Whether or Not the Three Payments Are Income from Personal Exertion - Assignment Example

HA3042 TAXATION LAW Question One; whether or not the three payments are income from personal exertion Issue The issue is whether the three payment made by Hilary are considered as part of designated source of income from personal exertion. Hillary made the sales of the articles that she wrote individually as well as the rights; manuscripts as well as photos were sold as per the law. Where Hillary wrote the articles for personal contentment as well as merely concluded to selling the story subsequently, the circumstance will be similar. Rules In the case of stoneVfct, the Australian federal court had a hard time in establishing if the grant payment made to a sportsperson must be considered as designated source of income. The court established the state of the payment on the basis of whether or not Ms Stone was doing the business or just practicing a sideline. The meaning of what constitute an income as per the ordinary concept should not be shape by the difference between the business and a fun and hence the threshold of when a charitable payment acknowledged by a sportsperson will realize the trait of income must be when a person starts business of exploiting individual feature for money. Application Dissimilar to the case of Brent V FCT (1971), the imbursement might be deeming as an imbursement for disposal of copyright. Where the terms of the contract with the daily terror is created as meaning that Hillary may poses the copyright to the story after writing it as well as might afterwards dispose the copyright to the story for $10000, in this regards, the imbursement may not be considered as a reward for the service. Conclusion The three payments are therefore considered to be income from personal exertion since the articles was written individually as well as the rights; manuscripts as well as photos were sold as per the law. Where Hillary wrote the articles for personal contentment as well as merely concluded to selling the story subsequently, the circumstance will be similar. It was evident that the daily terror newspaper was worth $10000 for Hillary’s life story; if she writes the story as well as she wrote a story and allotted the entire rights, the tiles as well as the copyright at a value of $10000 to daily Terror. Hillary further wrote the manuscript to the Mitchell library at a value of $5000 as well as many photographs at a value of $2000[Aus16]. The imbursement might still be deem as ordinary income where Hillary was deem to be running the business of selling the articles, but this might be improbable since she hasn’t written an articles or a story in the past. In this assumption, the sum of $10000 might be considered as an ordinary income. The answer would be different in she had written the story for her own gain and alter sells since, this is not the designated source of income for Hillary[CCH11]. Question two; the effect on the assessable income of the parent Issue The issue at hand is whether the parent is subject to assessable income from loan provided to the son. it is evident that the parent entered into an informal agreement to provide housing loan to the son at an agree value of $40000 subject to 5% interest to be repaid in five years time in which the son repay in the full amount of $50000 in one cheque. The issue arising is whether the parent is subject to assessable income for interest on loan realized. Rule The success to family lending is that, for the loaned to be considered as non taxable income, it should be treated as a bona fide loan, inclusive of loan term at the market going rates on interest, correct payment of interest and the principal amount as well as preferably procedures of correct documentation. Furthermore, parents normally prefer an official loan plan such as the parent as the lender really depict an intention of the transaction as a loan and not a masked gifts, they need to be specific that the child as the borrower values it correctly as well as learns some financial accountability whist enjoying the favorable loan unlike might be receiving from banks and maintaining the loan interest in the family. Application Smith v Secretary of State for Work and Pensions and Another; HL 12 Jul 2006 The house deem if under the regulation o the 1992 a self employed p[aren’t might use for the child support working his net income as declared to the revenue, which might permit allowance of capital as well as other deduction correctly claimed against taxes. Held; It was held that the appeal was permitted as well as the verdict of the child support commissioner restated. The correct and rare phrases employed in the regulation coordinated that employed in the tax return. From the above ruling, it can be observed that the law on assessable income of the parent is very clear that, the parent will be subject to pay tax on loan interest where there is formal agreement with the son and the amount is received in full (The principal amount and the interest on loan received). The parent is therefore required to ensure that there is formal agreement with the child in entering into a loan agreement in order to claim allowance such as gift to the child. From our case, the principal amount will not be subject to tax and thus is not deem as an assessable income but the interest received of $10, 0000 is deem as designated source of income and is subject to assessable income of the parent. Conclusion The assessable income for the parent will have an effect since, the 5% extra amount is considered as designated source of income that must be assessable Bur the repayment of the principal amount is not taxable. In this regards, the son will have paid the sum of $400000 as non taxable. Since, the son pay $50000 inclusive of interest in one cheque, the parent will pay tax on interest on loan. The $10000 is taxable interest and the $40000 is repayment of capital. In this regards, the law provides that on tax return, you must provide the amount of interest received in a specific tax period. This is because, the parent lent $40000 to the son as a short term loan on agreement that the loan will be repaid at end of year five as $50000 but the loan was informal and no contract was entered and with no collateral for loan provided to the son. But since, the son paid the $50000 in full, the parent is entitled to pay interest on loan received of $10000[Com16]. Question three; A. Scott’s net capital gain or net capital loss for the year ended 30 June of the current tax year The land and Building is deeming as distinct CGT Assets. This is due to the fact that the land was bought on 1st Oct 1980 (Pre-GST) with the building developed on 1srt Sept 1986 on the same land (Post CGT). In the regards, there is a disposal of CGT assets. The land is worth $90000 with a cost on construction of $60000. The building is rented for a period of 30 and disposed at a value of $800000. Scott’s Capita gains as follows Years in NCG will be {$800000-($90000+$60000} =$650000 B. if Scott sold the property to his daughter for $200,000 In this regards, the NCG will be {$200000-($90000+$60000)} =$50000 It is evident from the above working that Scott will realize a net capital gain of $50000 when he sells the property to the daughter at a value of $200000. c) If the owner of the property was a company instead of an individual Yes the answer will be different since, the tax law on companies provides that, the imbursement for amortization and tax is tax allowable and hence deducted[Rob081]. In this regards, the capital gain will be as follows Years in NCG will be {$800000-($90000+$60000} =$650000 Net tax allowance = {$650000*0.25) =$162500 Hence the net capital gain (NCG) will be NCG=$6500009-$162500=$457500 From the above working, it can be observed that if the owner of the property was a company instead of an individual, the net capital gain will reduce to $457500 as a result of tax allowance and amortization. Bibliography Aus16: , (Australian Gorvenment , 2016), CCH11: , (CCH Australia, Limited , 2011), Com16: , (Commonwealth Consolidated Acts, 2016), Rob081: , (Peroni, 2008), Read More