Meaning the definition that is stated in the “section 6-1 of the ITAA 1936” includes that the accounting that is received personal exertion represents the income that is obtained from the salaries, wages, bonuses, gratuity received in capacity of the employee or the allowances received in respect of any kind of services rendered. The definition that is stated in the “section 6-1 of the ITAA 1936” is inclusive and merely lay down the instances of the personal exertion (Woellner et al. 2016).
As evident in the present situation of Hilary it is noticed that she is a well-renowned mountain climber. She was later approached by the newspaper company that offered with a sum of $10,000 for her life story given Hilary writes the same. The story was written by Hilary and all the rights of the publications were vested in the hands of the newspaper company.
According to the “section 6-1 of the ITAA 1936” any amount that is derived from the personal exertion is regarded as the income and might be considered taxable as either the statutory or the ordinary income (Smith 2015). As noted under “section 15-2 of the ITAA 1997” the assessable income of an individual comprises of any allowances, compensations, benefits and the gratuities that is paid to the person relation to the employment or the services that are rendered by the person. It is noteworthy to consider that there must be an adequate connection between the receipt and the provision of the services such as rewards or ordinary incident of the provision of the services that is rendered.
According to the “section 6-5 of the ITAA 1997” any form of money that is received by the taxpayer for an exclusive media interview of the life story and the sum of money paid in this respects with all the rights of interview owned exclusively by the media channel would be considered as the taxable income (Hayes 2015). As evident in the situation of Hilary the amount that was received by Hilary from the media company for narrating about her life is regarded as income from personal exertion and would be held assessable under the ordinary concepts of “section 6-5 of the ITAA 1997”.
To support the treatment as income an evidences suggested in the case of “Brent v Federal Commissioner of Taxation (1971) ATC 4195” where the wife of the great robber of train is was held for taxation purpose since she derived the taxable income when the amount received by her for telling the story of her life in a newspaper for exclusive publications. Similarly the situation of Hilary the amount that was received for narrating the story to the newspaper would be considered as assessable income under “section 6-5 of the ITAA 1997” (Crossingham and Hubbard 2016). The quantum of payment that was received by the taxpayer was regarded as significant since Hilary was required to provide the service in order to receive such payment.
In latter part of the case study it was noticed that Hilary sold the manuscripts and the photographs to Mitchel Library that was taken by her at the time of climbing the mountain. Citing the case of “Housden (Inspector of Taxes) v Marshall (1958)” where the agreed in exchange of payment to make available all the experience as the Jockey together with the photographs and the newspaper cuttings was held as the assessable income under “section 6-5 of the ITAA 1997” (Van Rensburg 2015). Similarly in the case of Hilary the selling of manuscripts and the photographs of the mountain climbing to the Mitchel Library would be considered as income from personal exertion and would be held assessable under “section 6-5 of the ITAA 1997” as income from the ordinary concepts.
Accordingly in the above stated discussion of the case information provides the result that the exclusive publication of her story to the newspaper is regarded as income earned from personal exertion (Ioannou 2017). Furthermore, these income would be considered as ordinary income based on the ordinary concepts and taxable under the “section 6-5 of the ITAA 1997”.
In an alternative situation if Hilary decides to write the book for her personal satisfaction and then selling the book then the receipt of income from the sale of such books would be held as income from loyalties. According to the decision of the court in the case of “Hobbs v Hussey (1942) 24 TC 153” where the taxpayer was viewed as one of the dangerous criminal received the sum of £1500 as the serial rights for his autobiographies would be regarded as the royalties income (Boccabella 2015).
The taxpayer was held assessable under “section 6-5 of the ITAA 1997” for receipts of such royalty income (Prince 2016). Similarly in the event of Hilary, if an alternative decision of selling the books was made by her instead of assigning the rights to the media newspaper then the sale of such books would have accounted as royalties. Referring to the example of “Hobbs v Hussey (1942) 24 TC 153” the receipt of the income from the sale would have constituted as royalties and it is a taxable income (Mares and Queralt 2015).
On a conclusive note it can be stated that the receipt of $10,000, $5,000 and $2,000 by Hilary should be viewed as the income from personal exertion and it will be considered taxable under the ordinary concepts of “section 6-5 of the ITAA 1997” (Barkoczy 2016). Alternatively if Hilary decides to write the book for her personal satisfactions and then selling the same into the market would have resulted in royalties which would attract tax liability.
The present issue is based on understanding that a parents make to their son for the purpose of short-term housing purpose and deriving interest thereon would be considered in the assessable income of the taxpayer. It is worth mentioning that an element that possess the nature of income is reliant on the situations of derivation of such income. According to the decision that is stated in “Hochstrasser v Mayes (1960)”the court of law held that to have the nature of income there should be the existence of the gain element for the persons that is receiving such income (Werlauff 2016).
Denoting the circumstances in the current situation it is noticed that when the loan was made by the parents to the son there was no form of loan agreement and no such requirement of the security. The loan agreement also carried an element that the no such interest was charged by the mother. Though the stipulated time for the payment of loan was five years however the son returned the amount of loan together with the interest within two years’ time of such agreement.
Denoting the explanations that is made in the “section 6-5 of the ITAA 1997” majority of the income that comes into the taxpayer is considered as ordinary income based on the ordinary concepts (Prichard 2016). As held in the “Scott v Commissioner of Taxation (1935)” income is not viewed as the word of art and requires application of the necessary principles in treating the receipts as income. It is worth mentioning that the character of the income should be determined in accordance with the appropriate circumstances of its derivations by the taxpayer (McCluskey and Franzsen 2017). In order to have the nature of income the item must be regarded as the gain by the taxpayer that obtains it. As held in the Countess of “Bective v Federal Commissioner of taxation (1947)” there cannot be any gain unless the item is derived by the taxpayer beneficially (Saez and Zucman 2016).
Similarly in the situation of mother the loan amount was returned by the son to his mother within the span of two years and also provided her with an interest for the loan that was taken. The interest amount that is received by the mother would be regarded as the element of gain since it was beneficially derived by the taxpayer. Referring to the decision court in “Hochstrasser v Mayes (1960)” the receipt of interest income by the mother would be regarded as an element of gain since it was not anticipated by the mother that she would be receiving the interest amount for the loan made to son (Auerbach and Hassett 2015).
Additionally the receipt of interest constitutes the nature of income. Referring to the decision of the court in “Scott v Commissioner of Taxation (1935)” the interest income that is received by would be treated as the receipts in accordance with the ordinary concepts (Becker, Reimer and Rust 2015). Therefore, the receipt of interest would be included in the assessable income which would attract tax liability. However, no tax liability attracts for the principle loan amount as it is a capital amount.
The primary step in determining whether the transaction or the event would be subjected to capital gains tax it is necessary to ascertain whether there has any CGT event occurred (Bronfenbrenner 2017). A capital gains or loss can originate if the capital gains tax event originates that involves the capital gains tax asset. “Division 104 of the ITAA 1997” states that a capital gains tax or loss can only take place if the CGT even consists of the capital gains tax asset (Stantcheva 2017). Usually a CGT functions prospectively and it is applicable only if the capital gains tax event takes place consisting of the capital gains tax asset acquired on or following 20/09/1985.
The time of acquiring an asset for the capital gains tax purpose it is necessary because the provision of the capital gains taxes is only applicable le to the CGT assets that are acquired prior to 20/9/1985 (Bankman et al. 2017). It is vital to determine the date of acquisition if the CGT assets is held for a minimum period of 12 months prior to the disposal of the asset under the CGT event A1. The indexation cost base or the discounting method of capital gains is only applied if the assets is held for a minimum period of 12 months.
In determining the CGT event A1 land and building is held as the separate assets. The current case scenario provides that the vacant block of land was bought by Scott on 1st October (Murphy and Higgin 2016). Therefore, the date of acquisition can be considered as the vital element in determining the capital gains tax. As the land was bought on 1st October 1980 the land constituted a pre-CGT asset. However with reference to the “Section 105-55 (2) of the ITAA 1997” the construction of building on land completed in 1986 the land would be regarded as the post CGT asset. Simultaneously the sale of land by Scott was resulted in CGT event D1.
In an alternate situation of disposing off the land by Scott to her daughter would result Scott with a gain of $50,000. To further illustrate the events the computations is provided below;
In the final circumstances of the situation if it is noticed that the owner of the land is a company and not the individual taxpayer then it is directed that the amortization amount and the amount of tax that would be should be subtracted. The below stated calculations provides the further illustrations.
Reference List:
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American Economic Review, 105(5), pp.38-42.
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
Boccabella, D., 2015. Reconciling the overlap of charging provisions in regard to non-cash benefits from employment, personal exertion and business. J. Austl. Tax’n, 17, p.85.
Bronfenbrenner, M., 2017. Income distribution theory. Routledge.
Crossingham, D. and Hubbard, K., 2016. Arbitrage strategies-remuneration of business owners. Taxation in Australia, 50(10), p.603.
Hayes, P., 2015. Business structures. Good Practice, (3), p.17.
Ioannou, J., 2017. Income from property, partnerships and planning. Taxation in Australia, 52(4), p.198.
Mares, I. and Queralt, D., 2015. The Conservative Origin of Income Taxation.
McCluskey, W.J. and Franzsen, R.C., 2017. Land value taxation: An applied analysis. Routledge.
Murphy, K.E. and Higgins, M., 2016. Concepts in Federal Taxation 2017. Cengage Learning.
Prichard, W., 2016. What Have We Learned About Taxation, Statebuilding and Accountability?.
Prince, J.B., 2016. Tax for Australians for Dummies. John Wiley & Sons.
Saez, E. and Zucman, G., 2016. Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2), pp.519-578.
Smith, J.P., 2015. Australian state income taxation: a historical perspective. Austl. Tax F., 30, p.679.
Stantcheva, S., 2017. Optimal taxation and human capital policies over the life cycle. Journal of Political Economy, 125(6), pp.1931-1990.
Van Rensburg, E.J., 2015. The origins and development of the general deduction formula in income tax legislation of the Cape Colony. SA Mercantile Law Journal= SA Tydskrif vir Handelsreg, 27(1), pp.92-127.
Werlauff, E., 2016. Taxation of Foreign Foundations in Light of EU Law. European business Law, 13(1), pp.7-13.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue
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