Taxation Rulings And Capital Gains Tax

Computation of Capital Gain or Loss for Assets Acquired by Eric

Q1. The requirement of this question is to compute the net capital gain or net capital loss of the assets acquired by Eric. The capital gains or capital losses are levied under section 108-20 and under section 108-10 of ITAA 1997.

The computation of capital gains/losses are as follows:

ERIC
CAPITAL GAINS/LOSSES
Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Antique Vase	Antique Chair	Painting	Home Sound System	Shares in listed company
Purchase cost	2000	3000	9000	12000	5000
Sales Value	3000	1000	1000	11000	20000
Capital Gains	$1,000.00	-$2,000.00	-$8,000.00	-$1,000.00	$15,000.00
Total Capital Gains for the year	$15,000.00
Total Capital Losses for the year	-$9,000.00

Capital Loss of $ 1000 incurred because of sale of home sound system is not permissible to set off as per Section 108-20 of ITAA 1997. The reason is home sound system is a personal assets and the sale of personal assets is not levied under capital gains tax. Further Eric has earned a capital gain from the sale of shares of $ 15000 but this capital gain cannot be used for the set-off of total capital losses of $ 9000 according to section 108-10 of ITAA 1997. However, the capital losses will be carried forward in future under section 108-10 of ITAA 1997.

Therefore, Eric cannot set-off the capital losses of $ 9000 against the capital gains of $ 15000 earned from sale of shares.

Q2. The requirement of this question is to calculate the taxable value of fringe benefit of the year 2016-2017 under the taxation ruling of TR 93/6.

Fringe Benefit Taxable Value As Per Actual Rate And Statutory Rate
Brian
For the year ended 2016-17
Particulars	Statutory rate	Actual rate
Amount ($)	Amount ($)
Loan	1000000	1000000
FBT value (40%)	400000	400000
rate of interest	5.65%	1%
Amount	2825	500
Taxable Value	2325

If the interest amount is payable at the end of the loan instead of monthly repayments:

Particulars	Statutory rate	Actual rate
Amount ($)	Amount ($)
Loan	1000000	1000000
FBT value (40%)	400000	400000
rate of interest	5.65%	1%
Amount	33900	6000
Taxable Value	27900

According to taxation rulings of TR 93/6, it is given that financial institution regularly makes strategies and policies to set-off the amount of loan which is called as interest set-off agreement. The clients incurred interest amounts which are set off through these products (Krever, 2013). Hence, no tax amount is required to pay by the clients on the profits earned from the account.

If in case bank released Brian from the interest amount on the loan, then also no tax will be required to pay as per Taxation rulings of TR 93/6.

Hence it is concluded that income tax liability is not applicable to the Brian in case of relaxation given as per Taxation rulings of TR 93/6.

Q3. The requirement of this question is to calculate the loss and the allocation of such loss resulting from the sale of rental property between Jack and Jill and its accounting under capital gain tax.

The above issues will be covered under sections 51 of ITAA 1997, Taxation rulings of TR 93/32 and the case ‘F.C. of T vs McDonald of 1987.

Taxable Value of Fringe Benefit under Taxation Ruling of TR 93/6

The net gain or loss derived from the sale of rental property owned by the co-owners’ husband and wife (Jack and Jill) is described under taxation rulings of TR 93/32 (Barton, 2013). Further the taxation rulings of TR 93/32 is described mainly the assessment of the taxable position of those Co-owners who are not liable to carry the prices within schedules. Therefore, in this case, taxable position of jack and Jill is assessed where Jill is authorized for 90% of the profits and Jack is only authorized for 10% of the profits.

Co-ownership of Jack and Jill in the rental property is considered to be one partnership as per income tax law but it is not considered as one partnership as per general law as per Taxation rulings of TR 92/32 but however for the purpose of carrying the values for any business purpose it is considered as one partnership. Hence, in this scenario co-ownership between Jack and Jill of the rental property is based on income tax and cannot be a partnership as per general law.

As already discussed in previous paragraph that in accordance with taxation rulings of TR 92/32 it is given that co-owners that is Jack and Jill are not considered to be partners as per the General Law (Milton, 2013). In this case, there is a written agreement that does not have significance on the gain or loss derived from the rental property.

Considered the case of ‘F.C. of T. v McDonald (1987)’, it is given that taxpayer and his wife jointly owns two strata title units as the renters (Woellner, 2013). The agreement between them describes that earnings from the rental property will be divided between husband (Mr. McDonald) and wife (Mrs. McDonald) as 25% and 75% respectively. Further the agreement between them also states that total loss will borne by the taxpayer himself that is Mr. McDonald.

Therefore, it is concluded that both the co-owners that is jack and Jill must share the loss in equal proportion and also the partnership business does not consider joint ownership.

Q4. For the purpose of highlighting the ‘avoidance of tax’, the case called IRC v Duke of Westminster [1936] AC 1 is always quoted. The case considers one rule that is everyone is authorised to order his affairs for assigning the taxation which is given under fitting act (Barkoczy 2016). However, this case is not pretty for those who are looking for tax avoidance relating to complex structures of law and these are faded by the by the following cases where the courts have to consider the total effect. For example, the courts in the proposed cases will be more obstructive and were covered under the WT Ramsay v. IRC principle. Hence this case is not assisted the commercial purpose (Braithwaite, 2017).

Allocation of Loss Resulting from Sale of Rental Property

In this question, Duke of Westminster [1936] AC 1 describes that if a person achieves victory then they are not obligatory to pay any additional tax amount (Saad, 2014). Further it is given that sole proprietors and companies configure financial statements for the purpose reducing the tax liabilities.

Q5.  The requirement of this question is to advice Bill about the assessment of receipts from the sale of timber.

The sections covered under this question is Subsection 6 (1) of the Income Tax Assessment Act 1936 and the case ‘McCauley v. The Federal Commissioner of Taxation’.

In the given question, it is stated that Bill owns a large parcel of land where several tall pine trees are grown. The main objective of the Bill is to use the land for grazing sheep and wanted to have it cleared. Bill determines that logging company are ready to pay $ 1000 for every 100 meters. Further according to the taxation rulings of 95/6, it is given that income tax costs from the production and forestry activities are shut down (Woellner et al. 2016). Further, the taxation rulings also limit the sale receipts of timber. These type activities are assessed the taxable income of the taxpayers. Moreover, where the tax payers are involved in the forest operations activities then it is assessed under subsection 6 (1) of the Income Tax Assessment Act 1936.

Given under the section 6 of subsection 1 of the Income Tax Assessment Act 1936, plantation of trees which is essential for chopping of forest is predominantly known as primary production (Robin, 2017). Therefore, considering the current case, Bill is considered as the basic producer because of involvement in the production activities under section 6 of subsection 1 of the Income Tax Assessment Act 1936.

In this case, without plantation of trees the amount of money earned by the Bill because of sale of timber this will creates the assessment of the earnings of sale of timber of the tax payers. Thus, under subsection 6 (1) of the Income Tax Assessment Act 1936, those tall pine trees are considered as assessable income.  

If the Bill was simply paid the lump sum of $ 50000 for granting the logging company a right to remove timber as required, then in such case the $ 50000 was considered as royalty. Therefore, the receipt of royalty for granting a right to remove timber is covered under section 26 (f) (Barkoczy et al. 2016). According to this situation Bill is not considered to be the trader of forest operations. In the case, ‘McCauley v. The Federal Commissioner of Taxation’ payments obtained by the grantor is having a right of doing so. Thus, the royalty amount of the Bill is an assessable income under section 26(f).

Hence, the conclusion derived from the sale of timber is assessed as income under subsection 6 (1) of the ITAA 1997.

References

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.

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

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

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.