Australian Tax Law: Assessable Position Of Losses, FBT Assessment, Tax Avoidance, And Selling Timber Taxability

Issue: Net capital gains and losses, Laws and applications

Issue: 

The existing matter introduces the subject of net capital gains or losses produced by the taxpayer stated under “ITAA 1997”.

Laws: 

1. Section 108-20 of the Income Tax Assessment Act 1997
2. Section 108-10 of the Income Tax Assessment Act 1997

Applications: 

In conformity with “Section 102-20 of the ITAA 1997” from the above computations it is understood that home sound system will be permitted for set off because not losses are allowed to be carried forward on the sale of personal asset (Kenny 2013). As defined under “Section 108-10 of the ITAA 1997” losses in the form of collectable will not be permitted for set off against the ordinary gains derived from the sale of shares and it is only eligible for offset against the collectible gains stated under the “Section 108-10 of the ITAA 1997” (Newman, S., 2016). As Eric generated profit from the sale of ordinary asset with no present year ordinary capital, the net amount of capital gains for Eric stands $15,000.

Conclusion: 

It can concluded that no kind of loss is permitted for offset from the asset that are of personal use. Therefore, Eric only gains from the disposal of ordinary assets.

Issue: 

The issue introduces the matter of assessment of FBT of the taxpayer stated under the “FBT Act 1986” (James 2016).

Laws: 

1. Taxation rulings of TR 93/6
2. Fringe Benefit Tax Assessment Act 1986

Applications:

As it has been defined under the “Taxation Ruling of TR 93/6” the financial institutions on certain occasion provides the facilities of setting off the loan. Such off set is generally known as the interest offset arrangement (Kreve 2013). Such products are created to offset the interest occurred by customers and they are not liable to pay any sum of income tax regarding the benefit that is originated from the account. As the per the “Taxation Rulings of TR 93/6” if Brian is released from paying interest for the loan taken by him then he will not be liable for paying income tax.

Conclusion:

It can be concluded that if the bank releases Brian from paying interest on loan then there will not be any liability of paying tax.

Issue: 

The issue brings forward the matter of determining assessable position of loss that Jack and Jill suffered from the rental property.

Laws: 

1. Section 51 of the ITAA 1997
2. Taxation rulings of TR 93/32
3. C. of T. v McDonald(1987) 18 ATR 957

Application: 

As it has been found from the existing situation that Jack and Jill entered in a business of rental property and were joint tenant. Jack was entitled to only 10% of the profit and Jill being entitled to 90% of the profit from rental property. However, the agreement between them contained clause that on sustaining loss Jack will be accountable of shouldering 100% of the loss from the rental property. The “taxation ruling of 93/32” brings forward the assessment of division of net profit or loss derived from the rental property amid the co-owners (Barton 2013).

The ruling defines the Co-ownership of the partnership for taxation purpose however it does not constitute partnership under the general law unless the ownership comprises of carrying of the business activities. In reference to the “Taxation Ruling of 93/32” it can be defined that the co-ownership between Jack and Jill represents partnership for the purpose of taxation but it could not be treated as partnership under the general law (Anderson, Dickfos and Brown 2016).

Conclusion: No losses permitted for offset, only gains from disposal of ordinary assets

Citing the reference of “F.C. of T. v McDonald (1987) 18 ATR 957” where the taxpayer were husband and wife and legally owned two strata units as joint tenants (Morgan, Mortimer and Pinto 2013). The agreement contained that 25% of the profits were attributable to Mr McDonald and Mrs McDonald would be entitled to 75% of the profit with the entire amount of loss being borne by Mr McDonald.

The question introduces the issue whether the loss derived from the operations was wholly occurred by the taxpayer or among each of the taxpayer and his spouse occurred half of the sum of loss. There was not provision of deductibility of loss (Barkoczy et al. 2016). It is understood that was no partnership as per the general law and only a relationship of co-ownership existed between them. Being the joint owners under the law, the loss sustained by them must be uniformly shared among with respondents are under obligation of deducting half of the loss sustained (Milton 2013). Therefore, Jack and Jill are required to share loss equally for taxation purpose and no deductions will be allowed in terms of their agreement. The reason behind this is that distribution of loss was willingly made by Jack as the domestic arrangement of advancing the income of his wife because section 51 does not gives permission of deductions in terms of the agreement made.

Additionally, if Jack and Jill decides to sell the property, the cost base and the lowered cost base of the rental property must be included in their amount paid by them. Since Jack and Jill are the joint owners of the property capital gains and loss shall be accounted with the ownership of the interest of property.

Conclusion: 

It can be concluded that no such partnership existed under the general and the losses must be shared equally among Jack and Jill.

In IRC v Duke of Westminster [1936] AC it has been constantly stated during the event of tax avoidance (Woellner 2013). The case bought forward the belief that every person is allowed to order for his affairs in such a manner that the assignment of tax that is made is in accordance of the act and it is less then it would have else been. Even if has been taken into the considerations that this ruling was pleasing for others in seeking tax avoidance by legally creating a multifaceted structure, it has been destabilized from the succeeding cases where the courts have looked into the entire contract.

As an example “WT Ramsay v. IRC” it was observed that court adopted more restrictive method (Barkoczy 2016). It was found that if a person has pre-arranged artificial steps that did not served any kind of business objective rather than saving tax, the corrective approach was to levy duty to the degree of transaction entirely.

In the current age if the principle is applied in Australia, the taxpayers can attain success where they could not be forced to pay additional sum of tax (Saad 2014). It provides that the companies and taxpayers to design their monetary transaction so they can reduce their tax liabilities inside the constitution of the law.

Issue: Assessment of FBT on setting off loan, Laws and applications

Issues: 

This issue is introduces the subject of whether the income generated from selling of timber shall be regarded as taxable proceeds under “subsection 6 (1) of the ITAA 1936”.

Laws: 

1. Subsection 6 (1) of the ITAA 1936
2. McCauley v F C of T (1944)

Application: 

As understood from the study that Bill being the owner of land having large amount of pine trees was approached by a logging unit which was willing to pay $1000 for every 100 meters of timber that the company take from his land. The “Taxation ruling of TR 95/6” defines the taxation consequences resulting from the activities of primary producer and forestry (Braithwaite 2017). The ruling is applicable to the person that are engaged in forest operations and also on those that indulged in the forest operation of selling timber. Receipts from such activities would be treated as assessable income whether the taxpayer was engaged in the activities of the forestry.

As per “Subsection 6 (1) of ITAA 1997” primary production includes planting or tending or trees in a plantation which is intended for felling. Bill, in conformity with the “Subsection 6 (1) of the ITAA 1936” Bill will be viewed as primary producer because he has been engaged in the activities of felling of trees in a plantation which he owned (Woellner et al. 2016). Bill is the owner of large land however he did not planted the trees on that land but the income derived from felling of trees will be considered for taxation. Disposal of standing timber that is not planted by the taxpayer and felled with the objective of selling with receipts derived from such sale would be treated as taxable income.

Simultaneously, if Bill was merely paid a lump sum of $50,000 by giving the right to logging company of removing the necessary sum of timber such kind of receipts would be treated as “Royalties”. In respect of section 26 (f) receiving “Royalties” from the tending of timber will be treated as taxable income during the year in which trees were tended (Robin 2017). Citing the reference of “McCauley v F C of T (1944)” payments that is received by guarantor or the right of removing the trees is based on the right of removing the timber. Hence, the sum received by him from royalty would be considered as taxable income.

Conclusion: 

It can be concluded that tending of timber and selling the same is taxable income and such receipts will be liable for taxation.    

Reference List: 

Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL, 24(2), pp.127-140.

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

Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax Pack 3 2016. Oxford University Press Australia & New Zealand.

Barton, (2013). Management of the Australian Taxation Office’s property portfolio. ACT: Australian National Audit Office.

Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.

Kenny, P. (2013). Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.

Krever, R. (2013). Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.

Milton, (2013). The taxpayers’ guide 2013 & 2014. Qld.: Wrightbooks.

Morgan, A., Mortimer, C. and Pinto, D. (2013). A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.

Newman, S., 2016. The new CGT withholding regime: More than meets the eye. Proctor, The, 36(5), p.18.

ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Tran-Nam, B. and Walpole, M., 2016. Tax disputes, litigation costs and access to tax justice. eJournal of Tax Research, 14(2), p.319.

Woellner, R. (2013). Australian taxation law select 2013. North Ryde, N.S.W.: CCH Australia.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.