By considering the given case situation, a large parcel of land is owned by Jack. Further, the land provides access to tall pine trees. For this land, Jack has two options, in the first option a logging company is ready to pay him $200 for every 100 lineal feet of timber they can take from his land and in the second option he can have $50,000 by providing the right to the company for unlimited removal of timber from his land.
Disposal of lineal feet of timber, not in the nature of the business
As per the provisions of Australian taxation law; receipt from the disposal of trees is assessable for taxation purpose if plantation has been done for the purpose of sale. For this provision, it is not essential that the taxpayer is engaged in business associated with forests. Therefore, receipts will be assessable even in the case where trees are not disposed of in the ordinary nature of the business.
In order to apply above described provisions, the major condition is that lineal feet of timber must be business transaction either wholly or partial. Further, Australian taxation provision states that the value of disposed of trees will be as follows;
Granting right for extraction of timber
According to the point 25 of ruling TR 95/6, the individual who pays tax is engaged in the operations of forest activities might sell its standing timber by giving consent to the individual to take it out, by having the right of cutting timber or not. Further, the generated income can be considered as assessable when it comes from the purpose of sale. In addition, the royalty will also be derived by the taxpayer regarding the providence of right for the timber procurement on the land, and the same will be considered under the assessable income of the taxpayer. The provisions will be taken into account while calculating the recipient assessable income, despite the fact that taxpayer’s right grant is not conducted on an operational forest business.
Table 1: Application of ruling TR 95/6 on the cited case
|
Description |
Applicable section |
Assessability of receipts for income tax purpose |
|
|
Option 1 |
Disposal of lineal feet of timber by Jack for $200 for every 100 lineal feet of timber, not in the ordinary course of business |
36(1) |
Yes |
|
Option 2 |
Disposal of rights to standing timber for lump sum amount of $50,000 |
25(1) |
Yes |
Conclusion
By considering the applied provisions, it can be noticed that receipts of Jack in both the options will be assessable however in different sections.
In the given case situation, Mary sold her holiday home thus taxable amount is to be determined by adjusting all transactions cost and capital losses of previous years.
A person can make use of the discount method for the capital gain calculations on the majority of the assets they have acquired for 12 months or above. One can employ the discount method for calculating the capital gain in a situation where:
The discounted percentage is gained when the capital gain is reduced. The taxpayer can decrease the capital gain just after by the application of each and every capital losses (income years) and any of the non-applied capital losses (previous years). To this note, the discount percentage is 50% for the trusts as well as individuals, while it is 33.33% for the adhering super fund and is also entitled to life insurance companies.
The taxpayer can make the reduction of the existing year’s capital gain by the non-applied net capital losses from former years. The deduction in the leftover current year’s capital gain by a non-applied net capital loss held from the previous years and form notes to any of the remaining capital gains. If the taxpayer has non-applied net capital losses held from previous years that can are eligible for the income year, then they are required to be applied in the same. The taxpayer is not able to adjourn a subsequent income year for any amount that can be applied for this income year.
|
Particulars |
Calculations |
Amount |
|
Receipts from sale of a holiday house on the Central Coast |
$920,000 |
|
|
Less: Legal cost and real estate agent commission |
$18400+1400 |
($18,800) |
|
Net receipts |
$901,200 |
|
|
Less: Purchase cost |
$180,000 + $4,450 +$1,200 |
($185,650) |
|
Less: Modification cost |
($30,000) |
|
|
Capital gain |
$685,550 |
|
|
Less: Adjustment of capital loss |
$10,000 |
|
|
Net gain |
$675,550 |
|
|
Less: Discount allowed (50%) |
$675,550*50% |
($337,775) |
|
Taxable amount |
$337,775 |
The calculation will not be modified if a taxpayer sells vase instead of shares as both are eligible assets for application of described provisions.
Conclusion
In accordance with the applied provisions taxable amount for Mary is $337,775.
In this study, Anne purchased the house property on 12 June 2012 for the sum of $ 600000 and paid the stamp duty. The Anne purchased the land in the name of the Glebe Property Pty Ltd. Anne is the only shareholder in that company. in January 2016, Anne renovates the property, and the property was valued at $ 800000. Brother of the Anne named Peter offered to buy the property $ 1000000 only on the condition that renovation will be completed by prior to the settlement of the sale. Sale of contract for the property was exchanged on 1 February 2016. However, the property is ready in September 2016. Just before the purchase of land, Peter agreed that his wife Karen name should also enter into the title of the new home. Moreover, the Anne did not pay any land tax from the date of purchase of property along with this Anne and Peter also forgot about the payment of stamp duty.
The present study is related to the obligation of payment of stamp duty and also the payment of land tax.
A)
Stamp duty is the tax imposed by the government of Australia. There are many assets such as land and building, plant and equipment, goodwill, shares and units etc. on which the stamp duty tax is levied. Generally, the stamp duty is payable by the person who acquires the assets. The amount of stamp duty is chargeable on the amount of consideration paid or the market value of the asset. The stamp duty should be payable by the within the specified time limit. The payment of the stamp duty and filing the document must be within the 30days to 3 months. If the payment is not made within the specified time, then the penalty and interest may accrue.
In many cases, the government has granted the exemption from the payment of stamp duty. In this regards, if the transfer takes place between the spouse and the partner, then there is no requirement for the payment of stamp duty. Therefore in this study at the time of transfer of property between Peter and Karen, then the obligation for the payment of stamp duty does not arise.
B)
By considering the above study, it has been analysed that the overall planning of the Anne and the family member was for the avoidance of the tax liability which was arising out of the transaction. It is actually unethical because the Anne purchased the property on the name of the company in which Anne is the only shareholder and then transfers the property to the family member. Further, Peter has been suggested that the stamp duty will be less if the shares of the Glebe Property Pty Ltd to him as it is $ 2 Company. This is not correct. Moreover, if the stamp duty is not paid on the transfer within the prescribed time limit, then there are chances that the penalty may be a levy.
C)
Land tax is the tax levy on the owner of the land regardless of the fact whether the income is generated by the owner of the land or not. The definition of the land includes the vacant land, residential property, commercial property and many others. The owner of the land is liable for the payment of the land tax. The owner may be the sole owner, trustee of the trust, company, beneficiary of the trust, company and so on.
In this study, the owner of the land is the Glebe Property Pty Ltd. Therefore it is the duty of the company to pay the tax on the property.
D)
The following steps can be taken by the peter and Karen for the minimizing the land tax liability at the time of completion of the purchase-
Australian taxation office, 2018. Applying net capital losses from earlier years. Available through <https://www.ato.gov.au/forms/guide-to-capital-gains-tax-2016/?page=111>.
Australian taxation office, 2018. The discount method of calculating your capital gain. Available through < https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/The-discount-method-of-calculating-your-capital-gain/ >.
Evans, Chris, John Minas, and Youngdeok Lim. “Taxing personal capital gains in Australia: an alternative way forward.” Austl. Tax F. 30 (2015): 735.
Høj, Anne Kristine, Mads Rahbek Jørgensen, and Poul Schou. “Land Tax Changes and Full Capitalisation.” Fiscal Studies 39, no. 2 (2018): 365-380.
Land transfer duty, 2018. Available through < https://www.sro.vic.gov.au/land-transfer-duty>.
Levy, John. “Tax files: Corporate reconstruction stamp duty: Another one way freeway for SA?.” Bulletin (Law Society of South Australia) 37, no. 6 (2015): 40.
Scarrett, Douglas, and Sylvia Osborn. Property valuation: The five methods. Routledge, 2014.
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