Australian Income Tax Laws - Swapping And Assessable Income Essay.

Scenarios of Swapping of Goods and Services as per Australian Income Tax

1: Which of the following give rise to “Income”? 

a. A dentist swapping dental work valued at $600 with a retailer for a video which has a market value of $550 (but only cost the retailer $300)

b. A pensioner swapping surplus eggs valued at $150. (for the year) with a neighbour for surplus vegetables grown in a home garden.

c. A builder helping you at weekends to erect your home, doing so on the basis that he can have your caravan (which cost you $10,500 on 1 January 1997) when you move into the home.  Assume the value of the builder’s work was $11,000 and the caravan had a market price of $12,000 when you handed it over on 1 January in the current income year.

d. Volunteering your accounting expertise to a local charity which in turn arranges for someone to clear rubbish from your yard.  Would your answer be different if you were unaware of the charity’s intention to clear the rubbish?

2: Discuss whether the following amounts are assessable.  Include references to any relevant provisions in the ITAA 1997 or ITAA 1936.

a. A car valued at $15,000, given as a prize to a depositor of a building society.  The competition was open to all those who could maintain a minimum balance of $10,000 for the year.

b. An exchange gain (not of an income character) of $1 million made by a large industrial company on repayment of long-term loans.

c. A travel allowance of $4,500 (paid at 45 cents per kilometre 10,000 km travel) paid to an employee by an employer because the employee was carrying out tasks required by the employer.

3: In your hurry to get to a tax lecture, you park your car poorly and, in the process, badly damage the Vice Chancellor’s car.  As the accident is clearly your fault and you do not have any insurance, you agree to meet the costs of any necessary repairs.  After obtaining three quotes, the Vice Chancellor informs you that the cost will be $2,000, which you pay to her when the work is complete.

Required: Is it possible that this transaction could have any Capital Gains tax implications for the Vice Chancellor?

4: Mr & Mrs Martin each hold two shares in a family company.  The company was established in 1980 for the purposes of conducting a retail business premises in Bendigo.  The Martins have twins (a boy and a girl) who will turn 18 on 1 July.  Present plans are for each of the twins to receive one of the shares in the family company with Mr Martin transferring one of his shares to his son and Mrs Martin transferring one of her shares to her daughter.

i. What capital gains issues, if any, arise?  How would your answer differ if, instead of the above share transfer arrangement, the share transfer occurred on Mr Martin’s death, one share being transferred to each of his children? (Mrs Martin would retain both of her shares).

ii. What are the implications for the family company if the Martins are considering: 

a. Buying vacant land in Bendigo; or

b. Buying a retail business (operating through leased premises) in Queensland

1. As per Australian Income Tax Legislation 2012, Vol 2, Sec 63E the following swapping has been dealt.

a. According to the dentist’s case study, a dentist has exchanged his dental work valued at $600 for a video worth $550 with a retailer. The market value of the video is $550 however; it cost only $300 to the retailer. In this case, the dentist does not gain any income as his dental work value is greater than the market value as well as the actual value of the video which he has exchanged. AS the dentist does not gain thus, he has not paid any tax for this swapping (Chow, 2015). However, the retailer gains substantial profit, in this case, hence the retailers' income from the swapping must be assessable for tax purpose. Australian Income Tax Legislation 2012, Vol 2, Sec 63E is relevant for this case.

b. According to the 2^ndcase, the pensioner’s case study, a pensioner has exchanged surplus eggs valued at $150 for the year with a neighbor for the surplus vegetables grown in a home garden. In this case, the pensioner's intention was to generate income from farming and here instead of trading the surplus eggs, the pensioner exchanges the eggs with a neighbour, in exchange of vegetable grown from the neighbors garden.  Here in case, the value of vegetable may be higher than the eggs, and in this case, the pensioner will make a profit (Engdahl, 2011). Hence the pensioner has to pay tax on his income as the income earned by the pensioners from the exchange will be considered as assessable income.  The case must be dealt with Australian Income Tax Legislation 2012, Vol 2, Sec 63E.

c. As per the Builder’s case study, a builder has help an individual at the weekends to erect his/her home for the term and condition that the builder can have the caravan of that individual at the time the individual will move into the home. The cost of the caravan is $10,500. Moreover, the value of the builder work was $ 11,000 as well as the market value of the caravan was $ 12,000. In this matter, the individual has incurred loss (Krishna, 2015). The market value of the caravan was more than the assumed price of the builder's work. Hence, the individual has made a loss in this swapping thus he will not consider as tax purpose. The case relevant to Australian Income Tax Legislation 2012, Vol 2, Sec 63E.

Assessable Income related to Prize Money, Travel Allowances, and Gains

d. As per the accounting expertize case study, an individual accountant helps with his expertise to a local charity in exchange of an arrangement for clearing rubbish from his yard. In this case, as the consultancy fees of that individual is not stated thus it is difficult to assess if the individual makes any profits from this deal. If he makes profit, then as per the ITAA 1997 his income will be assessable (Prince, 2013). Yes, the answer would be different in case the individual was unware of the intension of the charity to clear the rubbish as in that case the individual provides support services; hence, the swapping services will not be taxed.  Australian Income Tax Legislation 2012, Vol 2, Sec 63E is appropriate for the case.      

2. a) According to the prized car case study, a car valued at $ 15,000 has been given as a prize to an investor of a building society. The competition was open to everyone who could maintain at least minimum balance of $ 10,000 for that specific year. The income of the depositor is considered as the assessable income as per the ITAA 1936 as according to the ITAA 1936 Sec 102 AE prize income is assessable income. However, according to the ITAA 1997, the income above of the depositor is considered as the assessable income because as per Division 30 of the Income Tax Act 1997 sec 118.37 the gift must be assessable for taxation purpose. Moreover, the tax will be calculated according to the valuation of the gift or prize money. Hence, the depositor has to pay tax on $15,000, which is the value of the car (Lakshmanan, 2015).

b) According to the 2^ndcase study of a large industrial company a large industrial firm gain from the exchange of long term loans repayment about $ 1 Million, which has not any income character. In this case, the income of the firm is not considered as an assessable income for the both provisions of Income Tax Act 1936 and Income Tax ACT 1997 TR 95/25 Sec 8-1. The instance of FC of T v. Roberts case where similar types of legal issue arose. In both provisions, there is not any clause that makes the payment assessable for the income tax (Barkoczy, 2016).   

c) According to the last case study of travel allowance, a company pays travel allowance of $ 4,500 to an employee as the employee was carrying out tasks needed by the company. The worker was paid at 45 cents per KM for 10,000 Km travel. According to the Income TAX Act 1936, it is not considered as the assessable income. However, the Income Tax Act 1997 has provision to assess the income as assessable income. According to the rules of ATO, travel allowances are not needed to be declared as the income for an individual taxpayer (Prince, 2013). Hence, the income, which the employee made from the company as travel allowance $ 4,500 is not considered as the assessable income and the employee is free from the tax purpose. According to ITAA 1997 TR 1999/10 travel allowances is not required to assess as the assessable income. 

Capital Gains Issues in Transferring Shares of a Family Company

3. The case study of the Vice Chancellor is surrounding the incident which is presenting that in a hurry for attaining the lecture, the representation of the tax is not included as this is a form of the accident which is being shown in this case. The car was badly damaged which focusing on the information is made by showing the explanation of the work. The process made is showing the inappropriate execution of the situation which is presenting the work as it is being represented in the form of showing the explanation of the work. This simply shows the presentation of the work which is explaining the case of showing the explanation of the work (Prince, 2016). This is showing the obtaining of the three quotes which are being explained by Vice-chancellor as it is being informed by showing the explanation of the work. The case undertaken simply reveals the fault of mine, and also the cost must be paid to the chancellor who is of about $2000. As this is the case study, the enhancement of the work is showing the dependency, and also the explanation of the work is not complete. The differentiation is being made by explaining the case study as this simply states the working of the capital gain tax in the form of the implications (Barkoczy, 2016). As per the implications are considered, CGT or the Capital Gain Tax cannot be included in the study, and also this explains the appropriate structure of the work which is showing the enhancement of the study as it is being presented in this case. The consideration of this work is showing the undertaking of the explanation regarding the incident, and also the Capital Gain Tax (CGT) is not applicable on the amount which is needed to be paid to the Vice Chancellor (Seago, 2016). Thus the value cannot be explained by illustrating the transactions as it is being made by showing the explanation of the work. It also enables in stating the appropriate formation of the work structure which is showing the justification of not implementing the capital gain tax as it can see in section 45(1). The Capital Gain Tax (CGT) should not be applied in this case as the vice chancellor did not gain any amount from the transaction the amount paid for the repair of the damage happened because of accident is used for the repairing of the car. 

4. This particular case falls under Capital Gain Tax (CGT) legislation.  As per the case study of Mr and Mrs Martin, it is undertaken, the case study clearly describes that Mr. and Mrs. Martin are holding two shares of each of the family company (Sadiq et al., 2016). The establishment of the company was undertaken in the year 1980 which describes the purpose of retail business and also the premises of the business was depicted to be situated in Bendigo. The Matins consists of twins that are a boy and a girl child who are going to be 18 years old on 1^st July (Woellner, 2005). Therefore the present plan clearly reveals that the Martins will be going to transfer one each share to their children and also the enhancement of the study is being made by showing the appropriate illustrations of the case study.

i) As per the issues of the Capital Gain Tax is being considered in this case will be showing the issues related to the share transfer as being they are under the age of 18 years old. As per the rules and the regulations are considered in this case, the Capital Gain Tax issues can be easily shown by illustrating the ways of transferring the arrangement as provided in this case study.

If the issues of share transfer would not have been there, then on the death of the Mr. Martin, the two shares would have been transferred to the children equally, and also Mrs. Martin would not have to provide her share to her girl. Therefore the issues will not be there as this is the case of the sudden death as assumed in this case (Woellner, 2013). The Capital Gain taxes would be easily implemented on the children on behalf of the shares, and also the issues can be raised regarding the age.

ii) The implications of the family company are depicted to be based on the two conditions as undertaken for the study. It shows the following:-

a. Buying of the vacant land in Bendigo is depicted to be taxable as per the section of the capital gain tax is being considered. The Section 45(1) clearly states that the capital gain taxes will be chargeable on the assets and the other property as per the belonging of the client is being made (Woellner, 2007).

b. Buying a retail business which is being operated through leased premises in Queensland is also indicated as taxable because the leasing of the goods and the property will have to pay the rental tax as per the party is undertaking it for the business purpose (Woellner et al., 2016).    

References

Chow, M. (2015). Australian master tax guide 2015. CCH Australia.

Engdahl, S. (2011). Taxation. Farmington Hills, MI: Greenhaven Press.

Krever, R. (2007). Australian taxation law cases 2007. Pyrmont, N.S.W.: Lawbook.

Krishna, V. (2015). Income Tax Law. Toronto: Irwin Law.

Lakshmanan, J. (2015). Taxation laws. [Place of publication not identified]: Universal Law Publishing.

Prince, J. (2013). Tax For Australians For Dummies. Hoboken: Wiley.

Prince, J. (2016). Tax for australians for dummies. Hoboken, N.J.: John Wiley & Sons.

Seago, W. (2016). The tax aspects of acquiring a business. New York: Business Expert Press.

Woellner, R. (2005). Australian taxation law 2006. Sydney, N.S.W.: CCH Australia.

Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.

Woellner, R. (2007). 2007 Australian taxation law. North Ryde, N.S.W.: CCH Australia.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. (2016). Australian Taxation Law 2016. Melbourne, Vic.: Oxford University Press.

Barkoczy, S. (2016). Core Tax Legislation & Study Guide (19th ed). Sydney, NSW: Oxford University Press. 

Barkoczy, S. (2016). Foundation of Taxation Law (8th ed). Sydney, NSW: Oxford University Press.

Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J., Ting, A., (2016).  Principles of Taxation Law. (9th ed). Sydney, NSW: Thomson Reuters.