HI6028 Taxation Theory, Practice & Law Individual Assignment

This assignment solution for HI6028 Taxation Theory, Practice & Law addresses key concepts in Australian taxation law. The first question focuses on capital gains tax (CGT), analyzing four different transactions involving the sale of assets like an antique painting, historical sculpture, antique jewelry, and a picture, calculating gains or losses using the indexation method. The second question examines assessable income, exploring Barbara's income from book sales, manuscript sales, and interview manuscripts under different scenarios, referencing relevant case law such as "Brent v FCT". The third question delves into the effect of a financial arrangement between David and his father on David's assessable income, considering the implications of borrowing and repaying funds with interest. The solution provides detailed calculations, legal references, and thorough analysis of the tax implications for each scenario, offering a comprehensive understanding of taxation principles and their application to real-life situations.

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Taxation Theory, Practice
& Law

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Table of Contents
Introduction........................................................................................................................................3
Question 1..........................................................................................................................................3
Capital Gain Tax regarding antique impressionism painting................................................4
Capital Gain Tax regarding historical sculpture.......................................................................4
Capital Gain Tax regarding antique jewellery piece.................................................................5
Capital Gain Tax regarding picture..............................................................................................6
Question 2..........................................................................................................................................7
A.) Using case, discuss Barbara’s income.................................................................................7
B.) Using substitute situation, discuss Barbara’s income.....................................................8
Question 3..........................................................................................................................................8
Discuss the effect of these arrangements on the assessable income of Patrick.............8
Conclusion.........................................................................................................................................9
References.......................................................................................................................................10

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Introduction
This report is categorized into three parts and all these parts include the case laws.
First question includes that Helen need to generate funds by selling their resources
and for that deal with the four transactions. Second section of this report
demonstrate the income generated by Barbara under the different case. Apart from
this, last section of this report describes the influence of arrangements on the taxable
income of Patrick.
Question 1
Capital gains/ losses are categorized as a long and short term in nature. If the
individual holds asset for more than one year or higher which would be the long-term
capital gain or loss. But on the other side, if individual hold product for one year or
less, then capital gain or loss is of short-term nature (Paolella and Durand, 2016).
In the given question, during 2018, Helen made four different transactions for
generating the funds. If any individual incurred loss then this loss needs to be set-off
in same year against the income and if the whole loss will not set off, then it needs to
carry forward for the next assessment year. But on the other side, loss will be carry
forward only when it is properly disclosed in the Income Tax return and it is filled
before the due date (Devereux and de la Feria, 2014).
According to ATO, it has been examined that if any individual conducts the events
for the capital gain, then it should be including in the tax return but in this event, only
those transactions should include who are acquired before 21st September 1999
because it is claimed to attain the maximum revenue for more than a year. For the
purchases of before 1999, indexation method needs to be used as this method
assist in making the variations by evaluating the Price Index which aid in managing
the purchasing power of an individual. This method assists in identifying the real

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value from the resources which needs to sale. Apart from this, this method also
adopt by an individual for the treatment of tax (Kim and Kim, 2015).
Each and every transaction made by Helen related to funds generation is calculated
by using the indexation method because it helps in registering the estimations
related to resources which are obtained before 1985 (Johansson et al., 2015).
Every single exchange identified with the buy of Helen decide underneath:
Capital Gain Tax regarding antique impressionism painting
As per the taxation system of Australia, if any sort of item buys or obtained by the
person before twentieth September 1985, won't be viewed as the capital gain tax
purpose. Aside from this, a similar circumstance occurred where the asset was
acquired in February 1985 preceding the suggestion just as the relevance of the
Income-tax law in Australia. Thus, those points of interest which were purchased
before twentieth September 1985, described as Pre-Capital Gains Tax assets and
included in the list of relieved resources. In this manner, no appraisal identified with
the duty will be paid on such asset (Mehrotra and Ott, 2015).
Capital Gain Tax regarding historical sculpture
Helen purchased the historical sculpture in the year 1993 for the amount of $5500
but she sale the resource for $6000. Helen sells the product in generating the funds
for the business. To compute the appropriate amount, the indexation method is used
rather than discounted method to calculate the capital gain or loss.
Particular Amount
$
Selling price 6000
Purchase price 10120
Capital gain /loss (4120)

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Working Note:
Computation for purchase price include 112.6/61.2= 1.838*5500=10120.
Capital Gain Tax regarding antique jewellery piece
The antique jewellery was purchased in the year 1987 for the amount of $14000 and
sell the amount at $13000. This jewellery purchased before 1999, and that is the
reason for using the indexation method.
Particular Amount
$
Selling price 13000
Purchase price 33117
Capital gain /loss (20117)
Working Note:
Computation of purchase price: 112.6/47.6*13000
Capital Gain Tax regarding a picture
This picture was purchased before the year 1999, so according to Australian law, the
indexation method needs to be used to compute the capital gain or loss.
Particular Amount
$
Selling price 5000
Purchase price 1178
Capital gain /loss 3822
Working Note:
Computation of purchase price: 113.5/45.3*470=1177

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As indicated by the calculation of figures, it analyzed that the obtaining estimation of
the image was $470 which come to $1177 just as portrait sold at the sum $5000 to
the capital expansion rose in this estimating $3822.
Absolutely, it is rightly observed that Helen attains loss in second and third
transactions and capital gain arise in last transaction. The increment of the capital
amount was set off with the losses which incurred in the above transactions, and
remaining losses need to be carried forward to the next years. Beneath count shows
every single exchange.
Particular Amount $
1 Exempted XXX
2 Capital Loss (4120)
3. Capital Loss (20117)
4. Capital Gain 3822
Total capital loss (20415)
Question 2
According to ATO, assessable income can be demonstrated as a gross income and
classified as pensions, rent, salary and wages, interest from the bank accounts,
bonuses which receives employees from overtime work, other payments for the own
services and salesperson receives the commission (Adejare, 2015). According to the
Income Tax Assessment Act, 1936, personal services income is the one which
generates from the personal skills and also efforts of the individual. In this income, it
is confidential as personal service income attains when 50% and more than that of
amount receives for a contract according to the labor, skills along with the expertise.
When personal sales business, there are no variations associated with tax

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obligations, and it needs to declare the personal service income on the tax return
(Australian Government, 2017).
According to Australian Taxation Authority, the individual can reform the tax code
which provide the permission for a limited of income splitting between the spouses
with a maximum tax benefit of $2000 (Mccallum, 2018). According to Income Tax
Assessment Act, 1936, Australian Taxation Office issues the diversified decisions
which requires the extra efforts as it aid in creating the certainty for taxpayers. This
can be categorized as a labor intensive and according to this practice become
worse. The main reason of this is income splitting among the contractors instead of
employees (Braithwaite, 2017).
A.) Using case, discuss Barbara’s income
According to the given case, Barbara earned the revenue in three different ways that
are by selling the book, selling the copies of books and by selling the manuscripts of
interviews. Barbara wrote economics book for the very first time named as
“Principles of Economics” and for writing this book she made the contract with Eco
Books Ltd. and company give the copyright to her for writing this book. For this
copyright, she received $13400 because of utilizing the skills and implement
effective efforts (Wagner, 2014). This given situation is proved with the case of
“Brent v FCT (1971) 125 CLR 418” as in the given case the book named “Husband
story of life” as in this she got the copyright for this book as this to describe the story
of her husband's life and she wrote by using personal skills and on the basis of that
she generates the income. In comparison to this case, Barbara got the 13400$
because of selling the books, but it is not included in the capital gain. This received
amount was assessable or taxable, and the reason for this is attaining the outcomes
because of potentialities and skills (Howard et al., 2014).

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Another income generates by Barbara by selling the manuscript of books to the Eco
Books Ltd., and for this, she received $4350. This is also received according to her
personal exertion, but this income can be assessable and not described as a capital
gain.
Apart from this, she also gains the $3200 for delivering the diversified interview
manuscripts which she received while writing the economics book. For writing this
book, she uses so many skills and extra efforts as well because she wrote an
economics book for the very first time. Hence, it might be portrayed as the correct
pay related to singular undertakings.
B.) Using substitute situation, discuss Barbara’s income
According to the given situation, Barbara signed the formal agreement with the Eco
Books Ltd. But on the other side, another situation occurs that if she does not make
any type of formal agreement with the book company, then is it possible that she can
generate more revenue. If Barbara does not sign any type of formal agreement and
she completed the writing of the book “Economic Principles” and after completing the
book, she sells the books to Eco Books Ltd. In this situation also Barbara can get the
payment according to their utilization of skills and also put the extra efforts in writing
the book (Basu, 2016). This situation also examines with the case of “Brent v FCT
(1971) 125 CLR 418" because in this case, women describe the husband life story to
the agency who print the newspaper that how her husband uses their skills and
made the efforts. Whereas in the given situation, there is no demand for signing the
contract, whether it is formal and informal, she earns the maximum revenue by
putting the hard work she wrote the book economic principles (Filatova, 2014).

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Question 3
Discuss the effect of this arrangement on the assessable income of Patrick
According to the case scenario, it has been examined that David needs to repay the
full amount, which was borrowed by his father after completing two years. If the
borrowed amount has utilized by individuals for the personal organization, then it
needs to be included in taxable income. But in the given situation, David has taken
the amount for her own business from his father and this description as an ordinary
income. In the Australian Taxation Law, assessable income describes as an income
which can be taxed and also offered the earnings which assist in enhancing the tax-
free threshold (Lang et al., 2018).
The assessable income is the ordinary income, and it does not include the GST as
well as include some other expectations which earned from the different activities
related to the business. This demonstrates the appropriate accounting method which
impact the amount included in the income year according to the variations in law
associated with tax rates for the not-for-profit business organization.
According to Australian Taxation Law, an individual need to pay the interest on the
received amount, and all the information should be written in contract so that
business can run effectively. But in case, there is no contract made between David
as well as Patrick, but still, David needs to repay the amount in two years with the
interest of 5% after finishing five years (Thuronyi and Brooks, 2016).
Apart from this, as per the law’s clients can make the contract by deciding their own
liabilities along with the risk as it helps in generating and maximizing more money.
But according to the given information in the case, it can be examined that David
needs to return the money to his father by managing the liabilities along with the risk
but for the two years, no need to pay the interest amount. But after years, David

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should pay the additional 5% amount of $52000 to Patrick, and this generation of
income can be shown to statements as a taxable income (Burman et al., 2016).
Conclusion
It has been summarized from the above report demonstrate the different provisions
given by ATO related to capital gain. This report is classified into different sections,
and the first section describes that Helen wants to increase the funds for the
business, and for that Helen sold the different products, but she attains the loss by
selling their resources. Another section of this report describes the situation of
Barbara, who wrote the first book of Economic Principles and generate the profit by
using their own skills. The last section demonstrates the impact of taxable income of
Patrick.

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References
Adejare, A. T. (2015) The analysis of the effect of corporate income tax (CIT) on
revenue profile in Nigeria, American Journal of Economics, Finance and
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Basu, S. (2016) Global perspectives on e-commerce taxation law. UK: Routledge.
Braithwaite, V. (2017) Taxing democracy: Understanding tax avoidance and evasion.
UK: Routledge.
Burman, L. E., Gale, W. G., Gault, S., Kim, B., Nunns, J. and Rosenthal, S. (2016)
Financial transaction taxes in theory and practice, National Tax Journal, 69(1), pp.
171.
Devereux, M. and de la Feria, R. (2014) Designing and implementing a destination-
based corporate tax.
Filatova, T. (2014) Market-based instruments for flood risk management: a review of
theory, practice and perspectives for climate adaptation policy, Environmental
science & policy, 37, pp. 227-242.
Howard, S. J., Gordon, R. and Jones, S. C. (2014) Australian alcohol policy 2001–
2013 and implications for public health, BMC Public Health, 14(1), pp. 848.
Johansson, D., Stenkula, M. and Du Rietz, G. (2015) Capital income taxation of
Swedish households, 1862–2010, Scandinavian Economic History Review, 63(2),
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Kim, N. N. and Kim, J. (2015) Top incomes in Korea, 1933-2010: Evidence from
income tax statistics, Hitotsubashi Journal of Economics, pp. 1-19.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. (Eds.). (2018) Introduction to
European tax law on direct taxation. Linde Verlag GmbH.

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Mehrotra, A. K. and Ott, J. C. (2015) The curious beginnings of the capital gains tax
preference, Fordham L. Rev., 84, pp. 2517.
Paolella, L. and Durand, R. (2016) Category spanning, evaluation, and performance:
Revised theory and test on the corporate law market, Academy of Management
Journal, 59(1), pp. 330-351.
Thuronyi, V. and Brooks, K. (2016) Comparative tax law. Kluwer Law International
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Wagner, M. (2014) Regulatory Space in International Trade Law and International
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Online
Australian Government, (2017) Personal services income [Online]. Available at:
https://www.ato.gov.au/Business/Personal-services-income/ (Accessed: 26th May
2019).
Mccallum, J. (2018) Tax office takes on professionals over income splitting [Online].
Available at: https://www.intheblack.com/articles/2018/04/05/ato-accountant-income-
splitting (Accessed: 26th May 2019).