Taxation Laws And Rulings In Australia

Capital Gain and Loss: Application of ITAA Act 1997

Issue presented in this particular scenario is about determination of net capital loss or any net capital gain that would arise from selling of such assets.

Laws that is applicable here is income tax assessment act, 1997 with the section 108-10 and section 108-20 of the ITTA Act. Under this section, any capital gain or losses that arise from the personal use of assets are disregarded.

The loss that is generated from the disposal of selling off of the personal assets cannot be considered for setting off purpose and they should be disregarded. In this scenario, selling of home sound system has incurred a loss of $ 1000 and since it is a personal asset, it cannot be considered for computation of net loss or gain. Disposal or selling of ordinary assets of Eric such as antique vase, antique chair, and painting has generated profit and there are not such any deductions prevailing in current year. Sale of shares has resulted in common gains and total amount of loss incurred from selling the assets cannot be set off against such gain generated as per the section 108-10 of the ITAA 1997. Therefore, total amount of capital gain is computed to be at $ 15000.

Asset Description	Cost Base Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Capital Proceeds	Capital gains	Capial loss
Antique Vase	2000	3000	1000
Antique Chair	3000	1000		2000
Painting	9000	1000		8000
Home Sound System	12000	11000		1000
Shares in listed company	5000	20000	15000

Computation of net capital loss for the year
Particulars	Amount ($)
Loss on sale of Antique Chair	2000
Loss on sale of Painting	8000
Less: Gain on sale of Antique Vase	1000
Total Collectable loss to be carried forward	9000
Computation of Net capital gains for the year
Particulars	Amount ($)
Gains on sale of shares	$15,000

It can be concluded that gains generated from selling of ordinary assets cannot be used for deductions of loss.

In this particular situation, it is required to compute the taxable value of fringe benefits for the particular year for Brain.

Law that is applicable in this situation is taxation rulings of TR 93/6. As per this ruling, employees deriving taxable fringe benefits from employers are liable to fringe benefits tax.

This particular ruling is related with arrangement for reducing payment of interest ob loan account of employees. Loan account can be offset by any financial organizations by making plan such as engaging in agreement of offsetting account. Interest payables on part of customers are offset by structuring of such products. Hence, as per this taxation ruling, if any profits are gained from such account, payment of such amount of income tax is not liable on part of customers. Brian will not be responsible for paying any tax amount as per the Taxation Rulings of TR 93/6, if refunding of interest by him on loan amount is discharged by bank (Taylor and Richardson 2013).

Therefore, from the above analysis and the application of taxation ruling, if Brian is unconstrained from making interest payment of loans borrowed, then he as an employee of bank is not responsible for making payment of any amount of income tax.

Taxable value of the loan fringe benfit
In the books of Brian for the year ended 2016/17
Computation under statutory interest rate and actual Interest rate
	Statutory rate	Actual rate
Particulars	Amount ($)	Amount ($)
Amount of Loan	1000000	1000000
FBT Amount 40% business use	400000	400000
Statutory Interest rate @ 5.65%	2825.00	500.00
(Amount of loan x Statutory interest rate) – (Amount of loan x Actual interest rate) / 12 x 60% business use
Taxable value of the loan fringe benfit	2325
FBT on end of the loan on payment of interest at the end of loan
	Statutory rate	Actual rate
Particulars	Amount ($)	Amount ($)
Amount of Loan	1000000	1000000
FBT Amount 40% business use	400000	400000
Statutory Interest rate @ 5.65%	33900.00	6000.00
(Amount of loan x Statutory interest rate) – (Amount of loan x Actual interest rate) x 60% business use
Taxable value of the loan fringe benfit	27900

In this particular question, rental property is jointly owned by jack and Jill and the issue is about allocation of loss for the purpose of computation of tax. Jack is entitled to bear maximum amount of loss in the event of loss generated by rental property.

There are three laws that are applicable in this scenario and this involves taxation ruling of TR 93/32, section 51 of ITAA, 1997 and another of Fc tv of Mac Donalds, 1987 (Barkoczy 2016).

Fringe Benefits Tax: TR 93/6

Description of Generated loss or income from the rental property that is owned by two people is explained in the taxation ruling of TR 93/32 (Lang 2014). Evaluation of co owners of rental property taxable position is done as per this ruling. Examination of taxable position of co owners is done according to this ruling whose activity does not lead to any amount of carrying our business. In the current scenario, Jill is entitled to 90% of profits generated from rental property as against Jack who is entitled only to 10% of profits.

For the purpose of computation of income tax, Rental property co ownership is regarded as partnership according to this ruling. However, if the ownership does not amount to carry business then that cannot be regarded as partnership under general law. In order to satisfy the purpose of income tax computation, such ownership is considered as partnership. In such partnership, any loss or income that is derived from co ownership of rental property and is does not result from distribution of loss or income arising from partnership.

The sharing of loss or income of rental property will not be affected by such partnership agreement whether such agreement is done in writing or orally. The reason is because such under general law, rental property co ownership are not considered as partners. Accordingly, the sharing or loss or income from rental property should be done as per owner’s legal interest. However, such sharing should not be done as per legal interest in some limited circumstances if there is a difference between legal interest and equitable title provided by sufficient evidence.

Therefore, as analysed from the taxation ruling of TR 93/32, joint ownership of rental property between Jack and Jill cannot be regarded as partnership and hence the loss arising from selling of property should be equally distributed.

The quotation of IRC v Duke of Westminster [1936] AC 1 was regularly done as tax avoidance. A deed of covalent was executed that was a legal document seeking mutual agreement for granting rights such as transferring any asset or property for more than one person. In this case, issue was lying whether such deed should be treated as an employee contract. Principle on wjchi this particular case was established that order for affairs is allowed for each man that is imbibed in fitting act. However, when seeking any tax avoidance, this case cannot be regarded as eye-catching.

This is so because there are subsequent cases that have weakened this case along with its overall impacted being judged by court and due to structure of law is very complex. Following this was the Ramsay case that does not have any signs of tax avoidance and the company was avoiding making its payment of capital gain tax liability. This particular case has resulted in taking decisions by judges that has led to the establishment of Ramsay principle. Such principle lead to disregarding individual transactions and for determining the application of tax relief needs to look at whole account of company.

Considering the relevance of such principle in Australia, if the results are secured by an individual success, then such individual would not be pressurized to make any payment of increased amount of tax as initiative taken by Inland Revenue. Such principle helps in structuring of financial agreements of corporation and individual that assists them in reducing their liabilities concerning payment of tax.

In this particular question deals with determination of income generated from selling of timber by Bill that is grown on a large parcel of land own by him.

Ascertainment of income generated from timber selling is assesses under subsection 6 (1) of the Income Tax Assessment Act 1936. Therefore the law pertaining to this case is subsection 6 (1) of the Income Tax Assessment Act 1936 and McCauley v. The Federal Commissioner of Taxation.

The consequences of income tax payment that is generated from carrying out forestry activities and primary production is discussed under subsection 6 (1) of the Income Tax Assessment Act 1936. This ruling deals with whether the taxpayers of involved in forestry industry and the extent to which the receipts that is derived from timber selling is constituted as assessable income. Deductions that are allowable regarding that income are also considered under such ruling.

Planting of trees for selling purpose is considered as primary production according to subsection 6 (1) of the Income Tax Assessment Act 1936. Bill would be regarded as basic producer as per ruling and primary production definition. Receipts generated from selling of timber would be considered as assessable income.

On the other hand, if the lump sum amount of $ 50000 was paid by tax payer by surrendering the rights of removing necessary timber by logging organization, then such amount will be regarded as royalties. Tax payer would obtain amount of royalties on granting rights to fell timbers of land as per with the section 26 (f) receipt of “royalties”. Therefore, it can be concluded under subsection 6 (1) of the ITAA 1997, income generated from timber cutting will be regarded as proceeds from taxable income. 

References list:

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.