be
considered as the separate lawful entity, which is distinct from the individual partners that
comprises of the partnership (Snape& De Souza, 2016). In spite of the partner has no kind of
specific title owned to the property by the partnershiphowever, he or she has the interest in
the partnership assets. The lawful title to the assets of the partnership remains to vest with the
partners and the agreement amid the partners might vary the terms by which lawful
ownership of the assets of the partnership is allocated between the partners.
An argument has been put forward under Part IIIA of the Income Tax Assessment
Act 1936 which is applicable to the partnership in spite of the partnership cannot own the
assets (Braithwaite, 2017). This is because the partnership is treated given that it was treated
as distinct entity for the purpose of Income Tax. Part IIIA is applicable on the Rob and Jane
since they own the equipment of business and trading stock, which they intend to sale. In
accordance with the Part IIIA any kind of capital gains or losses on the disposal of assets
accrues is incurred by the individual partners who owned the asset.

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Section 160zo of the Income Tax Assessment Act 1936 requires the net capital gains
must he taken in to the considerations under the assessable income of the taxpayer (Cao et al.,
2015). In consistent with the views of Investments Pty Ltd v. FCT (1972) 128 CLR 158
disposal of business by the partner in the partnership business represents the disposal of
interest. The disposal of partnership assets generally represents the disposal of the interest of
the individual partnership assets. In order to determine any capital gain or capital loss to the
partners in relation to the Rob and Jane interest in each of the assets namely equipment and
trading stock it is obligatory to ascertain the part of the disposal proceeds that is attributable
to each of the partners interest (Saad, 2014).
The considerations that is paid or received by on the disposal of business Rob and
Jane will represent the disposal proceeds of the interest in the partnership assets. Such
disposal by Rob and Jane will be accepted under the disposal of Part IIIA of the Income Tax
Assessment Act 1936. Since the intended dealings is anticipated to take place in ordinary
commercial context therefore the capital gains arising from the disposal of assets and
business will be liable for Capital gains tax and must be included in the assessable income of
the partners.
On the other hand, it is further found that both Rob and Jane intends to downsize and
purchase two assets. They intend to use one as their investment property and the other as their
place of primary residence. According to the Taxation Determination ruling of TD 1999/67
an individual can implement the main residence exemption under the subdivision of 118-B of
the Income Tax Assessment Act 1997 whichever area of land on intends to choose where
their house is located(Ross et al., 2017). The capital gains or capital or losses, which one
makes from the land, is only disregarded under the main residence exemption if it is used for
the purpose of private or domestic association.

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As evident from the following case study of Rob and Jane, they can obtain the main
residence exemption for the house, which they intend to purchase. The capital gains or losses
made by them will be disregarded under subdivision of 118-B of the Income Tax
Assessment Act 1997 (Davis et al., 2015). In addition to this, Rob and Jane can also claim a
small business capital gains tax concession for the rollover relief over the sale of active
assets. This will help Rob and Jane to defer all or a portion of their capital gain from the sale
of equipment and trading stock for two years. Since the turnover of the business is less than
$2 million the concessional rate of rollover, relief will be available at the time of disposing
the active assets.
Answer to question 3:
The taxation ruling of TR 2006/14 is concerned with the capital gains tax
consequences related to the creation of life and remained of the trust interest in the property.
The ruling is concerned with the consequences leading to the granting of the lifetime right to
reside in the property (Bevacqua, 2015). As evident from the following scenario of Rob and
Jane with the remainder of money from disposal of partnership business, they intend to set up
the trust for their two sons with Rob playing the part of the trustee.
The capital gains tax consequences are generally different from the equitable life and
those of legal life in the real property. It is noteworthy to denote that the lawful owner of the
asset held on trust for the benefit of the life interest together with the lawful person being the
representative of the deceased estate where the estate of the deceased are required to the held
on trust with the objective of providing life benefit and remainder owners (Lang, 2014). If the
trust is createdover, the original asset through the medium of declaration and settlement CGT
event under section 104-55 takes place at the time of creating the trust.

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A trust represents the obligations that is imposed on person for the benefit of the
beneficiaries. In the present context of Rob and Jane,the creation of trust represents a CGT
event under section 104-55 and the trustee will be held responsible for the management of the
trust’s tax affairs along with the lodging of the trust tax returns and the payment of tax
liabilities (Miller & Oats, 2016). The trustee in the present context is Rob who can make
capital gains or losses arising from the CGT event occurring to the original asset following
the commencement of being held under the trust for life interest and the their two sons. Any
form of capital gains or losses that is made by the trustee is taken into the considerations at
the time of working out the net capital gains or loss of the trustee.
The net capital gains are subjected to be included in the net income of the trust in
agreement with the subsection 95 (1) of the Income Tax Assessment Act 1936 and it is held
for tax in compliance with the subdivision of 115-C (Davison et al., 2015). As in respect of
the present scenario of Rob who is the trustee of the trust set up by him for his two sons the
net capital gains are subjected to be taken into the considerations in the net income of the
trustee. In compliance with the subsection 95 (1) of the Income Tax Assessment Act 1936the
net income will be held for taxation under subdivision of 115-C.
Answer to question 4:
Primary producers can choose to make use of the income averaging when
administering their tax affairs. Tax averaging provides the primary producers to even out
their income and tax payable over the period of maximum of five years as this allows them
for both good and poor year (Kaldor, 2014). This helps in making sure that the taxpayer does
not have pay more tax over time than the taxpayers of comparable however steady income.
Primary producers are also provided with deductions excluding the non-commercial loss with
the provision that are excluded from the computation of the basic assessable income
(Weisbach, 2016). The sum of averaging tax offset or the extra amount of income tax is

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computed automatically and the taxpayers notice of assessment will represent the details of
the averaging.
The averaging rules takes into the considerations the rate of tax that the primary
producers would have to pay during the current year based on the basic rate of tax on their
average earnings. It is noteworthy to denote that the Medicare levy is not taken into the
considerations at the time of implementing the basic tax rate (Feld et al., 2016). The
averaging component on the other hand considers the part of the primary producers basic
income which is subjected to the average adjustment. This is usually made up of the both the
taxable primary production income and taxable non primary production income.
The primary producer has the assessable primary production income when the taxable
primary production income of the producer goes past the deductions. It is worth mentioning
that the assessable primary production income of primary producer is that part of the taxable
income, which is generated from carrying on of a primary production business. The primary
producers are also provided with the capital allowance for fodder storage assets, which is
primarily held, or the expenditure, which the primary producer incurs on the fodder storage
assets. Primary producers are provided with the opportunities of tax averaging that enables
them to even out their income and tax payables over the maximum period of five years
(Hegemann et al., 2017). This enables the taxpayers from paying more than the required
amount. When the income of primary producers is less than the deductions, the assessable
income of the primary producers is regarded as nil. Therefore, assessable income of the
primary production always forms the part of averaging elements.

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Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ...&Wende, S.
(2015). Understanding the economy-wide efficiency and incidence of major
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Davis, A. K., Guenther, D. A., Krull, L. K., & Williams, B. M. (2015). Do socially
responsible firms pay more taxes?. The Accounting Review, 91(1), 47-68.
Davison, M., Monotti, A., & Wiseman, L. (2015). Australian intellectual property law.
Cambridge University Press.
Feld, L. P., Ruf, M., Schreiber, U., Todtenhaupt, M., &Voget, J. (2016). Taxing away M&A:
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Hegemann, A., Kunoth, A., Rupp, K., &Sureth-Sloane, C. (2017). Hold or sell? How capital
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Kaldor, N. (2014). Expenditure tax. Routledge.
Lang, M. (2014). Introduction to the law of double taxation conventions. LindeVerlag
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Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.

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Pinto, D. (2011). State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia
Limited.
Ross, M., Walker, J., & Walker, J. (2017). Multinationals targeted down under. Taxation in
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