Taxation Law: Application of ITAA 1997 to Income, Interest, and CGT

This case study delves into various aspects of taxation law, primarily focusing on the application of the Income Tax Assessment Act 1997 (ITAA 1997). It addresses the taxability of income derived from personal exertion, specifically examining scenarios involving a mountain climber's earnings from narrating her life story, selling manuscripts, and potential royalty income from an autobiography. The analysis applies relevant legal precedents such as Scott v CT, Brent v FCT, Marshall v Housden, and Hobbs v Hussy to determine the tax implications under section 6-5 of the ITAA 1997. Additionally, the study explores whether interest earned from a loan given to a son is assessable as taxable income, referencing cases like Mayes v Hochstrasser and FCT v Countess of Bective. Finally, it calculates capital gains tax (CGT) in different scenarios related to the sale of land, considering factors like purchase price, cost of construction, and whether the taxpayer is an individual or a company, incorporating relevant sections of the ITAA 1997 such as section 105-55 (2).

Running head: TAXATION LAW
Taxation Laws
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Answer to question 1:
Issue:
The existing issue is ascertaining whether or not the income from personal exertion is
taxable in relation to “section 6-5 of the ITAA 1997”?
Laws:
 “Section 6-5 of the ITAA 1997”
 “Scott v CT (1935)”
 “Brent v FCT” “Marshall v Housden (Inspector of Taxes) 1958” “Hobbs v Hussy (1942) TC 153)”
Applications:
The situation opens up where Hilary was regarded as one of the well-known mountain
climber. She was later offer money by the News Paper company to tell her life story. She
agreed to narrate story and vests all her interest to newspaper company. As per “section 6-1
of the ITAA 1936” income obtained from personal exertion refers to income from salaries or
wages of benefits (Peiros and Smyth 2017). “Section 6-5 of the ITAA 1997” defines income
that are mostly received by taxpayer from ordinary concepts. As per the decision of “Brent v
FCT” the receipt of $10,000 would be classified as income from ordinary concepts which is
taxable under “section 6-5 of the ITAA 1997” (Mares and Queralt 2015).
Hilary later sold her manuscripts and photographs to the library. Stating the decision
of “Marshall v Housden (Inspector of Taxes) 1958” income derived from sale of manuscripts
will be taxable under ordinary concepts of section 6-5 of the ITAA 1997 (Smith 2015).

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If she decides to write the book herself then and received money from such sale will
be classified as royalty income. Citing the case of “Hobbs v Hussy (1942) TC 153)” the sale
of autobiographies results in royalty income which is taxable under “section 6-5 of the ITAA
1997”.
Conclusion:
The receipt of$10,000, $5000 and $2000 will be included as personal exertion income
which is taxable under “section 6-5 of the ITAA 1997”.
Answer to question 2:
Answer to question 3:
Issue:
The issue here is understanding whether the interest that is earned from loan given to
son would be held assessable taxable under “section 6-5 of the ITAA 1997”?
Laws:
 “Section 6-5 of the ITAA 1997”
 “Mayes v Hochstrasser (1960)”
 “FCT v Countess of Bective (1947)”

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Applications:
The taxpayer gave loan to her son for short term housing finance. Though there
wasn’t any formal loan agreement but the loan was to be re-paid by son inside five years’
span. “Section 6-5 of the ITAA 1997” provides income should be treated as per the ordinary
concept. With reference to decision in “Mayes v Hochstrasser (1960)” the interest income by
the parent should be determined based on the situations of derivation (Woellner et al. 2016).
With respect to decision in “FCT v Countess of Bective (1947)” receipt of interest income is
gain and taxable under “section 6-5 of the ITAA 1997”.
Conclusion:
The interest income should be treated as income from ordinary concept and taxable
under “section 6-5 of the ITAA 1997”.
Answer to question 4:
Answer to A:
The sale of land by Scott has resulted in CGT event A1 and the land should be viewed
as Post-CGT assets based on “section 105-55 (2) of the ITAA 1997”.
Particulars Amount ($)
Purchase Price 90,000.00
Month & Year of
Purchase
Sep-86
Salling Price 8,00,000.00
Month & Year of Sale Jun-18
Capital Gain 8,00,000.00
Tax with Indexation 1,60,000.00
Purchase Price 90,000
Cost of Construction 60,000
Total Cost of Land 1,50,000
Disposal Proceeds 8,00,000
Net Capital gains 6,50,000
Calculations of Capital Gains Tax
For the Year ended 30th June

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Answer B:
Particulars Amount ($)
Purchase Price 90,000.00
Month & Year of Purchase Sep-86
Salling Price 2,00,000.00
Month & Year of Sale Jun-18
Capital Gain 2,00,000.00
Tax with Indexation 60,000.00
Purchase Price 90000
Cost of Construction 60000
Total Cost of Land 150000
Disposal Proceeds 200000
Net Capital gains 50000
Calculations of Capital Gains Tax
For the Year ended 30th June
Answer to C:
Rather than being an individual if the taxpayer was the company then it is required to
subtract the amortization costs and tax amount.
Particulars Amount ($)
Month & Year of Purchase Sep-86
Sale Price 8,00,000.00
Month & Year of Sale Jun-18
Capital Gain 8,00,000.00
Purchase Price 90000
Construction cost 60000
Total cost of land 150000
Disposal Proceeds 800000
Net Capital gains 650000
Less: 50% CGT Discount 325000
Taxable Capital Gains 325000
Assessable as company 325000
Calculations of Capital Gains Tax
For the Year ended 30th June

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Reference List:
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), p.394.
Smith, J.P., 2015. Australian state income taxation: a historical perspective. Austl. Tax F., 30,
p.679.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.
Mares, I. and Queralt, D., 2015. The non-democratic origins of income
taxation. Comparative Political Studies, 48(14), pp.1974-2009.