Working Out Net Capital Gains And Net Capital Loss Under ITAA 1997, Loan Account Offset Arrangement, Co-ownership Of Rental Property, Timber Sales And Taxation Principles

Net capital gains and net capital loss under ITAA 1997

Issue:

The contemporary problem statement based on working out the net capital gains or net capital loss for the income year made by Eric.

1. “Section 108-20 (1) of the ITAA 1997”
2. “Section 108-10 of the ITAA 1997”

In accordance with the section 108-20 (1) of the ITAA 1997 it provides guidance in working out the amount of net capital gains or net capital loss for the year in which the income is derived (Pope, Rupert and Anderson 2016). Additionally, the section disregards any form of capital loss than a person makes from the personal use of asset. Eric has suffered a loss from the sale of personal asset of home sound system and only derived gains from the sale of shares. With respect to section 108-20 (1) of the ITAA 1997 Eric will not be able to set-off loss from the sale of personal assets (Miller and Oats 2016). Additionally, Eric is also suffered a loss from collectables hence, under section 108-10 of the ITAA 1997 Eric will not be able to set off collectable loss.

Conclusion:

As assumed Eric is disallowed from setting off loss of personal asset under section 108-20 (1) of the ITAA 1997.

Issue:

The present issue outlines the issue of loan account offset arrangement made by the financial institutions.

1. Section 16 of the ITAA 1986
2. FBTAA 1986

The present issue determines that the financial institutions is makes the arrangement of reducing the interest that is payable on the loan account of the customers. Therefore, as found that Brian is provided the opportunity of paying interest on loan at the end of the loan period rather than making payment on monthly instalment basis (Razin and Sadka 2014). These kind of facility by bank is known as the interest offset arrangement programme where the loan is structured in a manner that no is derived by Brian and as a result of this Brian under section 16 of the FBTAA 1986 is not required to pay income for the benefit that has arisen from the loan account.

Conclusion:

The analysis can be concluded by stating that loan account offset arrangement to its employees represents a reduction in interest charge and results in fringe benefit for Brian.

Issue:

The scenario here elucidates the basis upon which for taxation purpose the dissection of the division of the net income or loss from the rental property between the co-owners of that property.

1. Taxation Ruling of TR 93/32
2. McDonald v FC of T (1987)

Co-ownership of the rental property is regarded as the partners in respect of income tax purpose but does not accounts to be a partners under the general law except the partnership is considered as carrying of the business (Fleurbaey and Maniquet 2015). The problem statement of Jack and Jill defines that they bought a rental property as the joint tenants. The joint tenancy contained a clause where Jack will be sharing 10% profit and Jill with 10% of profit. The clause provided that on suffering loss Jack will have to bear 100% of the total loss. Therefore, joint tenancy between Jack and Jill under Taxation ruling of TR 93/32 is not considered as the partners in respect of “General Law” and only regarded as partnership for income tax purpose (Frecknall 2014).

Loan account offset arrangement

Quoting to the case of McDonald v FC of T (1987) the verdict stated that there did not prevailed any partnership under “General Law” with a significant relationship of co-ownership existed among the partners. Consequently, Jack and Jill is required to share loss equally for taxation purpose since Jack provided a large part of the income to protect Jill against any losses. The allocation of loss by Jack should be viewed as a pure domestic arrangement to increase the income of his wife and section 51 does not permits deductions under section 51 of the agreement.

Consequently, if the decision is made by Jack and Jill to sell the property then the cost base and lowered cost base must be considered and with incidental cost that is paid at the time of acquiring the property. The capital gains and loss must be accounted in terms of the ownership interest of the property.

Conclusion:

There was no partnership under the general and the losses originating from the rental property must be share equally among them.

The case of IRC v Duke of Westminster is often quoted in the event of avoidance of tax. The case established that Duke of Westminster engaged a gardener and paid him from the substantial part of the post-tax income. The duke ultimately stopped the payment of wages of the gardener and as an alternative drew up a covenant that agreed to pay an equivalent sum. The ruling is considered to be seeking tax avoidance by creating a complex structure (Mellon 2016). The court adopted a strict method where more restrictive method was taken in WT Ramsay v. IRC where transactions having pre-arranged facts with the purpose of saving tax, the correct approach was to impose tax to the extent of transaction as the whole.

In the modern age of Australia an individual can achieve success by ordering tax assignment in a manner that no taxpayers are required to pay tax higher than assigned amount. The decision provides an individual to structure their tax in such manner that they are inside the frame of the law.

Issues:

The scenario here is concerned with the income derived from the cutting down of the timber for sale under as the primary producer in respect of subsection 6 (1) of the ITAA 1936.

1. FC of T v McCauley (1944)
2. Subsection 6 (1) of the ITAA 1936
3. Subsection 36 (1)
4. Section 26 (f)

The study is based on the determining that income received from the sale of the timber would be considered for taxation purpose and would be included in the taxable income of the individual. The elucidations from the case study defines that Bill owns a land having large amount of pine trees. Though he intended to use it for cattle grazing but a logging company offered to pay him $1000 for timber that the company can take with every 100 meter from his land.

Under taxation ruling of TR 95/6 the sale of timber would be considered as taxable income regardless whether the person was engaged in the forestry activity (Kiprotich 2016). Furthermore, Subsection 6 (1) of the ITAA 1936 a person engaged in the functions of primary producer would be considered for taxation purpose for planting or tending of trees proposed for felling. Bill will be treated as primary producer since he was engaged in tending of trees in a plantation and receipts from the sale of trees would be treated as assessable income (Woellner et al. 2016). In spite of the fact that the sales comprise of the asset fragment of the business the worth of the pine trees will be treated as the assessable income in respect of section 36 (1).

If the taxpayer is given a large amount of $50,000 by giving the right to the logging firm of removing timber as much as they want. As per section 26 (f) receipts of royalties by granting the right of cutting the timber would be treated as assessable income for the year in which trees were felled. Citing the verdict of FC of T v McCauley (1944) the amount of lump sum received by Bill is a Royalties under section 26 (f) for granting the right of cutting the trees as much as they logging firm wants.

Conclusion:

The elucidations can be concluded by stating that Bill will be taxable for the receipts from the selling of timber under subsection 36 (1).

References:

Fleurbaey, M. and Maniquet, F., 2015. Optimal taxation theory and principles of fairness (No. 2015005). Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

Frecknall-Hughes, J., 2014. The Theory, Principles and Management of Taxation: An Introduction. Routledge.

Kiprotich, B.A., 2016. Principles of Taxation. governance.

Mellon, A.W., 2016. Taxation: the people’s business. Pickle Partners Publishing.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

Pope, T.R., Rupert, T.J. and Anderson, K.E., 2016. Pearson’s Federal Taxation 2017 Comprehensive. Pearson.

Razin, A. and Sadka, E., 2014. Principles of International Taxation. In Migration States and Welfare States: Why Is America Different from Europe?(pp. 32-35). Palgrave Macmillan US.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.