Exploring Taxation Laws: Income, Assessable Amounts, Capital Gains - Essay.

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.

b.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.

1. 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.
2. An exchange gain (not of an income character) of $1 million made by a large industrial company on repayment of long-term loans.
3. 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.

a.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).

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

• Buying vacant land in Bendigo; or
• Buying a retail business (operating through leased premises) in Queensland

Assume that in each case it is the family company that will acquire the assets and that within five years both assets would be sold.  Also assume that the shareholders would want to participate in any gains which accrued.

1.a.In the given case, the dentist is receiving the fees towards the provision of the professional service. As per the Income Tax Assessment Act 1997, the fees received by the dentist are a part of the taxable income. The dentist has been receiving the fees due to the personal exertion and thus the same is to be included as the part of an income. The income is not always required to be received in cash or monetary terms; it can be in form of non monetary gains (Birt et al., 2014). The same can be in terms of goods and services and in lieu of cash. In this case, the fees received by the dentist are a part of the income because the same is compensation towards the provision of the dental work. However, the video was exchanged by the retailer for $600 that had priced him $300. The market value of the video for the purpose of the tax will be $220 that is $550 in actuality.    

b.There rules of taxes have different application towards the different activities. Thus, it is required to carry out the procedure of determination about an activity being a business or hobby. If an activity turns out to be a hobby, there will be no requirement of paying the taxes. As per the rulings of the tax and other legislations, the important consideration of determining the nature lies in the intention of generating profits. If the intention of the activity is generating revenues, the same must be a part of the hobby.  

The given case shows that the gardening procedure is carried as a part of the hobby and thus the swapping of eggs carried towards growing of the surplus amount of vegetables will not be a part of a business activity. The gardening is a hobby as the major intention is not the sale and generation of profits.

c.As per the tax laws, the income generated from the personal exertions is a part of the income assessable. The income can be both in monetary and non monetary nature. The case here shows that the builder is working towards the erection of the house towards receiving the caravan having a value of $12000. The amount is given in kind and the same needs to be included as part of the assessable income. Further, the income derived from disposing off the caravan towards receiving the services of the builder must be a part of the capital gains.

d.The income tax does not have applicability towards the receipts on the part of the volunteers. In the case given, the services of volunteering towards a local charity for the yard cleaning will not form part of the income. The accuracy in the intention of cleaning was not established but the same will be not considered as part of the income.

2.a.As per the ATO ID 2002/664, the lottery incomes or prizes from competitions will not form part of both the statutory or ordinary incomes. Thus, the prizes must not form part of the income assessable as per the Income Tax Assessment Act 1997. But, the prizes that have been received from the lottery related with the investments must fall under the assessable income as per the Income Tax Assessment Act 1936. The lottery related with the investments means that the chances of winning the lottery are connected with the invested amount of capital by the tax payers. The tax laws has also provided that the assessable income must include the benefits received by the organized lotteries conducted by the building society, credit unions, banks and the other bodies of investments.

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

In the given case, the benefit received is in form of car that has a value of $15000. In the competition held, there was a necessity of maintaining a minimum balance of $10000. Thus, the prize forms part of the investment lottery that makes it compulsory to get included in the income assessable by the tax payer. The time of the taxability of the prize will depend on the same being received in kind or cash. The given case represents the prize being received in asset form that must be recorded as capital gains that will be done at time of sale of car.

b.As per the provisions of Income Tax Assessment Act 1997, the realization gains from the foreign exchange transactions and dealings are a part of income assessable. In addition, the gain realized by such transactions that occurs due to the variations in the rate of exchange of the loan account must be a part of the income assessable. In the given case, the gain of $1 million at the time of loan repayment due to the variations in the rate of exchange will form part of the gain of Foreign exchange realization.

3.As per the Income Tax Assessment Act 1997, assessable income of the taxpayer includes the compensation, gratuities, bonuses, benefits, allowances and other premiums provided towards the employee by the employers. The employer will have to cover the accompanying expenses towards the performance of the duties like the allowances of travelling (Braithwaite, 2017).

In the given case, the allowances of travel are paid towards the task carried on by the employers. The received allowances must be a part of the salary as the income assessable. Thus, based on the above analysis it can be said that the same is a part of the assessable income.

As per the Income Tax Assessment Act 1997, it is provided that if the amount received from the tax event of capital exceeds the sum of total cost of the assets, it will be considered as a capital gain. As per the Income Tax Assessment Act 1997, the capital gains and losses can occur only if the asset is part of the capital gains. Further as per the Income Tax Assessment Act 1997, there is a wide list of the assets that are a part of the capital gain taxes and gives rise to the loss or gains.

Further, the Act provides that the capital gains and losses resulting from the car must not be regarded. Thus, the expenses of repairing the car cannot be considered as the capital gains.

4.As per the Income Tax Assessment Act 1997, there is a wide list of the assets that are a part of the capital gain taxes and gives rise to the loss or gains. The list also includes the shares and therefore the sale of such shares is an event of capital gain taxes and thus the same must form a part of the assessable income (Eccleston & Warren, 2015).  

In the given case, the share transferred by the parents to the children is an event of capital gain tax. Thus, the same must be a part of the assessable income. The business was however incorporated before September 1985 that was before the applicability of the capital gain taxes. Thus, the shares had been acquired before the applicability of the capital gain taxes and thus it can be said that no taxes can be applied on the sale of the shares by the parents of the family company. Further, it must be noted that there are exceptions to the exemption and the same include the pre capital gain assets must be excluded from the same.   

Thus, it can be concluded that the parents Mr. and Mrs. Martin will need to pay taxes on the sale of shares. The shares that had been inherited as the estate deceased will have to be treated as the assets of capital gain tax. If the shares had been acquired before the 20^th of September 1985, the same must be valued at the market prices on the day of the death of the person holding the same (Fitzsimons & Carr, 2014). In the given case, on the death of Mr. Martin the shares are transferred to his children and the same will be inherited at the market prices. The event of capital gain taxes will occur at the time of sale.

(a).The vacant land that has been under acquisition by the organization needs to be treated as the assets of capital gain taxes as per the Income Tax Assessment Act 1997. Thus, the gains and losses that arise from selling off the vacant land must be treated as the capital gains and losses. The same must form part of the assessable income (Saad, 2014).  
(b).The business is not included under the assets of the CGT. As per the Income Tax Assessment Act 1997, the income that is derived from the acquired businesses must form part of the ordinary incomes. If the shares forming part of the business and the capital assets are sold, the same gives rise to the event of CGT. The same is a family business and is purchasing a business of retail nature (Taylor & Richardson, 2013). The same must be a part of the ordinary income and if the sale of the business is undertaken, the received amount must be treated as the capital gain.

References

Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J., & Janson, P. (2014). Accounting: Business Reporting for Decision Making 5e.

Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Eccleston, R., & Warren, N. (2015). The devil is in the detail: the distributional consequences of personal income tax sharing in the Australian federation.

Fitzsimons, J. A., & Carr, C. B. (2014). Conservation covenants on private land: issues with measuring and achieving biodiversity outcomes in Australia. Environmental management, 54(3), 606-616.

James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), 280.

Peres, M. A., Luzzi, L., Peres, K. G., Sabbah, W., Antunes, J. L., & Do, L. G. (2015). Income?related inequalities in inadequate dentition over time in Australia, Brazil and USA adults. Community dentistry and oral epidemiology, 43(3), 217-225.

Richardson, G., Taylor, G., & Lanis, R. (2013). The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), 68-88.

Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.

Taylor, G., & Richardson, G. (2013). The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), 12-25.

Tran-Nam, B., Evans, C., & Lignier, P. (2014). Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, 137.