Income Tax Assessment of Australia Free-Samples for Students

Questions: 1.Discuss whether or not the three Payments are Income from Personal Exertion. Would your answer differ if she wrote the Story for her own Satisfaction and only decided to sell it later? 2.Discuss the Effect on the assessable Income of the Parent.3. Based on the Information above, determine Scotts Net Capital Gain or Net Capital Loss for the year ended 30 June of the Current Tax Year. 4.How would your answer to 1 differ if Scott sold the Property to his Daughter for $200,000? 5.How would your answer to 1 differ if the Owner of the Property was a Company Instead of an Individual? Answers: 1.The material facts of the case indicate that Hilary who is professional mountain climber has been extended an offer to pen down the story of her life for a consideration of $ 10,000 which she has accepted. Eventually, she completes the story without any assistance and is paid $ 10,000 for selling the story along with associated copyrights. Also, she derives a total revenue of $7,000 by liquidating the manuscript expedition related photographs to a library. The key concern is to opine if the above payments can be treated as personal exertion income under the ambit of s. 6-5, ITAA 1997. Income from story writing It is interesting to note that despite having no writing experience whatsoever, Hilary is approached by a newspaper and extended a hefty amount of $ 10,000. Also, Hilary completes the story without services of ghost writer and this work is accepted by the newspaper. These two facts clearly reflect that interest of the newspaper does not lie in Hilarys literary skill but rather on the personal information which is considered valuable on account of her fame. The act of writing is merely a mode for passing on the personal information and is otherwise not generating any income. Hence, the receipts would be capital as they relate to the transfer of asset i.e. personal information about Hilary (Barkoczy, 2016). This is in line with the arguments advocated by the honourable court in Brent vs Federal Commissioner of Taxation(1971) 125 CLR case (Gilders et. al., 2016). Income from photographs and manuscript- In line of the above reasoning, it may be argued that the commercial value of photographs does not lie in the skills of photography but rather the content and association with Hilary. Similarly, the manuscript could hardly be considered as a piece of literature having commercial worth but the consideration extended is because it contains details about life of Hilary. Hence, these would also be considered as non-taxable capital receipts (Woellner, 2013). Changed Intention- In case, Hilary pens down the story solely driven by self-satisfaction, then also the income derived would be capital receipts. The argument would still remain the same as the books commercial value would be on account of the content and not because of the writers literary skills. Hence, through the medium of the book essentially an asset transfer would take place which would result in proceeds being capital and non-taxable (CCH, 2015). Conclusion- Neither of the payments would be termed as income on account of personal exertion as the underlying activities have not produced anything having commercial worth. 2.As per the relevant information, mother has extended a loan of $ 40,000 to her son which she expects would be repaid back at the end of five years. The son also offers paying interest @5% per annum which the mother promptly denies and conveys to the son that she expects principal repayment only. The son cleared the debt by making a payment of $ 44,000 through cheque after two years had elapsed. The key concern is to advice in relation to the tax assessability of the proceeds received from the son. Out of the total proceeds received, $ 40,000 is directed towards the principal repayment and therefore will be tax exempt as the receipts are of capital nature (Coleman, 2011). The concern is therefore to ascertain whether the $4,000 paid as interest would be tax assessable or not. In order for the proceeds to be tax assessable they should be either classifiable as ordinary or statutory income (Hodgson, Mortimer and Butler, 2016). The given payment of $ 4,000 is outside the ambit of s. 6-5 as the taxpayer is not engaged in business of money lending. This is apparent from the fact that she denies wanting any interest which is quite contrary to the way business transactions are conducted (CCH, 2015). Further, this may not be taken as profit from isolated transaction as covered under s.15-15. This is because the underlying motive to profit in the form of interest income is lacking (Wollner, 2013). Besides, the $ 4,000 payment cannot be considered as statutory income under s. 6-10 as it is easily cash convertible (Gilders et. al., 2016). Hence, the $ 4,000 payment is a gift in line with the conditions outlined in TR 2005/13 such as the actual transfer of benefit on voluntary basis without any expectations for future and derived from benefaction towards the other party (Barkoczy, 2016). Therefore, no tax would be levied on $ 4,000 and hence the whole $ 44,000 is tax exempt for the parent. 3.As land parcel has been bought before September 20, 1985 while the house construction has been enacted after that, hence land is exempted from paying CGT (Capital Gains tax) but the same cannot be said about the house. Thus, on capital gains made by house, CGT would be applicable (Woellner, 2013). Total valuation of property in 1986 Land = $90,000 Construction cost of house = $60,000 Total cost attributed to house = (Cost of house/Total asset cost) = (60000/150000) = 0.4 or 40% Total valuation of property at present Value of property in auction = $800,000 Property value that could be allocated to the house = 40% of 800000 = $ 320,000 The capital gains may be computed using either discount method or indexation method. Discount method (CCH, 2015) Capital gains (Gross) = Selling price Cost base = 320000 60000 = $ 260,000 Discount of 50% would apply since individual taxpayer and gains are long term Capital gains (Net) = Capital gains (Gross) Discount = 260000 130000 = $ 130,000 Indexation Method (Gilders et. al., 2016) Taxable capital gains = Selling price Inflation adjusted cost base = 320000 - 60000*(68.72/43.2) = $ 224,600 The discount method would be preferred by Scott as the tax liability is minimised in that case. 4.In this case, Scott sells the property for a consideration of $ 200,000 to his daughter even though the market value is $ 800,000 but still the capital gains remain the same as s. 116-30 dictate that computation of taxable capital gains should consider the higher of the market valu and the sale value (Austlii, nd). Thus, $200,000 would be discarded and gains would be computed using $ 800,000 leading to the same value. 5.The owner of the property is a company and not an individual taxpayer. Thus, discount method of capital gains computation is not available and indexation method would be used which would lead to taxable capital gains of $ 224,600 (Coleman, 2011). References Austlii nd, INCOME TAX ASSESSMENT ACT 1997 - SECT 116.30, Austlii Website, [Online] Available at https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s116.30.html [Accessed April 19, 2017] Barkoczy,S 2016, Foundation of Taxation Law 2013,8theds., North Ryde: CCH Publications, CCH 2015, Australian Master Tax Guide 2013, 53rd eds., Sydney: Wolters Kluwer Coleman, C 2011, Australian Tax Analysis, 4th eds., Sydney: Thomson Reuters, Gilders, F, Taylor, J, Walpole, M, Burton, M. and Ciro, T 2016, Understanding taxation law 2016, 9th eds., Sydney: LexisNexis/Butterworths. Hodgson, H, Mortimer, C and Butler, J 2016, Tax Questions and Answers 2016, 5th eds., Sydney: Thomson Reuters, Woellner, R 2013, Australian taxation law 2013, 7th eds., North Ryde: CCH Australia