Taxation Law Assignment: Capital Gains, Loans, Case Studies, and Tax

This taxation law assignment presents a detailed analysis of various tax-related scenarios. The assignment begins by calculating net capital gains or losses, considering the sale of different assets, and differentiating between collectibles and personal assets. It then delves into the taxation of loans, specifically addressing fringe benefits and the calculation of tax payable based on statutory and actual interest rates. The assignment further explores the tax implications in a partnership scenario involving Jack and Jill, outlining how losses are allocated and handled. Additionally, it examines the landmark case of IRC v Duke of Westminster, highlighting the principles of tax avoidance and the use of legal strategies to minimize taxable income. Finally, the assignment analyzes a case involving Bill, who receives payments for clearing timber from his land, differentiating between capital receipts and recurring receipts and their respective tax treatments. The assignment concludes with a comprehensive overview of the relevant tax laws and principles.

Running Head: TAXATION LAW 1
Taxation Law
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Contents
Answer 1 Calculating the net capital gain or loss for a year:.................................................................3
Answer 2 Taxation on Loan..................................................................................................................4
Answer 3 Jack and Jill...........................................................................................................................5
Answer 4 IRC v Duke of Westminster..................................................................................................6
Answer 5 case of Bill............................................................................................................................7

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Answer 1 Calculating the net capital gain or loss for a year:
The case depicts that Eric has acquired certain assets and has possession of those
assets for less than a year. The determination of the eligibility of the capital gains from sale of
assets could be validated only if the selling price of an asset is higher than the procurement
cost of the asset. Furthermore, Eric is also liable to be exempt from indexation benefits owing
to the possession of assets for a time less than a year (Beretta, 2017).
The information illustrated below can be implemented for calculation of capital
profits on sale of assets by Eric as follows.
Asset Cost Base of Assets Capital Proceeds of
Assets
Net Capital Profit/
(Net Capital Loss)
Home Sound System 12,000 11000 (1000) Loss
Shares in listed
company
5,000 20000 15000 Profit
Painting 9,000 1000 (8000) Loss
Antique Chair 3,000 1000 (2000) Loss
Antique Vase 2,000 3000 1000 Profit
Net Capital
Gain/Loss
5000 Profit
Collectibles:
The definition of collectibles suggests that they are intended for satisfying the
personal efficacies of an individual or fulfilling the self-esteem needs of an individual.
Collectibles which are purchased at costs lesser than or equal to $500 imply that the profits
obtained from their sale would be exempt from taxation. The collectibles that can be
identified in the case of Eric comprise of an antique vase, an antique chair and a painting
which were acquired at the procurement costs of $2000, $3000 and $9000 respectively
(Blizkovsky, 2017).
Personal assets:
Personal assets are acquired by an individual for addressing personal objectives or
fulfilling the purpose of recreation. The personal assets acquired by Eric in this case can be

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identified as the shares of a publicly listed company at a procurement cost of $5000 and a
home sound system for the procurement cost of $12000 (Bolong, 2015).
i. The personal assets held by Eric were associated with procurement costs exceeding
the permissible limit of $10000 thereby validating the capital gains from their sale
eligible for taxation (Bolong, 2015).
ii. The collectibles observed in this case have been identified with procurement costs
above $500 thereby implying taxation of capital gains obtained from sale of
collectibles (de Cogan, 2015).
iii. The net profit for a year can be calculated through subtracting the annual capital
losses from the capital profit.
Answer 2 Taxation on Loan
Brian has received a $1 million loan for a period of three years from his employers
with the privilege of 1% interest rate. The provision of 1% interest rate classifies the loan as a
fringe benefit since the interest rate is far below the prevailing interest rates in the market
(Derzi, Moreira & de Moura Fonseca, 2017). Hence taxation on loan amount could be
reflective of the involvement of statutory interest rate of 5.65% alongside the actual interest
rate of the loan i.e. 1%.
Initial Stage
Loan fringe benefits are calculated according to deductible rule which implies
subtraction of interest based on actual rate of interest from the interest derived using statutory
rate of interest (Houqe & van Zijl, 2015).
Interest based on statutory interest rate= $1000000*5.65%= $56,500
Interest based on actual interest rate= $1000000*1%= $10,000
Hence, loan fringe benefits = $56,500- $10,000= $46,500
2nd one
This step is associated with an assumption of the interest as the real amount payable.
Interest calculated using statutory interest rate= $1000000*5.65%= $56,500
3rd One

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The investment of 40% of the loan in future obligations by Brian requires estimation of tax
deductible interest expense.
Hypothetical tax deductible interest expense = $56,500*40%= $22,600
4th One
Real tax deductible interest expense = $10000*40%= $4000, which is calculated on the
interest derived using actual rate of interest.
5th One
This step involves the outcome of subtracting real tax deductible expense from the
hypothetical tax deductible interest expense which is,
$22,600- $4000= $18,600
6th One
The total tax amount payable by Brian is estimated through subtraction of above estimated
figure from the loan fringe benefits identified in the case of Brian.
Hence, the tax payable = $46,500- $18,600= $27,900
The interest can be paid at the termination of period of the loan or in monthly
instalments. The deemed period is different in each instance since it would be considered
from the time when the interest becomes payable in the former case and in the case of
monthly instalments, the deemed period is assumed from the time when the instalments
begin. Under the concerns in which Brian is not liable to repay the interest, the estimation of
total tax payable could be realized through a similar approach stated above with specific
emphasis on a zero percent actual interest rate.
Answer 3 Jack and Jill
The question involves references to the case of Jack and Jill, who are husband and
wife, and their involvement in an agreement for renting a property. The agreement clearly
entitles Jill to 90% of the profits while allocating privileges for the remaining 10% to Jack.
The agreement also implies emphatically that Jill is not accountable for any sort of losses
incurred in context of the property with Jack bearing responsibility for all the losses (Houqe
& van Zijl, 2015). The case also refers to the loss of $10000 incurred with respect to the

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property last year for which Jack is solely accountable. Since Jack is responsible for the
losses, he has to opt for approaches to address the losses in his account management prior to
the evaluation of taxability. Jack could offset the loss through income acquired from his other
sources of income or he could prefer to carry forward the loss to the next year. The carrying
forward of the losses to next year could be considered feasible until the point where decision
for sale of property is taken (Jha, 2013). The sale of property can be leveraged by Jack for
offsetting the loss of $10000 from the profits gained out of the sale of the property. In
instances where the property is capable of generating profits, it is imperative to observe that
the distribution of profits among Jack and Jill would be according to the precedents of the
agreement in the respective shares of 10% and 90%. Hence it can be concluded that Jack is
accountable for losses related to property in context of the agreement while Jill in not held
responsible for any implications related to financial transactions in context of the property
(Jian-wen, 2014).
Answer 4 IRC v Duke of Westminster
The question reflects on the case of IRC v Duke of Westminster [1936] AC 1 which
provides viable insights into the rights of an individual or business to utilize legal strategies
and resources for depreciating the net taxable income at the end of the year. The case
provided prolific insights that helped in determining these principles:
 An individual could rightfully utilize strategic approach to reduce their net taxable
income
 Ethical measures are the benchmark for the approaches followed by an individual to
reduce total income
 Adopting legal strategies and means imply that the measures could not be subject to
questioning by legal authorities
However, the implementation of the above stated principles has to be critically reviewed
in context of the new case laws. The contemporary case laws provide assistance to
organization’s in modifying their financial management through legal means in case the
organization is facing losses (Lang, 2016). In such cases, the new laws apply specifically to
the rights of the business owners to write off fixed assets at intended values as well as the
modification of statistics in the balance sheet of the organization. It is also imperative to
observe that these new case laws imply that organizational transactions vested in supporting
the operational dimensions of an enterprise could not be questioned (Mehrotra, 2013).

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Answer 5 case of Bill
The question emphasizes on the case of Bill, owner of a large piece of land populated
with big pine trees. The motive of Bill for transforming the piece of land into a grazing
ground for sheep prompted the hiring of services of a logging company. The payment
obtained by Bill for the clearing of the timber from the piece of land has to be subject to the
concerns of taxation since there are two distinct forms of payment observed from the case.
One payment method is observed in Bill receiving a lump sum amount of $50000 at once and
the other involved Bill receiving $1000 for clearance of 100m of timber from the property of
Bill (Mehrotra, 2013). The lump sum amount of $50000 can be classified as a capital receipt
since it is received one-time alongside being characterised by the transfer of rights to another
party i.e. the logging company for clearing the pine trees (Jian-wen, 2014). Therefore the
income can be subject to the capital gains tax. On the other hand, the second form of payment
involves Bill receiving recurring receipts which exempt the income from capital gains tax.
However, the income classified according to recurring receipts would be taxable with the
normal interest rates.
References
Beretta, G. (2017). The Brisal and KBC Finance Decision: Once Again the CJEU Assesses
the Compatibility with EU Law of Gross Withholding Taxation of Non-residents. EC
Tax Review, 26(4), 193-200.
Blizkovsky, P. (2017). G20 Economic Coordination and the Rule of Law: A Case of
Taxation. European Business Law Review, 28(3), 271-282.
Bolong, S. (2015). Establishment of Taxation Legalism in Taxation System Reform——A
Sociology-of-Law Analysis. Journal of Southwest Petroleum University (Social
Sciences Edition), 5, 015.
de Cogan, D. (2015). A changing role for the administrative law of taxation (vol 24, pg 251,
2015). SOCIAL & LEGAL STUDIES, 24(3), 483-483.
Derzi, M. A. M., Moreira, A. M., & de Moura Fonseca, F. D. (2017). Income Taxation in
Brazil: A Comparative Law Approach. In Taxation and Development-A Comparative
Study (pp. 77-93). Springer International Publishing.

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Houqe, N., & van Zijl, T. (2015). Centre for Accounting, Governance and Taxation Research
School of Accounting and Commercial Law Victoria University of Wellington PO Box
600, Wellington, NEW ZEALAND Tel:+ 64 4 463 5078.
Jha, K. (2013). Taxation Law. 2013, BA, LL. B-2009 & LL. B-2011.
Jian-wen, L. I. U. (2014). The Development of Fiscal and Taxation Law in Foreign Countries
and Its Inspiration to China. Journal of Science, Technology and Law, 5, 004.
Lang, M. (2016). State Aid and Taxation: Selectivity and Comparability Analysis. In State
Aid Law and Business Taxation (pp. 27-38). Springer Berlin Heidelberg.
Mehrotra, A. K. (2013). Making the Modern American Fiscal State: Law, Politics, and the
Rise of Progressive Taxation, 1877-1929. Cambridge University Press.