Taxation Law - Assignment Example

TAXATION LAW Name University Course Tutor Date Taxation Law Hillary’s case In the taxation law study, it is important to consider the element of personal exertion and the laws and policies that govern the field. Personal exertion implies the resources or funds earned through sole income effort. In recent times, the individual effort has been used in Australian laws and principles and not common in the United States because the many citizens in the United States of America do not earn salaries.1 The income from the skills of a person directly falls under this category. Moreover, the ultimate principle defines that the gain from personal labor is indeed exertion of gain received from employment. The earnings are from incomes that are derived from personal services that have the following characteristics; The payment from personal exertion is often frequent, and it recurred. When one receives an individual effort, it is often a payment that will be expected again in future. The individual exertion payments are done after execution of an economic task such as a service. In other cases, the funds originate from permanent or temporary employment. Personal exertion funds are often gained from services that are meant to obtain a particular goal. In other words, the income can be elaborated clearly by terming it as earned resources.2 In taxation terms, the funds from personal exertions can be a measure of the household income, mostly referred to in government institutions to account for income tax returns. _______________ 1Pogge, Taxation Law and Principles, Oxford: Oxford Press, 2004. 2Russel, Johns. The Effects of Law on Copyright and Intellectual Property, Law and Government, 1968: 25: 53–66. In this case, Hilary, a well-renowned mountain climber, and athlete is asked by a local newspaper, the Daily Terror to write a story about his life. It is quite evident that Hilary has no experience in writing and has never written a book before, however, goes ahead to write the requested book, without the help of a ghostwriter and then gives all the intellectual rights, copyright, interests and titles to the Daily Terror. After receiving the agreed fee of $10,000, the story is published and sold to the public. Moreover, the sale of the manuscript to the Michelle Library for a sum of $5000 as well as other photos she took when she is climbing mountains and she receives another amount of $2000. Mostly, the exertion personal principles apply because she was paid for the services that were requested, and she worked on the story on her own. The question arises in the fact that Hillary has no previous skills in writing, but she pulled off her story. 3 The service offered to The Daily Terror were patented in the name of the magazine and should not be reproduced by any other organization except the Daily Terror. From the above three characteristics of earnings gained from personal exertion it is clear that Hillary satisfies all the criteria.4 However, if she decided to do the story for her satisfaction without any financial gain, then the funds obtained would be not be different because the work is hers and she holds all the copyright and intellectual property rights to the story. However, in the initial case she cannot distribute the work because she sold the title to the Daily Terror, and it is only the organization that can reproduce her job. According to Jorgen, personal exertion funds are recurrent, and it is evident from her experience with the magazine group. ____________________ 3Hummels, Private Law Practice: The Fundamentals of Law. Law Digest, 1972: 3:13–210. 4Russell, Gilson, The Aspects of Law and Tax International Law, 1997: 27:359–79 The third principle is not adequately covered in the latter case, as personal exertion, because she has designed the story for her personal gain and satisfaction. Therefore, the taxation laws would not apply in the individual effort if the initial intention was for her personal gain. Hillary is supposed to pay for income tax in the transaction between the Daily Terror and herself, if and only if she sold the story for the primary reason of making money, thus deeming the transaction as a personal exertion. Consequently, the answer would be different if she decided to write the story for her personal gain and later decides to offer the story up for commercial purposes.5 Parent and Child Assessable Income In Law principles, Parent and Child Assessable Income implies any amount that is utilized to calculate a payment rate. The calculation involved considers the presence of a marital partner either a wife or husband. If a partner exists, then the assessable income will examine the resources of both of the parties. There are various forms of assessable income including lump sums, income from another country, a net business income, private trusts distributions and dividends, real estate returns, employment revenue in this case gross income, superannuation funds as well as fringe benefits received. According to Keller, The total revenue is used to calculate the payment rate and profit and loss statement or an income tax return sheet is produced if the party is in employment. Businessmen and women usually have to show a profit and loss statement to have the assessable income computed.6 _____________________ 5Segall Don, District Law, and Principles. International Journal of Law and Management, 2004: 18:5–26. 6Bush Tim, The Fundamentals of the Law Practice. Law Librarian, 2006: 34, 14–18. In making the assessment for the parent, a child support involvement is used to come up with the costs that should be met. This is in the same way how the parents share of income in which the children should attend. In this client's case, the calculation of Assessable income is used to work out the payments made to child support. The client should be advised to reveal the payments and revenues from her husband in a bid to come up with the total assessable income and the assess the output. It is important for the client to be aware of some principles that apply before making an assessment, and they include; A documented agreement An analysis made by the Guide to Child Support. A court order The assessment that was documented overseas, in the event that the child or parent was abroad In this case, the situation is a Parent to Child Assessable Income in which the agreement was made without any documented agreements between family members.7This form of assistance is standard among many agreements, and it is wise to advise the client that any financial transactions should be recorded to avoid future disputes. The parent gave her son $40000 for him to start up a house and repaid the sum of $50000 after five years. However, the son repaid the loan in two years and added a bonus of 5% per annum on the amount borrowed. The payment calculation is as follows; _______________ 7Justin, Aronfreed, The Origin of Government and Income Tax Laws, Law Review, 1964, 71: 193-218. Initial Loan (in USD) = 40000 Interest Attracted = 5% pa Actual Repayment amount (In USD) = 10/100 x 40000 = 4000 + 40000 = 44000 The final amount that the son paid was $44000, and it should be more than $50000, however, it is not under any agreement and thus does not constitute any adverse effect on the assessable income. The client received only one payment in a cheque for the total amount, and thus calculation of the assessable income of the parent would be challenging and inaccurate under the prevailing situation. Some of the amounts will not be taken into account while building up the total figure and in this case child support funds will be accrued to analyze the total number. The Guide for Child Support stipulates the terms and conditions of the agreement and more details of the location of the child or parent should be receivedrder for the client to draw up a final figure. The assessable income will be lower because there was no agreement on the terms of repayment of the loan.8 Given the fact that the loan was paid to a family member, who is a child, then the Child Support Policy will supersede the final calculation. However, the client should note that such agreements are supposed to be documented in an agreement in order to avoid tax evasions and provide accurate details of income tax returns that the government uses to calculate the assessable income. 8Albert, Bandura, Principals of Law Holt: Rineart & Winston, 1969a. Scott's case Net capital profit or loss calculation for the year ended 30th June Costs Amount Land 90000 Construction 60000 150000 Income Rent Not Indicated Sale 80000 Profit/Loss -70000 From the initial computation, it reveals that Scott made an assessable loss of $70,000. However, the house was rented during that entire period. In taxation law, the rent income should be indicated to enable the income tax return to be calculated. According to Russel, the assessable loss of $70000 and rental income can be used to determine his profits as an individual.9 ____________________ 9Kane-Urrabazo, Management’s role in shaping the Law culture. Journal of Law and Management, 2006: 14, 188–194 If he sold the land to his daughter, for $20000, the situation would be different because Scott will require filing the Child Support policy that will subdue the calculation of his assessable income. The table below would show the net loss if he sold the house to his daughter. It is evident that Scott makes a loss of $13000, but the Child Support Guide stipulates the conditions under which Scott's income will be calculated. 10In this case, consideration is taken under the same principles that an agreement exists and there is enough ground to prove that the parties were within the country to avoid tax evasions. However, the initial costs of construction and rental income should be stated and taxed appropriately. If the property is held for family occupation, then Stamp duty will be chargeable subject to the relievable purpose.11 However, such taxes are for residential properties that have a value that is more than one million US dollars. Scott can decide whether or not to involve a valuer in the valuation since he is selling it to his daughter. _____________________ 10Segall Don, District Law, and Principles. International Journal of Law and Management, 2004: 18:5–26. 11Bush Tim, The Fundamentals of the Law Practice. Law Librarian, 2006: 34, 14–18. Costs Amount Land 90000 Construction 60000 150000 Income Rent Not Indicated Sale 20000 Profit/Loss -130000 Company property is taxed according to the business fiscal policy. In recent Finance Acts, there have been some amendments on company-owned residential assets.12 This is in a bid to avoid the purchasers from holding the property by the name of corporate entities and thus gain a tax advantage. This is to discourage mainly foreign owners who would sit on the company property without development. The company is subject to pay the stamp duty for the land that varies according to the value of the enterprise. 13If a company owns the house, the sale of the property is assessed, and the cost of the house cannot be depreciated as in the case of the sale of Scott's daughter. Enveloped Dwellings are levied on high valued residential properties owned by companies. The final tax charged is calculated the value of the ownership. ____________________ 12Hummels, Private Law Practice: The Fundamentals of Law. Law Digest, 1972: 3:13–210. 13Russell, Gilson, The Aspects of Law and Tax International Law, 1997: 27:359–79 For instance, the table below shows the 2103 annual charge for the property value ranges. However, considerations are made on houses that are used for "Relievable purposes".14 Essentially valuation must be accurate and realistic, and any wrong valuation values are subject to a penalty charge. Property value         Annual Charge 2012 / 2013 £2m – £5m                               £15,000 £5m – £10m                             £35,000 £10m – £20m                           £70,000 Over £20m                              £140,000 _______________ 14Justin, Aronfreed, The Origin of Government and Income Tax Laws, Law Review, 1964, 71: 193-218. Bibliography Albert, Bandura, Principals of Law Holt: Rineart & Winston, 1999a. Bush Tim, The Fundamentals of the Law Practice. Law Librarian, 2006: 34, 14–18. Hummels, Private Law Practice: The Fundamentals of Law. Law Digest, 1972: 3:13–210. Justin, Aronfreed, The Origin of Government and Income Tax Laws, Law Review, 1964, 71: 193- 218. Kane-Urrabazo, Management’s role in shaping the Law culture. Journal of Law and Management, 2005: 14, 188–194 Pogge, Taxation Law and Principles, Oxford: Oxford Press, 2004. Russel, Johns. The Effects of Law on Copyright and Intellectual Property, Law and Government, 1968: 25: 53–66. Russell, Gilson, The Aspects of Law and Tax International Law, 1997: 27:359–79 Segall Don, District Law, and Principles. International Journal of Law and Management, 2004: 18:5–26. . Read More