Australian Tax Law - Case Study Example

Australian Tax Law Customer Inserts His/her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 05/05/ 2011 Part A (a)The sold Melbourne home by Allan and Betty and purchased of a large country house on a 10 hectare block in central Victoria is a transaction that fall under capital gain in the income tax of Australia. According to section 160zo Income Tax Assessment Act 1936 (ITAA 1936) the gain on the disposal of land acquired for the purpose of building family home is included in the assessment of income tax. The exemption that exists in the Act is that the couple must erect the building mend to be family residence in the land purchase within a period of 4months (National Library of Australia, Commonwealth National Library, 1988). The above position can be illustrated by a case launch by spouse (the tax payers) in the year ended 30 June 1997. The tax payer’s spouse purchased an unregistered allotment in a proposed sub-division. Their intention up initial was to build a family residence and they lodge their application with local council. The conditions that the local council subject to this case was not acceptable to the taxpayer and this forced the taxpayer spouse to sell the so that they settle somewhere else. The sell of the land resulted in net capital gain which according to section 160zo Income Tax Assessment Act 1936 is included in the assessment. The taxpayer spouse went a head to deny the inclusion of assessment and claim that the capital gain realized on sale of the land was exempt from income tax under section 160ZZQ (12) (ITAA 1936), as the sole reason for purchasing the land was to build a family home to be used as the sole or principal family residence and at no time was it intended as an investment property (Cassidy, 2009). A number of factors must be brought into consideration as to whether a property will be considered to be the sole or principal residence of the individual. This is clearly stated in determination TD 51. The mere intention to construct a dwelling or to occupy a dwelling as sole or principal residence may not actually be sufficient to obtain the exemption. It was held that even though the intention of the taxpayer was to build a home on the vacant land, no dwelling was built such time when the land was sold. The taxpayer cannot rely on subsection 160ZZQ (5) (ITAA 1936) to exclude any gain on the disposal of the land from the operation of the capital gains provisions (Krever, Black, 2010). I therefore advice Allan and Betty not to include the capital gain in their assessment returns. This is simply because their intention up initio was to relocate to agricultural land where they indent to settle and build their family home. Their position qualify for them to rely on subsection 160ZZQ (5) (ITAA 1936) to exclude any gain on the disposal of the land from the operation of the capital gains provisions (National Library of Australia, Commonwealth National Library, 1988). All the farming activities that generate income are included in the assessment. Farming activity is determined to be income generating when the farmer has the intention sell the surplus of the produce. The intention to sell is notice when the farmer has an entrepreneur plan from the time he or she engages in farming activity. Farming as a hobby with no intention to engage in trade over the produce does not qualify for assessment for tax purpose. Farming for training purposes also does not qualify for assessment since it lacks the intention or plan of trading with the produce (Krever, Black, 2010). In the case of Allan and Betty gardening where they plan to establish a few hectares of grape vines and begin growing vegetables up initio was just a hobby that the couple enjoys doing. At that time the farming qualify not to be included in the assessment but at later date when the idea of trading crop up the practice meet all the requirement of being included in the assessment. At the end of two year after attending training the productivity of farming improved to point where surplus was witness. At that point where the couples give the surplus to the neighbors the practice lacks the qualification to be included in the assessment. The decision of the couple to sell the surplus invite the inclusion of the practice in the assessment They attend a continuing education course on organic farming and find in their second year they have a surplus of produce. The subsequent of events from the time Betty started making marmalade and relish using her mother’s recipes and initially giving them to neighbors, opening of the stall at the Newtown Growers Market that is held twice a month on the Sundays and selling some to local supermarket is enough characteristic that provoke assessment (Julie Cassidy, (2009). In the light of the above argument I therefore advice Allan and Betty to include their farming practice in their assessment. This is simply because they are obliged as the citizen to pay taxes and on top of that they can enjoy deduction privileges on the expenses they incur in the farming practice. Another advantage available to them in including the farming practice in their assessment returns is the can borrow to boost the farming active from the tax authority (Julie Cassidy, 2009). (b)Like any other cash or credit transaction barter trade is assessable and deductable for income tax purposes. The consideration is either money or in kind. The general rule given by ATO to be use to value consideration that arises from barter trade or countertrade is fair market value that adequately reflects money value or applicable arms length value. What has become common to ATO is fair market value, cash price cash price which the taxpayer would normally have charged a stranger for the services or for the sale of the goods or property. In the other hand most business oriented countertrade specifies a rate for converting credit units into an Australian dollar equivalent (CCH Editors, 2009). The case of Allan and Betty setting up a barter system in the area falls under the ATO barter trade provision. All the barter transaction that take place under the barter system set up Allan and Betty must give all the record for the purpose of taxation. This is an obligation that ATO impose on them. The barter transaction is assessable on the individual who participate on the barter trade. The above argument can be well elaborated using the case of Harvey and Tracey who had registered for GST and are both members of the Better Bartering Exchange (Australian Income Tax Legislation, 2009). Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey's trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey (Australian Income Tax Legislation, 2009). Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440 (Australian Income Tax Legislation, 2009). The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent - $440. The value of the taxable supply that Harvey makes is $440 x 10/11, which is $400 (Australian Income Tax Legislation, 2009). The GST on the supply is, therefore, $40 (that is, 10% of $400).Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return (Australian Income Tax Legislation, 2009). PART B An individual who is an artist (actress) are subjected to withholding tax. Withholding tax is applicable only to artist who performed on the advertisement promotion. For example an artist who performed on a venue is not liable to withholding tax by the contractor or the agent. The withholding tax applies to individuals who perform or endorse events such as promotion of good and service or any appearance in the advertisement. The regulation of withholding does not apply to partnership or companies; it is only applicable to payment made to individuals. The income of actress Nicole Gownsman is subjected to withholding tax. It is the obligation of Telemovie to withheld tax from the payment to be made to Nicole Gownsman. However, Nicole Gownsman is entitled to deduction on the expenses he incurred in preparation to enter into the contract. i) $50,000 he earns is subjected to withholding tax. He is entitled to a deduction of $1,000 he spent on food. ii) He is entitled to a deduction of $1,000, hired a dietician at a cost, $2,500 on personal trainer and $1,500 on the week at a health clinic. The expenses he incurred on cloths are not qualified for deduction. References: Australian Income Tax Legislation (2009). Australian Income Tax Legislation, Volume 3. CCH Australia Limited. CCH Editors, (2009). Australian master tax guide: tax year end edition 30 June 2009. CCH Australia Limited. Julie Cassidy, (2009). Concise Income Tax. Federation Press. National Library of Australia, Commonwealth National Library (1988). APAIS, Australian Public Affairs information service: a subject index to current literature. National Library Australia. National Library of Australia, (1988). Australian national bibliography. National Library Australia. Richard Krever, Celeste Black, (2010). Australian Tax Law Cases 2010. Thomson Reuters Australia, Limited. Read More