The nature of copyright needs to be ascertained in the form of capital asset or ordinary income for an individual taxpayer having the taxation copyright. If the holder has the qualification or a professional artist, ordinary income would be the best option to classify the copyright. On the contrary, when the copyright holder fails to hold a professional degree; however, having the needed skills, the income could be recognised as capital asset (Bray 2015).
After evaluation of the provided case study, Hillary could be adjudged as the taxpayer and she is well known because of climbing high mountains. Henceforth, Hillary has been assumed as a permanent Australian resident that necessitates the need for disposing off her taxable incomes with special adherence to the taxation laws of Australia. In addition, it has been observed that Hillary does not possess any previous knowledge or skills of professional writing services. Therefore, the woman has depicted her overall experience as a story for the first time. Due to this, the income generated from the sale of this definite copyright is realised as the capital gain.
It has been identified that Daily Terror is a newspaper that has convinced Hillary for making a contract. Hence, primary term is the best word fitted for the income received, as laid out in the agreement (Edmonds 2015). Under such circumstance, the ownership is not in the hands of Hillary or the same is transferred, rather it has been given to comply with the agreement terms. Thus, the sale of copyright has generated an income, which could be adjudged as normal income. This is accumulated because of the service delivery for complying with the agreement “Section 393-10 of the Income Tax Assessment Act 1997”.
It has been observed that few photographs and manuscript of the story have been sold on the part of Hillary. Hence, such stuffs are treated as personal assets of Hillary. From the verdict of case of “Brent v FCT (1971) 125 CLR 418”, normal income would be received from the recognition of revenue. “Capital Gains Tax (CGT)” events are the term that could be used for the sale of this type of asset (Kingston 2015).
The transfer of copyright ownership could be adjudged as the events of CGT. However, this is possible only if Hillary has depicted her experience through writing of a story for personal console along with selling it in future. This is made mainly to conform to “S-15-2 of Income Tax Assessment Act 1997”, as this agreement does not intend to generate income (Peiros and Smyth 2017).
From the evaluation of the provided case, the client identified is a parent and they have extended loan to their son amounting $40,000. Both the parties have entered into a mutual agreement at the time of the loan provision. In this case, the son has agreed for the loan repayment with an additional $10,000 after five years. However, such entire loan amount has been repaid within two years along with the interest charges is $4,000 ($40,000 x 5% per annum x 2 years). In such scenario, it is noteworthy that the parent has not demanded in paying any interest amount.
The amount of loan was received on the part of the client in two years that necessitates the need for considering the excess payment through interest income. According to “Section 6 Subsection (5) of the Income Tax Assessment Act 1997 in the form of interest income”, the additional sum of money could be recognised, as the client’s assessable income related to taxation (Richardson 2014). However, no security is present and there is no formal agreement as well at the time of loan provision. This has helped the client to represent the loan amount as financial support to the son.
Moreover, the borrower could represent the amount of interest incurred to the client as financial support. Through such depiction, the client could disclose that the excessive income is not a portion of the lent amount. Under such scenario, the excess income amount could be denoted as ordinary income, as stated by “Section 6 Subsection 5”. (Woellner et al. 2016).
The son has accumulated the loan from the client for purchasing a new house. As a result, this has resulted in deduction of interest for the borrower in relation to loan obtained for housing. In such situation, if the son wants deduction for additional sum of money given to the parent, te latter is required to show this as assessable income. Thus, the interest income could be considered in such situation (Smith 2015).
According to the given case, it is assumed that Scott has all the necessary requirements of becoming an Australian citizen and the person is not related to any type of business related to real estate. Hence, this has clear representation of realising building and land in the form of personal assets to Scott rather than stocks pertaining to trade. Such capital gain or loss earned after selling the building is calculated depending on the following points:
Based on the provided case, the land was purchased before 20th September 1985. Hence CGT assets could be used to classify the same and thus, the selling of land is tax free in relation to CGT (Stewart 2013).
The post CGT asset could be used for categorising the asset, since the building was developed after 20th September 1985. The fair selling price pertaining to building has been utilised for computing the overall CGT. Thus, $320,000 [$800,000 x $60,000/ ($60,000 + $90,000)] has been obtained as the estimated selling price of the building.
The method of indexation could be utilised for computing the overall building cost base, as the construction of the same happened after 20th September 1985 (Ato.gov.au 2017). The use of discounted method could be used as well to arrive at the overall computation of CGT, as Scott is a person and not an organisation. The provided case denotes CGT could be calculated with the help of the two above methods and the one having lower payment of tax could be chosen (Ato.gov.au 2017).
The realisation of capital gain or loss based on the sale of the particular property has been depicted as follows:
The above table clearly inherits that the tax payment of Scott would be reduced by adopting the discounted method. Hence, the estimated capital gain or loss that could be recognised from the sale of the specific property is $130,000 (Ato.gov.au 2017).
If the property was sold to the daughter on the part of Scott at a lower cost, the consideration of sales would be determined depending on the market of asset for taxation. There has been an auction to sell the specific property where the sale of asset has taken place. Hence, the selling price that has been decided at the auction is to be treated as the market value of the asset. In such scenario, the entire capital gain estimated to be recognised from sale of property to the daughter would be the same as that of the previous section (Ato.gov.au 2017).
Based on the provided situation, it has been assumed the stated property lies in the hands of an organisation. Thus, the capital gain computation would be carried out with the help of the indexation method. In this type of situation, the realisation of capital gain through the sale of that particular property is $222,945.
References:
Ato.gov.au. (2017). Exemptions | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Capital-gains-tax/CGT-exemptions,-rollovers-and-concessions/Exemptions/#collectables [Accessed 1 May. 2017].
Ato.gov.au. (2017). Selling your home | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/capital-gains-tax/your-home-and-other-real-estate/selling-your-home/ [Accessed 1 May. 2017].
Ato.gov.au. (2017). The indexation method of calculating your capital gain | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/The-indexation-method-of-calculating-your-capital-gain/ [Accessed 1 May. 2017].
Ato.gov.au. (2017). Transferring real estate to family or friends | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Transferring-real-estate-to-family-or-friends/?page=3 [Accessed 1 May. 2017].
Bray, J.R., 2015. 100 years of the minimum wage and the Australian tax and transfer system: what has happened, what have we learnt and what are the challenges?.
Edmonds, R., 2015. Structural tax reform: what should be brought to the table?.
Kingston, G., 2015. Dividend imputation or low company tax?.
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor’s commission. Taxation in Australia, 51(7), p.394.
Richardson, D., 2014. The Taxation of Capital in Australia: Should it be Lower?. In Challenging the Orthodoxy (pp. 181-199). Springer Berlin Heidelberg.
Smith, J., 2015. Australian state income taxation: a historical perspective. Browser Download This Paper.
Stewart, M., 2013. The contribution of Justice Hill to the tax law of partnerships and trusts. Austl. Tax F., 28, p.35.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.
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