As stated by section 6-1 of the income tax assessment Act 1997 an income derived from personal exertion on an income from personal exertion refers to any income which consists of wages, commissions bonus fees salary earnings superannuation allowance pensions retiring gratitudes and gratitude which are received by a person in his capacity as an employee or any services provided. It also includes any proceeds which the taxpayer received from carrying out of business with a partner or alone. Any amount which is received by a person as a subsidy or bounty for the purpose of carrying on a business and any amount which is the part of the assessable income of the taxpayer with respect to Section 393-10 of the Act is also included within the meaning. However this form of income does not include dividends non share dividend or rent as well as interest unless such interest is the principal business with the taxpayer carries out.
It has been provided through section 6-5 of the ITAA 97 that where a person receives money by providing a media interview in relation to a life story to a media channel with all inclusive rights such income would be assessable for taxation purpose (Prince 2016).
The Court ruled in the case of Brent v Federal Commissioner of Taxation (1971) ATC 4195 that the amount which is received for telling stories about a person’s life to a newspaper which was to be published exclusively would be and taxable income.
In the case of Housden (Inspector of Taxes) v Marshall (1958) the court held the payment received by a person for providing a newspaper with photographs and newspaper cuttings about a life experience of a person as an income from personal exertion.
An income which is derived from a hobby is not considered as incomeas provided by taxation ruling 97/11. A hobby is any activity which is carried out without the intention of making profit (Stantcheva 2017).
From the above discuss rules it can be stated that all three income which has been received by Hillary income from personal exertion. This is because income from personal exertion includes any income which has been received by a personin form of office for services rendered. Therefore the received of $10,000 by Hillary would be considered as and income derived from personal exertion as she has received this amount by providing her services to daily Terror newspaper.
In addition through the application of the case of Housden (Inspector of Taxes) v Marshall it can be stated that the sale of photographs and manuscript to Michelle library would also be considered as an income derived from personal exertion by Hillary as she is selling a property belonging to her.
On the other hand if Hillary would have wrote the story for her own satisfaction then this income would not be treated as income derived from personal exertion. This is because it would be an income which has been and through a hobby rather than a business activity which is not considered as an income as provided by taxation ruling 97/11.
From the above discussion it can be concluded that all three incomes derived by Hillary would be considered as income derived from personal exertion in relation to the first issue.
In relation to the second issue the income derived by Hillary would not be considered as an income from personal exertion.
|
Calculation of car fringe benefit Tax |
|||||
|
PARTICULARS |
AMOUNT |
AMOUNT |
|||
|
CAR BASE VALUE |
50000 |
||||
|
THE STATUTORY RATE |
20% |
||||
|
DAYS FOR PRIVATE USE OF THE CAR |
183 |
||||
|
FBT YEAR DAYS |
365 |
||||
|
GROSS VALUE OF CAR FRINGE BENEFITS |
5041.09 |
||||
|
CONTRIBUTION BY EMPLOYEE |
1000 |
||||
|
TOTAL FRINGE BENEFIT TAX VALUE |
4041.09 |
The issue which has been determined in the present scenario is that what is the assessable income of the parents
In the case of Hochstrasser v Mayes (1960) it has been stated by the court that the person was actually make a gain for the purpose of treating the receipt as an income.
In the case of Scott v Commissioner of Taxation (1935) the court ruled that income cannot be seen as a word of art rather it needs the proper application of the required rules to make a receipt be treated as income. The court also stated in this case that the nature of income has to be analysed in complaints to the relevant situation where it has been derived by the taxpayer. The taxpayer must have considered the receipt as a gain in order to be treated as an income. Further the court made it clear in the case of Bective v Federal Commissioner of taxation that any gain will not arise until the taxpayer beneficially derived such item.
It has been provided through the provisions of the section 6.5 of the ITAA 1997that the assessable income of a person includes any income which has been derived through the ordinary concept which is known as ordinary income (Werlauff 2016).
It has been provided through the facts of the case that the parents have provided amount of money worth $40,000 to their sonin form of a short term housing loan. There has been no formal agreement in relation to the loan provided by the parent. In addition it has been provided that the sun was not required to pay any interest. However one of the terms of the loan stated that after a period of 5 years the son would provide them with the payment of $50,000 in lieu of the $40,000.
According to the principles of the case of Hochstrasser v Mayes a person would have deemed to have derived income if such person makes a gain through the receipt in the given situation it is clear that the parents have received a gain of 5% per annum interest provided by the son for a period of 2 years over the $40,000. The taxpayer as per the case of Scott v Commissioner of Taxation had to consider the received as a gain so that it can be treated as an income. Here the mother has provided that she did not want any interest from the Son. However the terms of the loan provided that after 5 years the son would have to give them $10,000 extra to what he had received as a loan. This means that they had an intention of making again. Therefore in the given situation this intention would be treated as an ordinary income under the provisions of section 6.5 of the ITAA 1997. Therefore the amount of interest received by the parents would be there assessable income.
For the purpose of calculating capital gain tax there are a few steps with nice to be considered (Ioannou 2017). Firstly a capital gain event has to be identified under the provisions of section 102.20. Secondly there has to be a capital gain tax asset. Thirdly the timing of the event has to be taken into considerationand under division 116 of the ITAA 97 the capital gain tax is calculated through the use of capital proceed, cost based, reduced cost base and cost base modification.Under section 104.5 capital gain event A1 deals with disposal of a CGT asset. Under section 108.5 a CGT S8 is any kind of property or legal right which is not a property. In relation to any asset which has been purchased prior to 21st September 1999 the party has the right to heaven indexed cost base or a General discount of 50% as per section 115.15.
Under section 116.20 it has been stated that are capital proceed is any money which has been received or is entitled to be received in relation to a capital event or the market value of a property a person has received or entitled to be received.Under the provisions of 116.30 It has been provided that the general rule provided in section 100 in 16.20 can be modified and capital proceeds would be deemed as the market value of the property if no money is received or the transaction has been conducted at arm’s length. According to Prichard (2016) at arm’s length signifies a relationship with the parties is closely related such as family ties.
However the general discount provisions which are provided under division are not applicable on companies according to Section 115.10.
The capital gain tax in situation (1) as pr the above discussed rules is as follows
|
CAPITAL GAIN TAX |
|||
|
PARTICULARS |
AMOUNT |
AMOUNT |
|
|
CAPITAL PROCEEDS |
800000 |
800000 |
|
|
COST BASE |
|||
|
ELEMENT 1 (PURCHASE PRICE) |
90000 |
||
|
ELEMENT 2 (CONSTRUCTION COST) |
60000 |
||
|
TOTAL COST BASE |
150000 |
||
|
Total CAPITAL GAIN |
650000 |
||
|
DISCOUNT (BEFORE 21ST SEP 1999 ) |
50% |
325000 |
|
|
TOTAL CGT |
325000 |
In situation (ii) as the transaction has been at arm’s length the proceeds would be considered as the market value of the property as under section 116.30. This is because father daughter relationship is at arm’s length. Thus the $200000 will not be the sale proceed rather the proceeds will be the market value of the property.
In situation iii the 50% discount will not be applicable as the owner is a company and the general discount provisions which are provided under division are not applicable on companies according to Section 115.10. The CGT in this case would be
|
CAPITAL GAIN TAX |
|||
|
PARTICULARS |
AMOUNT |
AMOUNT |
|
|
CAPITAL PROCEEDS |
800000 |
800000 |
|
|
COST BASE |
|||
|
ELEMENT 1 (PURCHASE PRICE) |
90000 |
||
|
ELEMENT 2 (CONSTRUCTION COST) |
60000 |
||
|
TOTAL COST BASE |
150000 |
||
|
Total CAPITAL GAIN |
650000 |
||
|
TOTAL CGT |
650000 |
References
Ioannou, J., 2017. Income from property, partnerships and planning. Taxation in Australia, 52(4), p.198.
Prichard, W., 2016. What Have We Learned About Taxation, Statebuilding and Accountability?.
Prince, J.B., 2016. Tax for Australians for Dummies. John Wiley & Sons.
Stantcheva, S., 2017. Optimal taxation and human capital policies over the life cycle. Journal of Political Economy, 125(6), pp.1931-1990.
Werlauff, E., 2016. Taxation of Foreign Foundations in Light of EU Law. European Company Law, 13(1), pp.7-13.
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