Australian Income Taxation Law - Assignment Example

Australian Tax Law xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Australian Tax Law xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Instructor Q3 1. Under s6-5 the grant of $10m Servcorp property limited is to pay Prisoncorp that is to be used towards the cost of building the MFP constitutes ordinary income thus is liable to be taxed. The money is inclusive of all the expenses that will be incurred towards the purchase of the proposed site for the construction of the MFP. 2. The transfer to Prinscorp for the nil consideration for the land that has the value of $2m allows taxation as the land is not considered as a liability under s6-5(3) but an asset that will bring a profitable value to Servecorp as they will earn a considerable amount of income that would not be receipt. The amount will thus attract taxation in on the net percentage as per the taxation law. 3. Based on the section 6-5 of the taxation law the $20m annual payment is an ordinary income thus is liable for the full net value taxation as it is the money that will have been acquired after a profitable transaction. 4. The $5m payable to Servecorp for making known its business practices is an inducement thus is liable for taxation. The amount is not an income receipt and thus it can be used to accrue profits over a considerable period in time thus will be liable for the net taxation. Q4 A cash lease incentive payment received by a business taxpayer as an inducement to take a lease of the business premises will always be ordinary income and assessable under s6-5. Under this section in the Australian law lease incentive payments are naturally capital. The lease incentives are characterized as capital as they constituted a premium paid with the consideration that the prospective lessee will agree to bear the burdens of the suggested lease together with the burdens that accompany it. These payments have the function of inducing the prospective tenants to get into a lease agreement which are separate from collateral agreements. Secondly, the lease incentives are a representative of a sale price that are of an enduring and substantial detraction apart from the rights that are in pre-existence. These are the rights that are not bound over a long period of time. This implies that they have a similarity to the amounts that are received by a trader while considering the trading restrictions. Thus the large sums of money received while in consideration of a given agreement that is aimed at restricting a person’s activity are viewed as capital in nature1. Thirdly, the transaction of obtaining a lease is capital in nature as the asset at hand if of enduring benefit to the lessee’s business. Thus the activity of a lease constitutes an activity that is connected with the structure of a taxpayer who is in business. The amount that is paid by a lessor to the lessee in the consideration of fitting out a particular premise is characterized as a partial capital reimbursement for the expenses incurred. This simply form the basis that the payments that are received by the taxpayers which are directly linked to their capital expenditure are naturally capital. This means that the lease incentives are not precluded from being assessable. The amounts paid in this form are thus able to be brought into net under the principle of 0700590054extraordinary transactions. Since the lease incentives are assessable they are thus termed as ordinary income2. Ordinary income is a return or returns that are received periodically which is as a result of work, property, revenue and/or business. Since the lease incentives are meant to accrue profits over a given period of time, the amount is thus taxable under the section 6-5. The gains in the form of profit or the transactions will be treated as ordinary income as it will involve only a net amount of the proceeds to be income. The scheme and operations of the income tax acts contemplate on the role of the general deductions. The income is thus ascertained with reference to the gross income receipts in lieu of the tax payer. This is in respect to the principles of property income which state that: i) “A receipt or profit, which is a return or product from one’s property, is generally ordinary income. This principle essentially reflects the dictionary definition of ‘income’. ii) In this context, property does not bear only its strict legal meaning of a ‘right, interest or thing which is legally capable of ownership, and which has value’, but also extends to and is used interchangeably with a ‘capital asset’. iii) The ordinary income is usually the gross amount of the return or product from the property, and will be such where the amount also has the character of periodicity.”3 Incase the person is an Australian citizen it is paramount that the assessable income will include the ordinary tax under section 6-5 ITAA97. This is irrespective of the sources and the location where the funds were derived from. For a non resident Australian the assessable income tax will include the ordinary income that has been derived either indirectly or directly from the Australian sources during and in the section of the income year according to section 6-5(3)4. The landlord of the premises who did not negotiate on the rent sought for the leasing of the premises but it is realized that since he sought for the payment of the amount as an inducement for the firm to enter in to a lease agreement as such the offer was independent from any occurrence of the firm thus the amount is liable to taxation as it is a new lease thus a capital transaction. Since the gains from the lease will accrue profits and increase in investment value the inducement is assessable as the product is always as a result of the exploitation of capital. Thus even if the inducement was explained to be income receipt that they are as a result of a business transaction which is meant to bring in profits5. Read More