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Capital gains and losses

Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for $12,000), and shares in a listed company (for $5,000). Last week he sold these assets as follows: antique vase (for $3,000), antique chair (for $1,000), painting (for $1,000), sound system (for $11,000) and shares (for $20,000). Calculate his net capital gain or net capital loss for the year.

Brian is a bank executive. As part of his remuneration package, his employer provided him with a three-year loan of $1m at a special interest rate of 1% pa (payable in monthly instalments). The loan was provided on 1 April 2016. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations in relation to the interest payments. Calculate the taxable value of this fringe benefit for the 2016/17 FBT year. Would your answer be different if the interest was only payable at the end of the loan rather than in monthly instalments? What would happen if the bank released Brian from repaying the interest on the loan?

Jack (an architect) and his wife Jill (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90% of the profits from the property. The agreement also provided that if the property generates a loss, Jack is entitled to 100% of the loss. Last year a loss of $10,000 arose. How is this loss allocated for tax purposes? If Jack and Jill decide to sell the property, how would they be required to account for any capital gain or capital loss? 

What principle was established in IRC v Duke of Westminster [1936] AC 1? How relevant is that principle today in Australia?

Bill owns a large parcel of land on which there are many tall pine trees. Bill intends to use the land for grazing sheep and therefore wants to have it cleared. He discovers that a logging company is prepared to pay him $1,000 for every 100 metres of timber they can take from his land. Leaving aside any capital gains tax issues, advise Bill as to whether he would be assessed on the receipts from this arrangement. Would your answer be different if he was simply paid a lump sum of $50,000 for granting the logging company a right to remove as much timber as required from his land? 

Capital gains and losses

The present scenario on acquirement of antique vase by Eric has certain issues that can be related to process of ascertaining capital gains or else losses incurred from selling assets/resources. This can necessarily be defined under the taxation directive mentioned under 108-20 of ITAA of 1997 (Davis et al. 2015).

Based on the taxation rulings mentioned under the regulation 108-20 of ITAA of the year 1997, the loss amounting $1000 borne out of sale of home sound device cannot be permitted for deduction (Morgan et al. 2013). This is necessarily because no losses can be enumerated based on clearance of assets for personal use. The technique for offsetting can be based on segment 108 to around 110 of ITAA of the year 1997. Because Eric has attained profits from clearance of normal resources and no capital otherwise relevant deductions of the current year exists. Profits from capital of Eric are essentially $15000.

Thus, it can be inferred that Eric cannot recompense the specific amount of loss incurred from diverse collectables since he has attained gains from the clearance of normal resources (Novikov et al. 2014).

The present case on Brian is said to have issue of ascertainment of FBT that can be connected to the taxation directive TR 93/6.

According to the directive of taxation stated under the ruling TR 93/6, if the specific bank liberates Brian from the compulsion of refinancing a specific interest amount on obtained loans, then Brian cannot be held liable for paying off income tax (Passant et al. 2014).

Based on specific taxation directive, it can be hereby ascertained that it is not essential to disburse a specific amount for settling the tax obligation as in this case Brian is liberated by the lender bank from the paying interest amount.

The issue that can be identified from the case study on Jack and his wife Jill can be associated to loss distribution from a specific rental property as there is co-possession.

The taxation directive cited under the ruling TR 93/32 explicates that overall income otherwise loss acquired from rental possessions between two different possessors (ROBIN 2017). The current scenario refers to evaluation of tax of co-possessors of rental properties. In essential, Jack is necessarily accountable for almost 10% while Jill is liable for 90% of the belongings. As per taxation directive TR 93/32, there is co-ownership of rental possessions and can be regarded as partnership of rental resources for income tax. The proceeds from rented properties are usually derived from rented properties and essentially from sharing. The directive states that partnership agreement (both verbal else wise writ) is said to put any effect on sharing of income derived from the said property (Saad 2014).

Calculating fringe benefit tax

The taxation ruling stated that the co-possessor of particular rental belongings under contemplation cannot be considered as partners under general ruling. The joint venture agreement either oral or written does not bear influence on shared amount of gain otherwise loss from a said property. Therefore, co-possessors of rental resources of both Jack and his wife Jill can get hold of the property on the whole as joint renters are very usual or common.  

As stated in the case on F.C. of T. v McDonald (1987) 18 ATR 957, spouse of the spender of tax possessed two diverse strata title fragment as a type of joint venture (Snape and De Souza 2016). In essence, the agreement validated between the two owners state that the overall earnings acquired from the rental resource again can be dispensed in specific proportion (25% to Mr. Mc Donald and 75% to Mrs. Donald). Nevertheless, the overall amount of loss can be acquired by Mr. Mc Donald.

As per the taxation ruling stipulated under section TR 93/32, it can thus hereby be figured out that in case of co-possession of specific rental property, loss borne need to be equitably distributed among both the joint owners Jack as well as Jill, however, joint ownership cannot be regarded as partnership transaction.

The case on IRC v Duke of Westminster [1936] AC 1 it can be hereby mentioned as a case on evasion of tax. As rightly mentioned by Wende (2015), this current case initiated a specific principle that assured one principle that validates that every individual can be endorsed to order specific  circumstances for permitting taxation. Woellner (2013) opines that this can taken into account as a remarkable rule for individuals seeking tax avoidance, when take into account from the standpoint of intricacy of legal framework. Intrinsically, these can be particularly destabilized by the particular cases in which legal courts have talked about the entire authority. By talking about the case in point presented by the court in the upcoming period can be regarded to be very restraining and this can be assumed according to the legal case referred to as “WT Ramsay v. IRC principle”. Essentially, in the present-day state of affairs, this standard applicable within the nation Australia mentions that if a particular person attains success by reaching the conclusion, then in that case, inland revenue might perhaps be utilized for the specific scheme.

The recognized issue in the mentioned case study refers to assessment of income acquired from advances of sale of particularly felled timber. However, this case can be analysed by referring to rulings declared under sub segment 6(1) of the taxation ruling of Income Tax Assessment Act declared during 1936 (Woellner et al. 2016)

Allocation of loss in rental properties

Taxation directive TR 95/6 specifies illustratively consequences of tax stemming from action of primary production along with forestry, limitation to receipts from sale of timber, assessments of assessable income from forestry works. The sub-ruling section declared under Income Tax Assessment Act of the year 1936, chief productions are usually associated to tree planting actions that can be considered under plantation work necessary for felling trees.

According to the present case study, it can be hereby mentioned that Bill possesses a particular land that grows pine trees. Necessarily, Bill planned to use the specific land for sheep grazing and intended to get it cleared. Nonetheless, the logging firm can acquire hold of the land. Being the possessor of land, Bill essentially did not carry out planting works and the overall amount received from felling trees represented the amount that can be assessed for taxation. In particular, if the payers of tax payers were fundamentally paid a lump sum quantity of $50000 by allowing the authority to particular logging firm for elimination of amount of timber, in that case the sum accepted can be considered as royalty. As per the taxation directive mentioned under 26 (f), necessarily royalties can be received from allowance of authority to market the timber (Woellner et al. 2016). Under this particular state of affairs, Bill cannot undertake business transactions for forestry. The present case explains that expenditure carried out by different individual granting can be essentially considered under the specific clout. In this case, the definite amount that are assumed by Bill as royalty essentially combine the entire computable income under the directive otherwise referred to as ruling of taxation mentioned under section 26 (f).

This can be mentioned that accepting receipts as income generated from selling felled income can be taken into account as taxable income specifically under the ruling section 6(1) of taxation regulation ITAA declared during the year 1997.  

References 

Davis, A.K., Guenther, D.A., Krull, L.K. and Williams, B.M., 2015. Do socially responsible firms pay more taxes?. The Accounting Review, 91(1), pp.47-68.

Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.

Novikov, A.A., Ling, T.G. and Kordzakhia, N., 2014. Pricing of volume-weighted average options: Analytical approximations and numerical results. In Inspired by Finance (pp. 461-474). Springer International Publishing.

Passant, J., McLaren, J.A. and Silaen, P., 2014. Are returns received by householders from electricity generated by solar panels assessable income?.

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.

Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.

Wende, S., 2015. Understanding the economy-widze efficiency and incidence of major Australian taxes. Treasury WP, 1.

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.

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