Hilary, the famous mountaineer has received certain payments which need to be analysed in light of s. 6(5) to ascertain if they can be termed as personal exertion related income or not.
The newspaper has approached Hilary despite knowing that she lacks skills related to writing. Also, a $ 10,000 hefty payment was offered as an incentive to Hillary so that she would write her story. The key questions emerges is why a newspaper would give so much money to an individual without writing skills. The answer lies in the subject matter. Since story of Hilary would contain vital information with regards to Hilary which is valuable owing to her fame due to which people would be interested in knowing about her. management, the action of writing does not lead to assessable income production but it only acts a the medium which enables the example of information from Hilary to the newspaper. (Barkoczy, 2015).
This position is validated from the verdict in a similar case i.e. Brent vs Federal Commissioner of Taxation (1971) 125. Here also, through interview vital information was extracted about the martial life of a famous robber from her wife. Even though the interview lasted for more than a week but the court pointed that the act of interview was only a means to express the information that was already available to plaintiff. (Woellner, 2014). Thus, the given payment of $ 10,000 would not be termed as income related to personal exertion.
Taking a cue from the above discussion, it would be appropriate to establish that the manuscript does not have any intrinsic value on the fact that Hilary has written the same. Hilary does not have writing skills for which the people would consider the books as commercially useful and hence the value is derived on the basis of the underlying content which relates to Hilary’s life and something in which people would be interested (Gilders et. al., 2016).
The similar logic is extended for the pictures of the expedition which do not have any intrinsic worth on the basis of Hilary clicking the photographs. Thus, no value has been created on the basis of these photos clicked by Hilary because she is not famous for her photography. The underlying value of the photography is derived on the basis of the subject matter which is expedition of Hilary which is something of interest to people since Hilary’s name is associated with mountaineering. As a result, the proceeds cannot be termed as income derived on account of personal exertion in either of the cases (Gilders et. a., 2016).
In this case, it needs to be addressed if the change of motive would alter the tax treatment. The tax treatment would not change even if the story is written by Hilary driven by only self –satisfaction. This is because the act of writing is itself does not produce anything valuable. The key asset is the information which already exists and writing is the medium of communication. Thus, the underlying intent would not make any difference and the proceeds would still be not recognised as personal exertion based income (Sadiq et. al., 2016).
The requisite formula in accordance with s. 9, FBTAA 1986 is illustrated as follows (Woellner, 2014).
The respective values for the above input variables highlighted in the formula need to be derived using the data provided in the question with the help of applicable statutory provisions (Barkoczy, 2015).
Considering the value of the all the inputs obtained above, the substitution in the statutory formula is made which would yield the following result.
In this case, a parent has given financial help to the tune of $ 40,000 to her son. The parent expected repayment of principal after five years and did not want any interest income from her son which was clearly communicated when money was given. Accounting, the parent did not engage in any collateral security and legal documentation when giving the money to the son. The son in actuality takes two years only to return the money but also pays 5% p.a. interest thus providing $ 4,000 incremental money. Hence, a cheque of $ 44,000 was handed over to the parent to clear the outstanding debt on the son. In the light of these facts, it needs to be ascertained if any tax would be need to be paid by the parent on the receipt of $ 44,000 under the described situation.
It makes sense to divide the $ 44,000 into the two constituents and discuss the relevant tax implications of each part separately in accordance with relevant statutes.
In accordance with the discussion carried above, it would be correct to conclude that the parent would not need to pay any tax since $ 40,000 is capital receipt and $ 4,000 is gift.
The given information highlights the purchase of a vacant land block in Brisbane in 1980 by Scott. Later, a house was constructed on this land which got completed in 1986 at a cost of $ 60,000. When the house construction was complete, the market value of the land was $90,000. The current price of the property is $800,000 as determined through the auction. It needs to be cleared that main residence exemption under Division 118-B would not apply in this case as since construction the house has been rented and Scott has not resided on the property (CCH, 2013).
The first step is to bifurcate the property into two assets namely the land and the house. This becomes necessary since the CGT would not apply to land since it was purchased at a time when CGT did not exist. However, CGT would apply to house since when that asset came into being, CGT was applicable. The house current price can be computed as shown below (Sadiq et. al., 2016).
Based on the above value, the computation of the capital gains on the house can be carried using the two methods as follows (Krever, 2016)
In accordance with discount method under Division 115, for long term gains, a 5% discount is available. Since, in the given case this condition is satisfied, hence, CGT taxable capital gains from sale of property = (50/100)*(320000-60000) which gives final answer as $ 130,000
In accordance with indexation method, the indexed value of h0ouse is considered after adjustment for inflation. Hence, CGT taxable capital gains from sale of property =320000 – (68.72/43.2)*60000 which gives final answer as $224,600.
Scott would like to lower tha tax liability and hence CGT taxable capital gsins would be $ 130,000.
The property is sold to Scott’s daughter but the price charged is lower than the estimated market value. Section 116-30 will be useful here since where there is mismatch between the current value and actual price derived for the asset, the price that is higher should be deployed for capital gains computation (Austlii, nd). The market price of $ 800,000 would be used.
Here the property owner is no longer Scott but now is replaced by an entity which is a company. This tends to have significant effect primarily because discount method is not available to use for companies (Coleman, 2011). Therefore, the capital gains on the property sale would be calculated as per the indexation method discussed in part (a) above.
References
ATO (2005), Tax Ruling TR 2005/13, [online] available at https://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR200513/NAT/ATO/00001
Austlii (nd), INCOME TAX ASSESSMENT ACT 1997 – SECT 116.30, [online] Available at https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s116.30.html (Accessed on May 30, 2018)
Barkoczy, S. (2015) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University Press.
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Coleman, C. (2011) Australian taxation-law Analysis. 4th ed. Sydney: Thomson Reuters (Professional) Australia.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016) Australian tax handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016) Understanding taxation law 2016. 9th ed. Sydney: LexisNexis/Butterworths.
Krever, R. (2016) Australian Taxation Law Cases 2017. 2nd ed. Brisbane: THOMSON LAWBOOK Company.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2016) , Principles of Taxation Law 2016, 8th ed., Pymont: Thomson Reuters
Woellner, R (2014), Australian taxation law 2014 7th ed. North Ryde: CCH Australia
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