The main issue on which the discussion is based on is basically all the consequences of the transaction that are being proceeded by Amber. There are three issues that have been preceded by Amber and are being discussed here. The first case is related to selling of a personal business. It has been declared that Amber has owned a separate boutique chocolate shop within Sydney. On the birth of her child she decides to sell it for $ 440,000. Secondly, she had signed a contract where she has restricted herself in establishing a business within 20 kilometers that made her achieve a sum additionally amounting $ 280,000. The third issue arises when Amber thought of selling his personal property for buying a larger apartment for her expanding family. The three operation of Amber are to be discussed elaborated way (Becker et al., 2015).
It is to be noted that the taxpayer is assessable income can be broadly considered as the “ordinary income” and its “statutory income” exempts the income. The Income Tax Assessment Act states that when the allowable deductions are actually deducted from the actual assessable income, the amount that can be considered an outcome. The Ordinary income is actually made according to the basic and the ordinary concepts.
Most of the ordinary income is actually made up of the actual amount of income that clearly indicates that it is according to the ordinary concepts (Burkhauser et al., 2015). It also describes that the ordinary income amount that needs to be included in the assessable income of the tax payer. There are special provisions in the legislations of income tax that can specify an ordinary income amount that needs to be included within the assessable income o the tax payers. Even the statutory incomes can be considered as an income that is completely ordinary and can be included within the assessable income along with some of the specific provisions drafted in the Income Tax Legislations.
The Income Tax Assessment Act 1997 –Section 6.5 clearly states that the assessable income consists of all the income that is according to the concepts that are ordinary. It is termed as “ordinary income”. Where as in the Section 6- 10 (ITAA), it is clearly stated that are amounts that are not ordinary income and are actually included within the assessable income provided by the provisions about the assessable income are known as “statutory income”.
The taxpayer is required to include in the assessable income the capital gain made during the year as stated in section 102-50 of the Income Tax Assessment Act 1997. In order to determine whether an asset has made a capital gain or loss it is necessary to determine whether the assets are CGT assets and whether the event qualifies for CGT event. It should be noted that in section 102-20 of the ITAA 97 a taxpayer could only include gains or loss made from CGT event in their assessable income (Saad, 2014).
On coming to the context of selling or the disposal of the assets, the condition can be called CGT Event or Capital Gain Tax. This is the actual point from where there is an initiation of capital loss or gain. The receiver has to either suffer loss or gain a profit. There are many other types of CGT events where there can be only loss or CGT assets destruction. As related to the case study, Amber must try to know the actual type of CGT or the event that it applies to in her given situation. It is very important to understand and judge the condition of the situation because it affects the capital gain calculation when the net capital gain or loss is included (Lang et al., 2018).
There are some of the CGT Events, where there is a situation of assets exchange for replacing an asset. In this case too, Amber should have thought of deferring or rolling over the capital gain until the occurrence of another CGT Event. The Income Tax Assessment Act 1997 clearly states in Section 104.10 that with the occurrence of CGT Events there can be disposal of the CGT Asset or the second option can be there can be disposal of a CGT asset with the change of the first ownership from one to another entity. It can be by both because of some rather laid down act rule or by an event or lastly by the operational law (Parker, 2018).
Application
On relating to the case study, Amber has owned a boutique chocolate shop in Sydney, which she has purchased for an amount of $ 240,000. The actual price of purchase consists of all the require equipments and the worth of the stock has reached to $ 110,000 and the balance is counted as goodwill. But the idea of selling the business came when a child was born to Amber. She decided to sell the business at a price of $440,000 that had attributed to goodwill (McGee et al., 2016). The context of capital gains are based on the situations that are relates to different types of income starting from the ordinary income to the business profits.
Taxes can be paid on the capital gain that plays an integral role on selling the capital assets. The tax that is charged on the capital gains is known as Capital Gain Tax which is also considered as the actual amount of profit on the sale of some specific kinds of business assets. As Amber was having an asset, the capital gain taxes can be only applied depending on actual time span the assets were hold on. The capital gains are taxed in a completely different way, one is a short term capital gain, that is held under one year and the other one can be taxation based on regular income tax rate. The actual tax rate for the long-term gains is calculated to be 17% that got effective in the year 2018.
In the case of partnership, Amber had also sign a contract that has restricted her from opening another line of business within a radius of 20 km. In this situation, partnership business needs to be described. It is an association within two persons who are carrying out the business as partner and receiving some monthly or annual income jointly (McGee et al., 2016). A partnership cannot be considered as a taxable entity, but it should lodge at least a tax return while at the end of each and every income year. All the partners must be taxed on each respective share of earning the profits for partnership. It needs to be entitled for a deduction for individual share for earning the losses that is incurred by the partnership for disclosing their own return of taxation.
In most of the situation, most of the taxpayers wrongly calculate their capital gains. Most of the time the tax payer ends up calculating wrongly just by subtracting the actual purchase price from the re-sale price. For getting the capital gain taxes, one need to live in the primary residence for at least 2 to 5 long years before selling it off. Amber has specifically followed the rules that have made her face no such consequences (McClure et al., 2017). Capital gain tax on selling a personal property is the fee that needs to be paid to the government for a value that is received. When the money that you are making is coming from the selling of the property or the house, the capital gain tax actually depends on whether the person actually
lived in the residence and for how long period the person has lived in the house. The short term capital gains are basically taxed at the same rate just as the ordinary income. Whereas the long term benefits of the reduced tax rate, that does not exceeds beyond 20%. The selling of the personal property was conducted by Amber due to her expanding family. She previously lived in the residence that was inherited from her uncle but then she contacted for sale with a value of $ 550,000. The previous value of the apartment during the time of her uncle’s death was $ 390,000 (Wilkins, 2015).
Under the law Income Tax assessment act 1997, the composition of partnership changes – relates to the partner’s retirement or death, or new partner gets admitted. The partnership can be dissolved for a new partnership can be formed. While at the ending of the annual income year, with their constitution continuing the partnership, it needs to lodge only to one partnership tax for returning the coverage for the full income year (James et al., 2015).
The actual rate of tax return need to focus and include the main criteria of distributions that needs to be made for each and every person at particular time or even during the income annual year. It may also include those who need to live the partnership during the financial year. In the above case study, Amber has gone for some of the dealings with property as well as business transactions. She has also gained profit from some transactions and understood the benefits of some of the Income Tax Assessment Act 1997 law (Gupta & Sawyer, 2015). The law distinctly states the main criteria that are important for realizing the actual capital gains or the losses that would be incurred.
Conclusion
CGT operates by net capital gains for availing the taxable income in which the assets can be otherwise sets off or disposed off. The capital losses can be placed in offset against the capital gains. The personal use of all the assets and all the collectables can be treated with some separate categories along with the losses incurred. The losses are quarantined so that they can be applied against all other gains in the very same category. This works for stopping the subsidizing hobbies from the earning of the investment. The Income Tax Assessment Act 1997, states that the disposal of assets. On the disposal, the capital gain actually arises with the cost base that tends to capital loss.
Reference
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2017). Federal Income Taxation. Wolters Kluwer Law & Business.
Basu, S. (2016). Global perspectives on e-commerce taxation law. Routledge.
Becker, J., Reimer, E., & Rust, A. (2015). Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
Burkhauser, R. V., Hahn, M. H., & Wilkins, R. (2015). Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), 181-205.
Enste, D. H. (2018). The shadow economy in OECD and EU accession countries–empirical evidence for the influence of institutions, liberalization, taxation and regulation. In Size, Causes and Consequences of the Underground Economy (pp. 135-150). Routledge.
Gupta, R., & Sawyer, A. (2015). The costs of compliance and associated benefits for small and medium enterprises in New Zealand: Some recent findings. Austl. Tax F., 30, 135.
James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1).
Lang, M., Pistone, P., Schuch, J., & Staringer, C. (Eds.). (2018). Introduction to European tax law on direct taxation. Linde Verlag GmbH.
McClure, R., Lanis, R., & Govendir, B. (2017). Analysis of Tax Avoidance Strategies of Top Foreign Multinationals Operating in Australia: An Expose.
McGee, R., Devos, K., & Benk, S. (2016). Attitudes towards tax evasion in Turkey and Australia: A comparative study. Social Sciences, 5(1), 10.
Mumford, A. (2017). Taxing culture: towards a theory of tax collection law. Routledge.
Parker, H. (2018). Instead of the Dole: an enquiry into integration of the tax and benefit systems. Routledge.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Wilkins, R. (2015). Measuring income inequality in Australia. Australian Economic Review, 48(1), 93-102.
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