Taxation Law: Analysis of Capital Gains and Personal Income Issues

This case study provides a detailed analysis of various taxation law issues, including capital gains tax (CGT) implications and the assessment of income from personal exertion. It examines Helen's transactions involving the sale of antiques, sculptures, and jewelry, determining the CGT consequences based on the Income Tax Assessment Act 1997 (ITAA). The study further investigates whether payments made to Barbara for writing a book and assigning its copyright constitute income from personal exertion. Finally, it assesses the tax implications of an early loan repayment made to Patrick, determining whether it should be treated as taxable income under section 6.5 of the ITAA. The analysis incorporates relevant case law and statutory provisions to arrive at well-supported conclusions for each scenario.

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Answer number 1:..............................................................................................................2
Issues of the case:.........................................................................................................2
Relevant Rules:..............................................................................................................2
Application:.....................................................................................................................4
Conclusion:.....................................................................................................................5
Answer number 2:..............................................................................................................5
Issues of the case:.........................................................................................................5
Relevant Law:................................................................................................................6
Application:.....................................................................................................................6
Conclusion:.....................................................................................................................7
Answer number 3:..............................................................................................................7
Issues of the case:.........................................................................................................7
Relevant laws:................................................................................................................7
Application:.....................................................................................................................7
Conclusion:.....................................................................................................................8
References:........................................................................................................................9

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Answer number 1:
Issues of the case:
The present case study involves the determination of the Capital Tax Gain
consequences as a result of the dealings transacted by Helen in the following cases:
1. In the month of February of 1985, Helen’s father bought a painting of antique
quality by paying 4000$. She sold it at the price of 12,000 dollars on 1st
December of 2018.
2. On December of the year 1993, Helen made a purchase of a sculpture at the
price of 5500 dollars. She made a sale of it for 6,000 $ on 1st of January of 2018.
3. She made a sale of a jewellery for 13,000 $ on 20th March of 2018 which she
bought on October 1987 for 14,000 dollars.
4. She made another sale of a picture which was bought by her mother in the year
of 1987 for 470 $, on 1st July of 2018 at the selling price of 5000$.
Relevant Rules:
The present case study involves the provisions enumerated under Income Tax
Assessment Act 1997. The relevant sections are discussed in the following part of this
answer.
 Section 102.20 enumerates that when a CGT event happens, it causes a capital
loss or capital gain and when such CGT even occurs, loss or gain are accrued
corresponding to the event.
 Section 104.10 under sub-division 104-A, when a CGT asset is disposed off,
then an event of CGT A1 also takes place. The disposal of any CGT asset can
occur only when the transfer of ownership from the owner to another party
occurs. However, this ownership transfer does occur transferee of the ownership
other than being the owner assumes the role of the beneficial owner of the asset.
Any asset that acquired before 20th September of 1985 will not be considered
either as capital gain or as a capital loss.
 Section 108.10 (2) gives a broad definition of the term collectables as any type of
exclusive things like antiques, jewellery, rare folios, coins, stamps and others
which are conserved for using personally or for personal enjoyment. Any interest
on the above kind of things or any debt that is imposed those things are also
regarded as the collectables.
 Section 108.10 (1) states that when calculation involving net loss or gain of a
capital in a particular income year is done, then loss of capitals from the capitals
can be used to decrease the capital gains from those collectables.
 Section 108.10 also provides that losses that arise from collectables can be set
aside by the profits out of the collectables only. However, the loss arising out of
collectables can be used to decrease the capital gain valuing more than 500
dollars. A capital loss or a capital gain emerging out of collectables can be
considered when cost base’s first element or first element of the cost for a
depreciating asset is more than 500 $. However, a special rule is followed when
a collectable is an interest on the CGT asset, then in such case, the capital gain

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or loss from such interest cannot be considered when the calculation of such
asset fails to exceed 500 dollars.
 When the net capital gain or loss for an income year is calculated, the capital
gains of the collectables can be decreased by capital losses out of the
collectables. In addition to these, any CGT loss incurred by anyone by selling of
a collectable must be regarded as an offset to such CGT gain that is achieved by
the sale of another collectable. But the loss will not be regarded as the offset to a
CGT gain.
 Section 108.20 provides the taxation scheme of the CGT assets having personal
use. It states that a CGT asset having personal use will not be taken into taxation
when its market value does not exceed 10000 $.
Application:
In regard to the rules mentioned above, the transactions made by Helen will be
analysed.
1. In the month of February of 1985, Helen’s father bought a painting of antique
quality by paying 4000$. She sold it at the price of 12,000 dollars on 1st
December of 2018.
This dealing of Helen will be exempted from the purview of the CGT gain
as CGT application will be applied on CGT assets which were received not
before September 20 of 1985. Any asset received or gained before 20.09.1985
will not be included in to tax calculation.
2. On December of the year 1993, Helen made a purchase of a sculpture at the
price of 5500 dollars. She made a sale of it for 6,000 $ on 1st of January of 2018.
It is a transaction that can be assessed for taxation as it involves a capital
asset as per section 118.10(1) of the ITAA. This is because the sculpture was
bought for more than 500 $. Any asset below 500 $ valuation will not be under
tax scheme according to section 110.10.
3. Helen made a sale of a jewellery for 13,000 $ on 20th March of 2018 which she
bought on October 1987 for 14,000 dollars.
This dealing of Helen shows that she has experienced loss. This will be
depicted as an offset to the CGT gain as it is incurred due to sale of a collectable.
Thus it will be regarded as an offset against CGT gain by sale of sculpture.
4. She made another sale of a picture which was bought by her mother in the year
of 1987 for 470 $, on 1st July of 2018 at the selling price of 5000$.
This transaction again comes under the ambit of taxation as it is a CGT
asset with personal use as per sec. 108.20 of the ITAA. According to this section,
any CGT asset with personal use will be excluded from taxation unless its value
is less than 10000 $. As the cost of the picture is less than the prescribed values,
it will not be taken into consideration; hence exempted from scope of taxation.
Conclusion:
Thus, in conclusion it can be held that:

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 For the sale of painting, taxation will not be applicable.
 Sale of sculpture will be taxed like a capital asset as per sect. 118.10 (1).
 Sale of jewellery will be regarded as an offset referring to CGT gain incurred by
selling other collectable.
 Sale of picture will be held as an exemption.
Answer number 2:
Issues of the case:
The issue of the case is whether money paid to Barbara can amount to an
income from her personal exertion. The second issue is whether there will be any
difference provided she wrote the book in her free time before she has entered into
contract.
Relevant Law:
The present case study involves the provisions enumerated under the Income
Tax Assessment Act 1936. Section 6 of the said Act interprets the income from personal
exertion. The income of any person out of personal exertion comprises of salary, fees,
wages, remunerations, earnings and other types of incomes received by him being an
employee. It also includes income from any type of business carried on by the taxpayer
all alone or in partnership with some other person. When a person plans to include an
income under the purview of this section, a close relation must exist between the tax
payer’s income and his personal exertion. This is seen in the case of Brent v Federal
Commissioner of Taxation - [1971] HCA 48.
Section 6.5 of the Income Tax Assessment Act 1997 states that payment
received by an employee or an ordinary person in exchange of the service or efforts
given by him is regarded as an assessable income. It is also called as an ordinary
income. Copyright is an example of a CGT asset which can be taxed. The proceeds out
of a sale of such copyright amount to a CGT gain as seen in c. However, when such
copyright is sold to earn profit, then it amounts to an ordinary income as seen in the
case of Hayes v FCT (1956) 6 AITR 248.
Application:
In the present case, Barbara was contracted by a Publishing Co. to write a book
at a price of 13000 $. This is an income from personal exertion as per sec. 6. She
further assigned the copyright of this book to the same company for 13400 $. This
amounts to a CGT liable for taxation. When the book is published, she received
additional remuneration which again results into CGTgain. She further sold the
manuscript at 4350 $. Moreover, she again receives 3200 $ for interview manuscripts.
All these amount to income out of personal exertion as per sec. 5. In addition to this,
taxation will be same as per sec. 6 even if she wrote the book in her leisure.
Conclusion:
It can be concluded that money paid to Barbara can amount to an income from
her personal exertion and there will be no difference if she wrote the book in her free
time before she has entered into contract.

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Answer number 3:
Issues of the case:
The issue involved in this case study is to determine the consequence of early
payment of David on Patrick’s assessable income.
Relevant laws:
If a person wants to treat any part of his receipt of money as income, he has to
show that he is incurring gain while making such income. This was observed in the
decision made in the case of FC of T v Whitfords Beach Pty Ltd 82 ATC 4031. A receipt
made by any person will be regarded as income after application of the rules related to
his taxable income as given in the landmark case of Scott v. Commissioner of Taxation
(1935) 35 SR (NSW) 215; (1935) 3 ATD 142. A person if intends to treat any receipt of
money as his income, he is required to prove that he has held it as a gain. The taxpayer
is needed to show that he derived it in a beneficial manner. According to sec. 6.5, an
income will has to be regarded like an ordinary income if the same is incurred in
ordinary way.
Application:
Here, Patrick made a payment of 52000 $ to his son named David to help him.
Patrick had no intention to incur tax from his son. David had assented to repay 58000 $
after five years. It is an income as it is not incurred as gain. Patrick planned not to take
any interest from David. He did not further take any deposit or make agreement for the
loan. This shows that repay of loan will not be considered a taxable income for Patrick.
David paid back within 2 years. As a result, in spite of the fact that Patrick had no wish
to get loan from David, due to early payment of the entire lent amount within two years
made Patrick incur an additional amount. It shows that Patrick though not intended got
an interest of 5% on loan amount. It is an income as it is incurred as gain. Though David
has not intended to get income, still it amounts to taxable income as pr sec. 6.5 of the
Act.
Conclusion:
Hence, this receipt will be regarded as income under sec. 6.5 of ITAA.

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References:
Brent v Federal Commissioner of Taxation - [1971] HCA 48
FC of T v Whitfords Beach Pty Ltd 82 ATC 4031
Hayes v FCT (1956) 6 AITR 248
Income Tax Assessment Act 1936
Scott v. Commissioner of Taxation (1935) 35 SR (NSW) 215; (1935) 3 ATD 142
The Income Tax Assessment Act 1997