Capital Gains Or Losses And Fringe Benefit Tax In Australia

Determining Capital Gains or Losses under Section 108-20 of ITAA 1997

Issue: 

This issue deals with the determination of capital gains or losses derived from the sale of assets defined under section 108-20 of the ITAA 1997.

“Section 108-20 of the ITAA 1997”

“Section 108-10 of ITAA 1997”

Under “section 108-20 of the ITAA 1997”, loss of $1,000 incurred for the sale of home sound system cannot be permitted for the considered set off, as no losses can be considered based on the disposal of personal use assets. In accordance with the section 108-10 of the ITAA 1997, the collectable losses cannot be set off against the common gains in the form of sales of shares (Kenny 2013). Additionally, the offset can also be considered according to Section 108-10 of ITAA 1997. As Eric has gained profit on the disposal of ordinary assets and there are no current year ordinary capital or other kind of applicable reductions. Additionally, the capital gain for Eric has current stands as $15,000.

Conclusion: 

It can be concluded that Eric cannot offset the loss from collectibles since he has only gained profit from the disposal of ordinary assets.  

The below stated issue is concerned with the ascertainment of FBT in accordance with the “Taxation Ruling of TR 93/6”.

Taxation rulings of TR 93/6

Application

Computation of Fringe Benefit Tax

The taxation rulings of TR 93/6 states that financial organizations often makes plans for offsetting the loan account that is referred as interest offset agreement. These products are structured for offsetting the interest which is incurred by clients (Krever 2013). Therefore, the clients are not liable for paying any amount for the income tax with respect to profits gained from the account. According to the Taxation Rulings of TR 93/6, if the bank discharges the Brian from refunding interest on loan then no amount of income tax Brian will be liable for paying.

Conclusion: 

It can be concluded that will not be required to pay any sum of income tax liability if he is released from paying interest by the bank.

Issue: 

This question brings forward the issue that is connected with the allocation of loss derived from the rental property as the joint ownership by Jack and Jill.
Section 51 of the ITAA 1997

Taxation rulings of TR 93/32C. of T. v McDonald(1987)
According to the taxation rulings of TR 93/32, it is consists of the explanation of the divisionary net proceeds or generated loss from the property that is rented among the co-owners of the considered property (Barton 2013). Additionally, the ruling is mainly considered with the evaluation of taxable position of Co-owners those are not responsible for carrying their values within actions. The current scenario in Jack and Jill considers the evaluation of taxable position of the rental property. Jack is entitled for 10% of the property and Jill is entitled for 90% from the property.

In accordance with the Taxation rulings, TR 92/32 Co-ownership of the property that is rented which is known as one partnership relating to the income tax purpose but this is not considered as one partnership at the general law except the co-ownership accounts for carrying value for any business practice, where the Co-ownership is considered as the partnership for satisfying the purpose of income tax only. The loss of income gained from the rental property is managed through the Co-ownership of the property that is rented out as well as from the allocation of joint venture proceeds and losses (Morgan, Mortimer and Pinto 2013). The current condition of Jack and Jill shows the co-ownership for the rental property between them which is based on the income tax purpose and cannot be regarded as the partnership in consideration with the general law.

Offsets against the Common Gains in the form of Sales of Shares

The taxation rulings of TR 92/32 states that co-owners of the property that is rented out are usually not considered partners in association with the “General Law” (Milton 2013). In this case the partnership agreement is either in the form of writing or oral that doesn’t have consequence on the shared value of proceeds or loss from the considered rented property. Therefore, Co-owners of the rental property Jack and Jill will hold the property as the joint renters as one common factor.

As held in the case of “F.C. of T. v McDonald (1987)”, the taxpayer’s wife and he legally owned two strata title units as the joint renters (Woellner 2013). The agreement confirmed between them states that the net earnings gained from the property that is rented out will be distributed as 25% to McDonald and 75% to Mrs McDonald. Now the total loss amount will be borne by Mr McDonald.

Conclusion: 

It can be concluded from the above discussion that both Jack and Jill are required to distribute the loss equally and joint ownership does not accounts as partnership business.  
IRC v Duke of Westminster [1936] AC 1 was regularly quoted as the occurrence of tax avoidance. This case established one principle that states each man is allowed to order his affairs for allowing the taxation assigning which is made in fitting Act. This taxation assigning is less than it (Barkoczy 2016). Though it cannot be considered that this ruling was very attractive for others for seeking the avoidance of tax with respect to law’s complex structures and these are weakened by the subsequent cases where the courts have looked on the overall impact. Citing an example of the court in the upcoming stages are more restrictive and were adopted under the WT Ramsay v. IRC principle. In this case the transaction has pre-arranged artificially and this is served not in the form of commercial purpose (Braithwaite 2017).

The perfect rule was to impose tax for extending the transaction as a total fact.In the contemporary situation, this principle within Australia depicts that if an individual achieves success for making this result secured, then the Inland Revenue might be of their initiative and they cannot be forced to pay any increased amount of tax (Saad 2014). Additionally, it is understood that this aspect allows individuals and corporations for structuring the financial agreements with respect to their fixed objectives of decreasing the tax liabilities based on their structures within the structure of laws.
In the contemporary scenario assessment of income from the sale of felled timber is analysed under “subsection 6 (1) of the Income Tax Assessment Act 1936”.
“Subsection 6 (1) of the Income Tax Assessment Act 1936”“McCauley v. The Federal Commissioner of Taxation”

In the contemporary scenario, this is found that Bill owns a large piece of land on which there are several pine trees. Bill primarily aimed to use the land for grazing sheep and wanted to have it cleared. Bill discovers a logging company that prepared to pay him $1000 for every 100 meters of timber. The logging companies can grab from his piece of land. The taxation ruling related to 95/6, set down the income tax consequences generating from the activities of primary production and forestry (Woellner et al. 2016). The ruling offers the limit to which the receipts that is derived from the sale of timber. This aspect constitutes assessable income whether the tax payers are indulged into the activities of forestry industry. According to subsection 6 (1) of the Income Tax Assessment Act 1936 the tax payer is indulged into the activities of forest operations is known as the primary creator.

Computation of Fringe Benefit Tax

In accordance with the “subsection 6 (1), the Income Tax Assessment Act 1936”, primary production is commonly defined as the planting of trees within plantation which is required for felling forest (Robin 2017). As an evidence from the case study, the Bill is regarded as the basic producer since he has indulged into the processes of primary production “subsection 6 (1) of the Income Tax Assessment Act 1936”. The forest operations include felling of trees in a forest or plantation though the tax payers are not concerned about the planted trees.

Being the possessor of large piece of land, bill did not planted the trees but the whole amount of receipts that was derived by Bill from the sale of felled timber constitutes assessable earning of the considered tax payers disposes about the trees that have not necessarily planted by the tax payer and rendered for the goal of sale forms the part of assessable income. In spite of these facts, the considered sales combines either completely or partial assets of a business, the considered trees are taken as assessable income of the tax payers under “subsection 6 (1) of the Income Tax Assessment Act 1936”.

Conversely, if the tax payer was simply paid a lump sum of $50,000 by surrendering the right to the logging organization for removing the necessary amount of timber, then that receipt of sum will be considered as “Royalties”. In agreement with the section 26 (f) receipt of “royalties” from the tax payer on granting the right to fell the timber on land obtained by the tax payer (Barkoczy et al. 2016). Under this kind of situations, Bill will not be considered as carrying on the trade of forest operations. Here it is considered that the tax payers did not planted the trees for sake of gaining profit from that. As held in McCauley v. The Federal Commissioner of Taxation payments obtained by the grantor is under the right of doing so. The amounts those are receipted by Bill as royalty combines assessable income under section 26 (f).

Conclusion: 

It can be concluded that receiving income from cutting the timber will be considered as taxable proceeds under subsection 6 (1) of the ITAA 1997.

Reference List: 

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.

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.

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.

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.