HI6028 Taxation Law Assignment: Income, CGT, and Tax Issues

This document presents a detailed solution to a taxation law assignment, focusing on key aspects of the Australian tax system. The assignment addresses multiple questions related to capital gains tax (CGT), including the application of CGT to pre-CGT assets, collectibles, personal use assets, and capital losses. It analyzes scenarios involving the sale of paintings, sculptures, and jewelry, referencing relevant sections of the Income Tax Assessment Act 1997 (ITAA 1997). Furthermore, the assignment explores the concept of income from personal exertion, examining how income is derived from services rendered and the sale of copyright. The analysis includes case law such as Brent v Federal Commissioner of Taxation (1971) and McCauley v FCT (1944). Finally, the solution delves into the character of income and the tax implications of loans and gifts, referencing case law such as Hochestrasser v Mayes (1960) and applying the ordinary concepts of section 6-5 of ITAA 1997. The assignment provides a comprehensive overview of these taxation principles, offering practical examples and legal references to support the analysis.

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 1:...........................................................................................................................2
Answer to 2:...........................................................................................................................2
Answer to 3:...........................................................................................................................2
Answer to 4:...........................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................6
References:.................................................................................................................................8

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Answer to question 1:
Answer to 1:
According to the “section 102-20, ITAA 1997” the taxpayers only makes capital
gains or loss if the CGT event takes place (Evans, Minas and Lim 2015). Accordingly, a CGT
event A1 happens under “section 104-10 (1) of the ITAA 1997” when the CGT asset is sold.
Capital gains tax is generally applicable on the assets that is purchased or events that takes
place after the 20 September 1985 (Burkhauser, Hahn and Wilkins 2015). Similarly, the term
pre-CGT and post-CGT are commonly used to for the assets that is purchased before or
following the aforementioned date. An antique impression painting was bought by Halen’s
father in February 1985 for a sum of $4,000. Therefore, the asset is bought before the CGT
scheme was introduced and as a result the sale of painting is regarded as pre-CGT asset and
hence it is exempted from the capital gains tax purpose for Helen.
Answer to 2:
“Section 108-10(2) of the ITAA 1997” explains that a collectible is anything that is
mainly used or kept by the taxpayers for their own enjoyment and usage (Grudnoff, 2015).
This includes the antique objects, jewellery or a rare folio. “Section 118-10 (1), ITAA 1997”
explains that the collectables that are bought for less than $500 are considered exempted from
the CGT provision under “section 110-10 (1)” (Feld et al. 2016). Helen sold the historical
sculpture on 1st January 2018 for a sum of $6,000 which was originally bought for $5,500. As
a result, the sale of sculpture resulted in capital gains and hence the capital gains will be
included for into the assessable income of Helen for taxable purpose.
Answer to 3:
Capital gains or capital gains loss should be disregarded under the “section 118-10
(2), ITAA 1997” from collectibles under the first element of the collectible cost base is lower

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than $500 (Chardon, Freudenberg and Brimble 2016). While under “section 108-10 (1),
ITAA 1997” it provides that the capital losses that are made from the collectibles can only be
used to reduce the capital gains made from the collectibles. As evident in the current situation
of Helen she bought an antique jewellery for the sum of $14,000 during October 1987. The
jewellery was sold by Halen for a $13,000 and it resulted in capital loss (Davidson and Evans
2015). Therefore, under “section 108-10 (1), ITAA 1997” of the quarantining rule, the capital
loss that is made from the sale of jewellery should be offset by Helen from the capital gains
made from the collectibles. However, it is advised that Helen made a capital gain from the
sale of sculpture. The capital loss from the sale of jewellery can be offset against the capital
gains from the sculpture by Helen.
Answer to 4:
According to the “section 108-20 (2), ITAA 1997” the personal use asset can be
defined as the asset that is mainly kept by the taxpayer for their personal enjoyment and use
(Wilkins 2015). There are certain special rules that are applicable on the personal use asset.
This include that under “section 110-10 (3), ITAA 1997” capital gains or capital loss from
the collectibles should be disregarded under the first element of the personal use asset when
the cost base is less than $10,000.
As understood in the current case of Helen she sold a picture that was bought by
Helen’s mother for a sum of $470 in 1987. Therefore, it can be stated that the picture
represents a personal use asset under the “section 108-20 (2), ITAA 1997” (Mangioni 2015).
However, the cost of the asset is below the $10,000 and hence the capital gains that is made
from the sale of picture resulted in the capital gains which be included for assessment
purpose for determining the capital gains tax.

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Answer to question 2:
As defined in the “section 6 of the ITAA 1936” income that is earned from the
personal exertion includes the salaries, bonuses, wages, pensions, superannuation that is
received by rendering personal services or any kind of revenue that is earned by the taxpayer
by carrying the business activities (Woellner et al., 2016). There should be adequate amount
of connection between the benefit and the amount that is received for the personal exertion.
Amounts or benefit that is received may be treated as reward or product of the personal
exertion.
According to the “section 6-5, ITAA 1997” the larger portion of the income that is
received by the taxpayer are held as the ordinary income. Where the taxpayers receive the
amount for performing any kind of services the amount will be treated as reward for the
services. Similarly, in the case of “Brent v Federal Commissioner of Taxation (1971)” the
taxpayer was the wife of the train robber that granted the media company with the exclusive
right of publishing her real life story (Burns 2017). The court of law noticed that the amount
that was received by the taxpayer for making herself available for the purpose of interview
was treated as the reward for the services and constituted the income from the personal
exertion.
According to the “copyright Act 1968” copyright is regarded as the type of personal
property and it is usually dealt in the manner that are analogous to other types of personal
property (Long, Campbell and Kelshaw 2016). The general proposition of the copyright
explains that the payment that is received from the sale of rights under the provision of
copyright must not be held as royalties since it does not amount to payment for the use of
item. The assignment of copyright that constitute a significant sterilisation of the original
copyright must be held as sale of the asset and the receipts are not held as copyright.

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As held in the case of “McCauley v FCT (1944)” receipt of payment from the partial
or full assignment of the copyright will never be treated as the royalty under the ordinary
meaning since the payer of the amount will be the owner of the underlying property and
recipient of the amount would cease to be the owner of the property (Campbell 2018).
As evident in the current case of Barbara she was offered a sum of $13,000 for
writing the book on economics principles. Barbara accepts the payments and writes the book.
The receipt of $13,000 will be treated as income from personal exertion by Barbara under the
“section 6, ITAA 1997” for the services rendered. The amount constitutes an ordinary
income under the ordinary meaning of “section 6-5, ITAA 1997” (King 2016).
Later in the case it is noticed that Barbara sold the copyright of the books to Eco
Books Ltd for a sum of $13,400. The amount of selling the copyright of books amounts to
assessable income for Barbara. Based on the facts of the case the taxpayer sold the copyright
of the books and it should be noticed she derived a taxable income rather a capital gain
because the payment was made to Barbara with the respect to the time and services that was
exchanged by her.
Barbara will also be treated taxable accordingly for the income that is earned relating
to the sale of manuscripts and interview manuscripts to the Eco Books Ltd because it
amounts to income from the personal exertion. The payments were received because of her
skills in writing and completely involved her own exertion. Therefore, the amount received is
a rightful income from personal exertion and will be considered taxable under the ordinary
concepts of “section 6-5, ITAA 1997” (Datt and Keating 2018). The explanation can be
justified by stating that the amount received was not from any business or profession rather it
is an income from the personal exertion.

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On the other hand, if Barbara writes the books during her spare time and only decides
to sell it in the later stages then the amount that will be received should be treated as income
from the personal exertion only because a personal effort has been made to write the books.
The amount will be included for assessment purpose under “section 6-5, ITAA 1997”.
Answer to question 3:
An item having an income character only comes home when it is derived by the
taxpayer. Where a taxpayer derives an item of income character will be treated as gain up to
its realisable value. The character of an item would be treated as income should be
determined under circumstances of its derivation by the taxpayer and with regard to the
character of income that may be derived by another individual (Miller and Oats 2016). In
order to have the character of income the item should be considered as gain by the taxpayer
that derives it. There cannot be a gain unless the item has been derived beneficially by the
taxpayer. As held by the court in “Hochestrasser v Mayes (1960)” to possess the character of
income the item should be the real gain by the taxpayer that derives it.
The effect of determining the taxable income for the parents that have lent $52,000 to
his son David was mainly for the purpose of starting a new business. The excess amount of
payment that would be received by the parent following the end of 5 years would be attract
tax liability. The loan amount cannot be considered as gift because it required to be repaid by
the taxpayer.
Nevertheless, the repayment of capital amount of $52,000 will be regarded as capital
payment and will not be included for assessment purpose for Patrick. The interest that would
be received by Patrick will be subjected to taxation at the end of the fifth year when it would
be originally received by Patrick and must be reported as the portion of income for the return
that is filed for the fifth year (Jones, and Rhoades-Catanach 2015).

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By reconsidering the situation based on the changes in the facts of case by Patrick
which is lacking any kind of formal express agreement or demand of security and verbal
forgoing of the interest income, the taxpayer may be considered taxable for the interest
income that is received (Datt and Keating 2018). The interest that is received will be the
subject of tax following the end of second year when the amount is actually received by
Patrick. The interest will be included as the part of assessable income for Patrick while filing
the tax return.
In the current case of David, the mode of payment that would be adopted whether
through a single cheque or through the other mode of payment it would not create any impact
on the tax situation of the income. The only thing that matters the most is the intention of the
parties that is revealed through their actions (Campbell 2018). The Australian taxation office
has the power of treating the payment made to the friends, relatives and acquaintances where
the situation obtained from the case warrants it to be as a gift.
The rules relating to the taxation in this situation might also create an effect on the
interest that is received will also be subjected to tax as well. Patrick is permitted a gift tax
limit of $52,000 for the period of five years altogether. Therefore, on a conclusive note, the
receipt of income as interest will be taken into the consideration as taxable income for Patrick
within the ordinary concept of “section 6-5, ITAA 1997” (Chardon, Freudenberg and
Brimble 2016). The interest amount holds the character of income and will be included into
the assessable income of Patrick for tax purpose.

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References:
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
pp.181-205.
Burns, A., 2017. Mid market focus: Tax considerations when doing business
offshore. Taxation in Australia, 51(10), p.535.
Campbell, S., 2018. Personal liability of a trustee to tax on trust income: Part 1. Taxation in
Australia, 53(5), p.263.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Datt, K.H. and Keating, M., 2018, April. The Commissioner’s obligation to make
compensating adjustments for income tax and GST in Australia and New Zealand.
In Australian Tax Forum (Vol. 33, No. 3).
Davidson, P. and Evans, R., 2015. Fuel on the fire: Negative gearing, capital gains tax &
housing affordability. ACOSS Papers, p.29.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an
alternative way forward. Austl. Tax F., 30, p.735.
Feld, L.P., Ruf, M., Schreiber, U., Todtenhaupt, M. and Voget, J., 2016. Taxing away M&A:
The effect of corporate capital gains taxes on acquisition activity.
Grudnoff, M., 2015. Top gears: how negative gearing and the capital gains tax discount
benefit the top 10 per cent and drive up house prices.

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Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation
in Australia, 51(1), p.12.
Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in
Australia. St Mark's Review, (235), p.94.
Mangioni, V., 2015. Land Tax in Australia: Fiscal reform of sub-national government.
Routledge.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic
Review, 48(1), pp.93-102.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.