TAXATION LAW 5 - Taxation Theory, Practice, and Law Utilization

This document presents a comprehensive solution to a TAXATION LAW 5 assignment, addressing various aspects of taxation law. The assignment analyzes capital gains and losses derived from asset sales, referencing sections 108-20 and 108-10 of the ITAA 1997. It also examines fringe benefit tax (FBT) in accordance with Taxation Ruling TR 93/6, exploring interest offset agreements. The solution further delves into the taxation of rental property co-ownership, referencing F.C. of T. v McDonald (1987), TR 93/32, and section 51 of the ITAA 1997. Tax avoidance principles, using IRC v Duke of Westminster [1936] AC 1 as a case study, are also discussed. Finally, the assignment addresses income estimation from timber sales under subsection 6(1) of the Income Tax Assessment Act 1936, along with the application of McCauley v. The Federal Commissioner of Taxation.

Running head: TAXATION THEORY, PRACTICE AND LAW
UTILIZATION OF TAXATION LAW
Name of the student:
Name of the University:
Authors Note:

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Answer to question 1:
Capital gains or a loss that are derived from the sale of assets is the main issues that
crop up in this case. Here the law sections which are applicable are Section 108-20 of the
ITAA 1997 and Section 108-10 of ITAA 1997.
Among the above mentioned law sections, section 108-20 of the ITAA 1997 shows
that loss of $1000 that is incurred during the deal that took place i.e., the sale of home sound
system cannot be approved to be considered as set off, this law mainly states that no losses
can be considered that is incurred from the disposal of used assets. The law section 108-10 of
the ITAA 1997, states that losses incurred cannot be set off that is associated with the
common gains in the shape of sales of shares (Van der Velde, 2014). The offset can also be
considered according to law section 108-10 of ITTA 1997. In this case Eric has gained profit
from disposed assets and this cannot be considered as current year capital. Here Eric’s gain
proportion amounts to $15000. Thus the main point here is, Eric cannot offset losses since he

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obtained profit from the disposal of assets
Answer to question 2:
Issue that highlights in this case is mainly concerned with the ascertainment of FBT
and this is in accordance with the “Taxation Ruling of TR 93/6”. Thus the law that is
applicable here is the Taxation ruling of TR 93/6.
Computation of Fringe Benefit Tax
Law section under taxation rulings of TR 93/6 states that economic institutions make
strategies for offsetting the account that is related to loan activities and these strategies
undertaken are often refereed as interest offset agreement. Here the products are restructured

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for offsetting the interest that is owned by the clients. For this reason account holders are not
liable to pay any amount for the use of income tax with respect to profit earned from the
account. Now according to the taxation rulings of TR 93/6, if the bank discharges then Brian
will not be liable to pay income tax that is related to refunding interest on loan. Thus it can be
concluded that, Brian will not be eligible to pay income tax liability if he is restricted from
paying interest by the bank (Arcand and Tranchant, 2012).
Answer to question 3
Here in this case it can be observed that Jack and Jill are the co owners of a rental
property and both are liable for the provision of loss that is incurred from the rental property.
Here in this case the law sections which are applicable are F.C. of T. v McDonald (1987),
Taxation rulings of TR 93/32 and Section 51 of the ITAA 1997.
Now if the application of each law section is considered then it can be observed that:
The case of F.C. of T. v McDonald (1987) 18 ATR 957 application shows that the taxpayer’s
wife and he officially own rental property. The two owners agreed to establish agreement that
shows that the net profit that is obtained from the rental property will distributed as 25
percent to McDonald and &75 percent to Mrs McDonald. This figures are agreed according
to net profit but from the loss perspective it will be only borne by Mr McDonald (Pavlisko
and Sporn, 2014).
The taxation ruling of TR 93/32 shows the ground which points the division of net
income or loss that is generated from leasing the property that is owned by the co owners.
The law section here mainly shows the assessment of taxable position of the co-owners who
are accountable for their actions. The case that is referred to Jack and Jill shows the
assessment of taxable position for the rental property. Jack here is entitled for 10 percent of
the property while Jill is entitled for 90 percent of the property (Sanders, 2014).

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Now the taxation rulings of TR 92/32 shows that co-ownership of rental property is
known as one partnership for collecting income tax and this cannot be considered as one
partnership under the general law except the ownership accounts of any business practice,
here the co ownership is considered as partnership as this can fulfil purpose of income tax.
The loss of earning from rental property is thus managed through the ownership of property
as well as from the distribution of profits and losses. This case mainly shows that co-
ownership of rental property includes income tax purpose and this cannot be considered as
partnership (Wishlade, 2015).
Finally the taxation ruling of TR 92/32 shows that co-owners of the rental property
usually not considered partners. In this case the partnership agreement is either in the shape
of writing or oral form that does not include its effect on the shared value of income or loss
from the property. Therefore, Co-owners Jack and Jill will hold the property as the joint
renters. Thus conclusion drawn from the above case shows that, both Jack and Jill need to
distribute the loss from property equally and joint ownership does not account as partnership
business (Wishlade, 2015).
Answer to question 4:
IRC v Duke of Westminster [1936] AC 1 is used in the case of tax avoidance. One
principle recognized in this aspect states that each individual is authorized to order his affairs
for allowing the taxation which is made in fitting Act. Although this cannot be considered
because this ruling was attractive to others who are looking for avoiding tax with respect to
law’s complex design and these are undermined by the subsequent cases where the courts
have looked on the overall effect. An example if cited then it can be observed that court in the
upcoming stages is provisional and thus was adopted under the WT Ramsay v. IRC principle.
This case here shows that transaction has been determined earlier and this is served not in the

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form of commercial use. The ideal rule was to impose tax for expanding the deal a total fact
(Sceales, 2015).
Currently, this principle within Australia states that if an individual is able to make
this result protected, then the Inland Revenue will be of their scheme and it is not compulsory
to pay any augmented sum of tax. Further, it is understood that this feature allows individuals
and corporations for designing the financial agreements with respect to their fixed objectives
of decreasing the tax liabilities that is upon their structures of laws (Bloom, 2015).
Answer to question 5:
Here the issue is concerned with the estimation of income that is derived from the sale of
felled timber under subsection 6 (1) of the Income Tax Assessment Act 1936. Beside this law
section, McCauley v. The Federal Commissioner of Taxation ruling is also applied in this
current case.
Here in this case it is found that Bill owns a land where there are several pine trees.
Here Bill intended to utilize the land for grazing sheep and Bill wanted to clear his intentions
with a clear view. Bill then discovered a company that agreed to pay him $1000 for every 100
meters of timber. The taxation ruling that is related here is 95/6, states that income tax
generating from the performance of production and forestry. The ruling here offers the
boundary which shows the takings that is derived from the sale of timber. This characteristic
shows measurable income which shows that tax payers are indulged into the activities of
forestry industry. Now according to subsection 6 (1) of the Income Tax Assessment Act
1936, here the tax payers are indulged into the activities of forest thus it can be known as the
prime creator (Atkinson, 2012).
The subsection 6 (1), the Income Tax Assessment Act 1936, shows major production
is defined as the trees that crop up within agricultural land is required for felling forest. The

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case study thus shows that, Bill is regarded as the primary producer because he has involved
into the processes of primary production subsection 6 (1) of the Income Tax Assessment Act
1936. The forest operation thus mainly includes felling of trees in a forest although the tax
payers are not concerned about the planted trees (Bevacqua, 2015).
Bill here although the owner of land but he did not planted the trees, yet the whole
amount of takings is owned by Bill from the sale of felled timber thus includes measurable
earning .Thus inspite of these facts, the sales combines either full or part of assets of a
business, the trees considered are taken as measurable income of the tax payers under
subsection 6 (1) of the Income Tax Assessment Act 1936.
In the mentioned case, if the tax payer pays a lump sum of $50,000 by surrendering
the right to the organization for removing the required amount of timber, then the amount
accepted will be considered as “Royalties”. In agreement with the section 26 (f) shows
receipt of “royalties” that is received from the tax payer. Hence Bill is not allowed to carry
out operations in forest. This is mainly due to the reason Bill did not planted the trees. Under
McCauley v. The Federal Commissioner of Taxation it is shown that payments obtained from
the grantor are under the right of doing so (OKMARK, 2014). Thus the sum received by Bill
as royalty combines measurable income under section 26 (f).
Thus it can be concluded that income accepted from the cutting of timber will be
considered as taxable earnings under subsection 6 (1) of the ITAA 1997.

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Atkinson, C., 2012. General anti-avoidance rules: Exploring the balance between the
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of State-Imposed Transfer Taxes on Fannie Mae, Freddie Mac, and the Federal Housing
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Adjusting to a'New Normal'.