Resources Purchased For Individual Utilization And Taxability On Capital Gains

Critical analysis

Discuss About The Resources Purchased Individual Utilization?

The observation of the case of Eric depicts that he has acquired certain resources in the course of the recent year. The concerns of taxability on capital gains can be applied in this case on the basis of the offering cost of the asset being greater than the procurement cost. The critical condition that can be apprehended in the case of Eric is that he is not liable to obtain indexation benefits owing to the duration of holding the assets for less than a year.

The resources purchased for individual utilization could be implicative of fulfilling the personal objectives or recreation. The management acquired for personal utilization do not comprise of collectibles. It is mandatory to note that the assets which were procured at costs under$10000 could be exempted from the capital gains tax (Boyle, 2015). In the case of Eric, the resources procured for personal utilization refer to the incorporation of offers of a listed company which are procured at $5000 and a home sound system which has a procurement cost of $12000 (Wilson-Rogers, Morgan & Pinto, 2014).

Collectibles or individual resources are procured by individuals for accomplishing additional targets including realization of self-efficacies. The concerns of applying capital gains tax to the profits on sale of collectibles have to be addressed in case of Eric. Collectibles which are purchased at costs lesser than or equivalent to $500 are exempted from the precedents of capital gains tax. The collectibles which are acquired by Eric refer to an antique vase, a painting and an antique chair at the procurement costs of $2000, $9000 and $3000 respectively (Wilson-Rogers, Morgan & Pinto, 2014).

The data related to procurement costs of the personal assets and collectibles could be helpful for determining the capital profits on the assets held for less than a year by Eric.

Resources	Cost Base of Resources	Capital Proceeds of Resources	Net Capital Loss/ (Net Capital Gain) in $
Antique Vase	2,000	3000	Gain of 1000
Antique Chair	3,000	1000	Loss of 2000
Painting	9,000	1000	Loss of 8000
Home Sound System	12,000	11000	Loss of 1000
Shares in listed company	5,000	20000	Gain of 15000
Net loss or gain			Gain by 5000

The evaluation suggests that capital gains tax would be applicable to profits from sale of personal assets since the aggregate procurement costs of the personal assets acquired by Eric is estimated to be more than $10000. In the case of collectibles, the aggregate procurement cost was estimated to be above $500 which implies that the gains from their sale would also be liable to tax treatment . The net benefit for the year could be calculated through subtraction of the annual capital losses from the annual capital benefit.

Supporting evidence

The case under concern refers to the $1 million loan taken by Brian for a period of three years at a special interest rate of 1% from his manager. The formidable difference between the prevailing interest rates in the market and the loan interest rate provided to Brian could classify the loan as an incidental advantage (Boyle, 2015). Therefore it is valid to implement the statutory financing cost as interest based on the statutory interest rate of 5.65%.

The deductible rule implies that the interest calculated on the loan by using real rate of interest must be subtracted from the interest obtained by implementing the statutory interest rate to determine the credit incidental advantages or fringe benefits on the loan.

Interest computed with statutory rate of interest = $1000000*5.65%= $56,500

Interest computed with actual rate of interest= $1000000*1%= $10000

Therefore, credit incidental advantages= $56,500-$10,000= $46,500

The second step assumes that the interest would be the real amount payable. Hence, interest calculated with respect to statutory loan fee= $1000000*5.65%= $56,500.

The third step implies the condition of Bran spending 40% of the loan to address future obligations which requires calculation of theoretical tax deductible interest expense.

Statutory Tax deductible interest expense = $56,500 * 40% = $22,600

The fourth step involves the calculation of real tax deductible interest expense that can be presented as,

Real tax deductible interest expense= $10000*40 %= $4000

The fifth step is associated with subtracting the real tax deductible interest expense from the hypothetical or statutory tax deductible interest cost.

$22,600-$4000= $18,600

The total tax payable by Brian could be computed by deducting the amount calculated in the fifth step from the loan fringe benefits identified in the first step.

Total tax payable = $46,500-$18,600 = $27,900

The deemed period in the case of Brian could be identified in two different settings. In the case of payment of the interest in monthly instalments, the deemed period would be ascertained from the instance when the payment of interests is initiated. On the other hand, if the interest is paid at the end of the loan period then the deemed period is ascertained from the time when the interest is classified to be payable. In case of Brian being exempt of any obligations to pay the interest, the calculation of net tax payable would be made through the above steps with implications of zero percent actual interest rate.

Case Study

The case implies the issue of taxation to be determined in context of Jack, an architect and his wife, Jill, a housewife. The details convey that Jack and Jill acquired a loan for purchasing a rental property as joint tenants by entering into an agreement (Boyle, 2015). The agreement absolved Jill of any responsibilities for losses incurred due to the property while allocating all responsibilities on Jack. The precedents for distribution of profits could be observed in the share of 10% for Jack and 90% of the profits for Jill. The property has incurred a loss of $10000 last year and therefore it must be reviewed for the purpose of tax treatment with the implications for the couple’s decision to sell the property.k and Jill in context of the purchase of the rental property. The loss incurred by the property last year i.e. $10000 has to be attributed solely to Jack who can choose to address this loss through inputs from his other sources of income or selecting to carry forward the loss in his accounting statements to the next year (Wilson-Rogers, Morgan & Pinto, 2014). On the other hand, if the property is able to generate profits then the distribution won’t be affected due to the losses and would be divided among Jack and Jill in the shares of 10% and 90%.

The opportunities for the sale of the property and the profits acquired from it could also help Jack in addressing the loss of $10000. Therefore, Jill could not be accounted for any form of tax treatment in context of this loss.

The above discussion related to the case conveys that Jack could be able to offset the losses of last year with the profits acquired this year or through his other sources of income. In case Jack could not be able to obtain profits in the present year, he has to bear the responsibility for losses and ensure that they are reflected in accounts for tax treatment.

The case of IRC v Duke of Westminster [1936] AC 1 is primarily related to the references to tax evasion and the tax avoidance standoff (Boyle, 2015). This principle otherwise known as the Westminster principle could be characterized by the provision of opportunities to individuals and businesses for reducing tax liabilities. The major highlights that can be inferred from the case include:

• The use of moral means provides exemption for questioning by authorities
• Legal means and strategies are necessary in the process of modifying aggregate income to prevent action by authorities such as Commissioner of Inland Revenue.

However, the application of these precedents has been expanded with the introduction of new laws according to contemporary case scenarios. The new case laws refer to the opportunities for companies incurring losses to alter their financial records as well as discount their fixed assets according to desired rates. It can also be observed that the laws exempt cases where the means are applied for operational improvement in the organization.

The case of Bill has to be reviewed in context of capital gains tax on the income obtained by him from a logging company. Bill hired the services of the logging company to clear off his large piece of land filled with pine trees (Boyle, 2015). The concerns for applying capital gains tax on the income obtained from the logging company could be reviewed from the different nature of receipts. In the case of capital receipts, the logging company provides a one-time payment of $50000 for clearing off the entire piece of land. This income or capital receipt is characterized by providing rights to another party, time required for regrowth of the trees and the lump sum nature of the payment (Wilson-Rogers, Morgan & Pinto, 2014). Therefore the income could be subject to capital gains tax in this scenario. On the other hand, if Brian receives payment from the logging company in instalments of $1000 for every 100 meters of land cleared then it would be categorized as recurring deposits thereby implying exemption from capital gains tax. However, Bill would be liable to pay taxes on the income in recurring receipts based in the actual tax rates.

References

Boyle, L. (2015). An Australian August Corpus: Why There is Only One Business Law in Australia. Bond Law Review, 27(1), 3.

Wilson-Rogers, N., Morgan, A., & Pinto, D. (2014). The primacy of client privilege: designing a statutory tax advice privilege for accredited non-lawyer taxation advisors.