HI6028 Taxation Theory: Practice & Law - Analyze Taxation Questions

This assignment provides a detailed analysis of various taxation law questions. It covers the capital gains tax (CGT) consequences of selling collectables such as antique paintings, historical sculptures, jewellery, and pictures, focusing on CGT events, cost base calculations, and potential discounts. Furthermore, it examines whether receipts are considered income from personal exertion, referencing relevant case laws to determine the nature of income from book sales and manuscript disposals. The assignment also addresses the assessability of additional payments on loans, applying legal principles to conclude whether such payments constitute assessable income. This comprehensive analysis offers a thorough understanding of key taxation principles and their application to real-world scenarios.

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

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Question Number 1:
Part 1:
The issue to be determined in this part is determining the capital gain consequence of
selling of the antique painting by Helen.
The antique painting can be regarded as a collectable and a capital gain asset as given
by section 180-10 (2) of the Income Tax Assessment Act 1997. As provided under sec. 102.2
CGT will be only applied if a CGT event has occurred as per the table given under section
104-5. The disposal or sale of a CGT asset is a CGT A1 event as per section 104-10(1). The
tax payerwill be an owner at the time when such asset is acquired under section 109-5 (1).
However, from the facts of the case, it is not clear when Helen received the painting
as it was bought by her father. If it was received before 20th of September of 1985, it will be
not included in CGT because it is then a pre CGT asset. However when it is received after the
said date, the painting will be considered as a collectable under the said Act. The cost base as
per section 110-25 (2), Element 1 with be the price of acquisition of 4000 $. But as she has
probably received the painting from her father by way of gift or as an heir, the Cost Base will
get modified accordingly with the market price of the painting when it was acquired
according to section 112-20. As per section 116.20, the capital proceeds is the selling price of
the painting which is 12000 $ as per section 116.20. The Capital gain will be equal to the
Capital Proceeds after deduction by Cost Base. If he can hold the asset for more than 1 year,
then she will be liable to get a benefit of 50 % as discount on it under Division 115.
Part 2:
The issue to be determined here is the CGT consequences of the sale of the historical
sculpture by Helen.

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The historic sculpture as sold by Helen can be construed as a collectible and also a
capital gain as held in section 108-10 (2) of the Income Tax Assessment Act 1997. As held in
the section 102.2 of the said Act, CGT can only be applied when there will be a CGT event as
per the table given in section 104-5. Under the provisions of section 104- 10 (1), when a CGT
asset is sold or disposed off, a CGT event A1 will occur too. The time of acquisition of the
asset is December 1993 as per the facts of the case when she purchased the sculpture. It
shows that this sculpture is an asset of post CGT. Its disposal is also a CGT event A1 as per
section 104- 10(1). The cost base as per section 110- 25(2), Element one is the selling price
of 6000 $. The capital proceeds is the sale price of 5500 $ according to section 116.20. The
Capital Gain is the capital proceeds deducted by the cost base which produce a positive
amount meaning a total capital gain of 6000- 5500 =500 $. Thus capital gain is 500 $. It
means she will be eligible for 50 % discount under Division 115.
Part 3:
The issue involved here is to analyse the CGT consequences of the sale of the piece of
jewellery.
As per section 108-10(2) of the Income Tax Assessment Act 1997, the antiques
jewellery piece sold by her is a collectable asset as well as a capital gain. As held in the
section 102.2 of the said Act, CGT can only be applied when there will be a CGT event as
per the table given in section 104-5. Under the provisions of section 104- 10 (1), when a CGT
asset is sold or disposed off, a CGT event A1 will occur too. The tax payerbecomes the
owner when the asset is acquired by the party according to section 109- 5(1). Here, Helen
bought the jewellery in October 1987 for 14000 $. This shows that the jewellery piece is a
asset of post CGT and its sale is a CGT A1 event as per section 104- 10(1). The 1st element of
cost base is the purchase price of 14000 $ under section 110- 25(2). The capital proceeds is
the selling price of 13000 $ under section 116.20. The capital loss here is Capital proceeds

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deducted from cost base. Hence capital loss= capital proceeds – cost base= 13000$-
14000$=1000$. This loss can be off set against the collectable capital gain only. This los can
be taken to the coming year.
Part 4:
The issue that has to be discussed here is the CGT consequences on the sale of the
picture by Helen.
As per section 108-10(2) of the Income Tax Assessment Act 1997, the picture sold by
her is a collectable asset as well as a capital gain. As held in the section 102.2 of the said Act,
CGT can only be applied when there will be a CGT event as per the table given in section
104-5. Under the provisions of section 104- 10 (1), when a CGT asset is sold or disposed off,
a CGT event A1 will occur too. The tax payerbecomes the owner when the asset is acquired
by the party according to section 109- 5(1). Here, Helen’s mother bought a picture on March
of 1987 for 470 $ and she sold it for 5000 $ on July 1st of 2018. From the facts of the case, it
is unknown when Helen has acquired the picture as it was purchased by her mother. The
picture if acquired after 20th September 1985, it will be considered as a collectable. The 1st
element of cost base is the purchase price of 470 $ under section 110- 25(2). But as she has
probably received the painting from her mother by way of gift or as an heir, the Cost Base
will get modified accordingly with the market price of the painting when it was acquired
according to section 112-20. As per section 116.20, the capital proceeds is the selling price of
the painting which is 5000 $ as per section 116.20. The Capital gain will be equal to the
Capital Proceeds after deduction by Cost Base. If he can hold the asset for more than 1 year,
then she will be liable to get a benefit of 50 % as discount on it under Division 115.

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Question 2:
The issue to be discussed here whether the receipts made by Barbara will be
considered as her income by way of personal exertion according to the facts of the case.
Income by way of personal exertion is elaborated in the section 6-1 of the Income Tax
Assessment Act 1936. This definition is very broad and not helpful to categorise the receipt.
Thus decisions of case laws are to be referred to analyse the present case study. In the case of
Hayes v FCT 1956, it was stated by the court that a receipt will be regarded as an ordinary
income as it is an income from personal exertion of the receipt and it can be further
categorised into a reward or a result from income earning act.
13000 $
In order to simplify it, there must be enough connection between the services
provided and the income received. An amount payable to the independent contractor will be
regarded as the Ordinary income as it is given against the personal services provided. In the
similar manner, Barbara was provided with 13000 $ for writing a book. Moreover, she is an
independent contractor. Hence this receipt will be considered as the Income out of the
personal exertion. This is being observed in the case of Brent v FC of T 1971 ATC 4195. In
this case, the court held that if the tax payer has assigned Copyright, it will be regarded as a
capital receipt. Since in this case, as Barbara has assigned her copyright for 13000 $, it will
be regarded as a capital receipt instead of an income out of personal exertion.
4350$
The income out of the sale of the manuscript of the book will be treated as the income
from personal exertion. It can be stated by following the decision given in the case of Hobbs
v Hussy (1942) TC 153. In this case, the court has regarded the sale of rights as an assessable

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income. Similarly, income by selling the manuscript by Barbara is also regarded as the
income from personal exertion.
3200 $
The income out of the sale of the interview manuscripts will also be treated as the
income from personal exertion. It can be stated by following the decision given in the case of
Hobbs v Hussy (1942) TC 153. In this case, the court has regarded the sale of rights as an
assessable income. Similarly, income by selling the interview manuscripts by Barbara is also
regarded as the income from personal exertion.
Part 2:
The issue here is to analyse the character of the receipts incurred by Barbara if she
wrote the book without making any contract with the publisher in her free time.
As per section 6-5 of Income Tax Assessment Act 1936 includes receipts out of
ordinary income heads. The intention to make profit must be present for considering a receipt
as an income. Similarly, income from a hobby is not an assessable income according to
Taxation Ruling 97/11.
Hence, if the situation appears that Barbara wrote the book in her free time, there will
be no intention to make profit. Moreover, there is no connection between the service provided
and the amount received by her. Thus her income is out of hobby and will not be considered
to be assessable income as per Taxation Ruling 97/11.
Question 3:
Issue:
The issue is to determine whether the additional amount of 5% by David to his father
Patrick will amount to an assessable income.

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Rules:
In the case of Federal Commissioner of Taxation v Whitfords Beach Pty Ltd
(1982) ATC 4031, the court stated that if a person is being involved in a transaction with an
intention to make profit, then the receipt out of such transaction will be regarded as the
income of the Tax payer. In another case of Lomax v Peter Dixon and Son [1943] 1 KB
671, it was decided that such interest will be regarded as the ordinary income of the tax
payer. Similar decision is observed in the FC of T v Myer Emporium Ltd 87 ATC 4363
case which states that if there lies a transaction that involves the intention of making profits,
then it will be treated as an income of the tax payer.
Application:
From the facts of the case, it is seen that father, Patrick has given loan to the son
named David. Though the father had not demanded any interest for the loan given, the son
repaid the entire loan by a cheque within two years that includes an additional payment equal
to 5% on the sum lent. This money can be depicted as an income for Patrick. This is revealed
in the Federal Commissioner of Taxation v Whitfords Beach Pty Ltd. [1982] HCA 8
which enumerates that when a person is involved in an on off dealing transaction with an
intention to make profit, then the receipt out of such transaction will be regarded as the
income of the Tax payer. Thus the extra 5% given by the son David to Patrick is an
assessable income for the father.
Conclusion:
Hence, additional 5% money given by David will be treated as an assessable income
for father.

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References:
FC of T v Myer Emporium Ltd 87 ATC 4363
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) ATC 4031
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd. [1982] HCA 8
Lomax v Peter Dixon and Son [1943] 1 KB 671
Taxation Ruling 97/11
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997