HI6028 Taxation Theory, Practice & Law Free Sample

Posted on April 11, 2018 by Cheapest Assignment

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QUESTION 1

Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for $12,000), and shares in a listed company (for $5,000). Last week he sold these assets as follows: antique vase (for $3,000), antique chair (for $1,000), painting (for $1,000), sound system (for $11,000) and shares (for $20,000). Calculate his net capital gain or net capital loss for the year.

 

Answer

The taxability of gain in capita emerges amid the expansion in the offering cost of the benefit from the cost base of the advantage. The advantage of indexation won’t gather to the individual for this situation, as the considered resources are not kept under hold for over one year. In the most recent year, Eric had made a few endeavors for securing numerous benefits. On the premise of the inquiry, the supposition can be made in regards to the way that he has assumed control such resources for period that is not as much as a year (Weinzierl, 2014).                                                                                                                     

Particulars Cost Base of Assets ( $) Capital Proceeds of Assets  ( $) Net Capital Gain/ (Net Capital Loss) ( $)
System of Home Sound 12,000 11000 (1000) Loss
 Shares that are in the Listed company  5,000 20000 15000 Gain
Painting  9,000 1000 (8000) Loss
Antique Chair  3,000 1000 (2000) Loss
Antique Vase  2,000 3000 1000 Gain
Net Capital Gain/Capital Loss     5000 Gain

 

Notes to be considered:

  • All the assets that are considered for the individual or personal use are considered to be acquired for a period that is more than $10000 and hence, the taxability of the gain in capital is  very much applicable.
  • All the collectibles that are acquired for a period of more than $500 and hence, the taxability of the gain in capital is very much applicable.
  • The losses in the capital for the complete year have been put off with the gain in capital in order to ascertain the total loss of gain (Weinzierl, 2014).

An individual’s uses or purchases these assets for their own pleasures; however, this does not encompass the collectibles. Moreover, when these considered assets  are put on sale  to another individual , the taxability of the gain in capital  does not result  during the cost of procurement of such assets  which are accounted to be less than or equivalent to $10000 (Andreas & Markus, 2014).  On the basis of the question, the assets what are meant for personal use have been undertaken by Eric (Hatfield, 2015).  The initially undertaken asset is a system of home sound with a costs of acquisition that accounts for $ 12000 and the secondly acquired asset is the company shares of a listed organization with a cost of acquisition of $5000.

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An individual buys these considered assets for the personal efficacies or activities associated with personal utilization. Moreover, the taxability of the gain in capital does not result in the condition where the costs of procurement is lesser than or equivalent to
$500. Moreover, on the basis of the given information, the collectibles mentioned in the following have been taken over by Eric (Hill & Mancino, 2014). The initial asset is the painting which has the acquisition cost of around $9000.  The second asset that is considered is the antique chair having a cost of acquisition of $30000, and the final asset that is considered is the antique vase which has the costs of acquisition as $2000 accordingly.

 Question 2

Brian is a bank executive. As part of his remuneration package, his employer provided him with a three-year loan of $1m at a special interest rate of 1% pa (payable in monthly instalments). The loan was provided on 1 April 2016. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations in relation to the interest payments. Calculate the taxable value of this fringe benefit for the 2016/17 FBT year. Would your answer be different if the interest was only payable at the end of the loan rather than in monthly instalments? What would happen if the bank released Brian from repaying the interest on the loan?

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Answer

The loans  of $1 million  are considered under the  preview  of the  fringe benefits of the loan  which are offered  to the employees by their respective employers  with a rate of interest that is lesser than that  is offered in the prevailing market on the specific loan. The employer of Brian had made an offer to him regarding a loan for three years along with a special interest rate of one percent which has to be repaid to him in the form of monthly installments.  On the basis of the given question, the statutory rate of interest will be derived as 5.65 percent as the loan was provided on 1st April, 2016 (Lockwood, Nathanson & Weyl, 2017). Moreover, so as to calculate the taxability of these kinds of benefits, these kinds of statutory rate of interest has to be taken into consideration.

This type of benefit from fringe loan need to be calculated after the ignoring the rule of deduction and for such kind of purpose, the interest on the considered loan depending upon the actual interest rate needs to be deducted from the interest in the offered loan determined on the statutory interest rate. Hence, interest on the basis of statutory interest= $1000000 * 5.65 %- $56,500. In the same way, the interest that is based on the original interest= $ 1000000 * 1% = $10000. The value that is taxable will be the variance between the two values which is $56,500 – $10,000 = $46,500 (Weinzierl, 2014).

Next Step: Brian needs to compute the interest that is based on the statutory rate of interest after making the assumption that this kind of amount is the rest payable amount. Hence, the interest that is based on this kind of rate = $ 1000000 * 5.65% = $56,500.

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In the 3rd Step, as the 40 percent of the loan has been used in meeting the obligations in the future, Brian needs to compute the expenses of tax-deductible interest (considered hypothetical)  as  $56,500 *40 percent = $22,600. In 4th Stage, Brian needs to calculate the interest expense that is tax deductible (actual figures) as $10000 * 40 percent = $4,000 (Lockwood, Nathanson & Weyl, 2017). In 5th stage after the completion of the previous steps, the actual amount needs to be deducted from the figure that is hypothetical for arriving at a conclusion. Therefore, $22,600 – $4,000 = $18,600. According to 6th Stage, the total amount needs to be calculated by the deduction of the amount that was determined in the fifth step right form that of the amount in the initial step. Hence, $46,500 – $18,600 = $27, 900

Other than that, in the case that there is no obligation on behalf of Brian for repaying the interested, then the calculation needs to be done in a similar way, however, in this case, the actual interest rate that is to be considered is zero (Hill & Mancino, 2014).

Question 3

Jack (an architect) and his wife Jill (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90% of the profits from the property. The agreement also provided that if the property generates a loss, Jack is entitled to 100% of the loss. Last year a loss of $10,000 arose. How is this loss allocated for tax purposes? If Jack and Jill decide to sell the property, how would they be required to account for any capital gain or capital loss? 

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Answer

Both the individuals, Jill and Jack had made an agreement on borrowing a certain amount of money so as to pay the rent of a property.  In this case, Jack had agreed to pay only 10 percent of the entire profits in the comparison to the 90 percent of the profits to Jill who is his wife.  Part form this fact, Jack had also agreed to be accountable for the entire loss and there had to be no burden on Jill. Hence, the complete loss of $1000 which resulted in the last year need to be undertaken by Jack only and there has to be no obligation on Jill regarding the loss.  However, such kind of loss can be stacked off with various other incomes of Jack in order for him to arrive at a net loss or income for the current year. Moreover, Jack also happens to have a right for carrying the losses forward for the upcoming years.  In the case of materializing of a decision regarding the selling of property, either loss or gain can be derived for Jill and Jack.

 If there is any existence of loss, the complete amount is to be borne by Jack. He has the complete and sole right for carrying the amount forward in the upcoming years. He can also utilize the amount in the upcoming years for ascertaining the net loss or income. On the other hand, the amount needs to be apportioned between Jill and Jack in the case of gain (Lockwood, Nathanson & Weyl, 2017). This has to be done in the ratio of 10:90 and Jack have the sole right to stack off these kinds of losses which include $1000 which may arise from the profit after selling the specific property (Weinzierl, 2014).  

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The conclusion, as a whole, can be inferred that Jack is capable of getting rid of the losses incurred last year in the current year if there is certain kind of income deriving from the sale of the specific property. Apart from that, if Jack does not gain anything in the present year, these kinds of flosses need to be undertaken by him and Jill is set free of any kind of accountability. Hence, the treatment of tax cannot have any kind of implications on Jill under any circumstances while Jack will be under the obligation for bearing this kind so flosses in his books.

Question 4

What principle was established in IRC v Duke of Westminster [1936] AC 1? How relevant is that principle today in Australia?

Answer

It can be observed form the case scenario of IRC versus Duke if Westminster(1936) AC 1  that every person has the complete right for making use of the legal strategies and means in a  method which can help the individuals in reducing the complete time at the end of the current year. This denotes that is any person is successful in doing so; there is no authority of the Commissioners of Inland Revenue for questioning the same and put pressure upon the individuals for enhancing the payable tax. As a whole, this kind of rule can be permitted only in the case in which individuals makes use of the fair means of decreasing his complete income at the end of the year, hence, decreasing the total tax that is payable to the authority. The rule, that is previously mentioned was valid in a way till the appearance of the new laws of cases came into the picture in the current scenario (Andreas & Markus, 2014). This way, the ideology of maintaining accounts has been different from what it was before. The importance of the rule in the present situation can be presented in the following way. The rule provided even proves to be true even in the current environment as it restricts the organizations for influencing the accounts in such a way which can grant extra advantage to them.

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Moreover, the rule also provides legal rights for the operation of the business affairs in a good way. For instance, is a business organization is facing severe loss in a particular year which restricts the company form addressing the obligation, such company can change the amount of the balance sheet and write off the asset which is fixed to the respective values. Moreover, if the companies do not happen to pursue the authenticated documents for the justification of the transaction, they can continue to do so (Hill & Mancino, 2014).  If unethical means are undertaken by the companies for altering their accounts, the rule, then prevents the company’s form carrying out such activities. As a whole, any such transactions which assist a company in its operation very effectively is very much valid in the consideration of law and must not be questioned by any authority.

This signifies that the case encompasses the principles which are stated below:

  • Every person has the entire right for making effective use of the strategic measures so as to manage the personal accounts in such a way which can assist the people in decreasing their overall income.
  • If no kind of unethical or immoral procedures is undertaken, then no taxes can be implemented upon such individual.
  • Other than that, if no legal means are considered for the reduction of the total tax that is payable to the authority, then no individual can question the validity and enforce the individual to make payments regarding an increased amount of tax.

Question 5

Bill owns a large parcel of land on which there are many tall pine trees. Bill intends to use the land for grazing sheep and therefore wants to have it cleared. He discovers that a logging company is prepared to pay him $1,000 for every 100 metres of timber they can take from his land. Leaving aside any capital gains tax issues, advise Bill as to whether he would be assessed on the receipts from this arrangement. Would your answer be different if he was simply paid a lump sum of $50,000 for granting the logging company a right to remove as much timber as required from his land? 

Answer

There are numerous huge pine trees in a solitary real estate parcel which is possessed by Bill and he considers of utilizing the land for the sheep to brush. Be that as it may, in submitting to such wishes, the freedom of the trees is critical. Consequently, he employs an organization which gives logging administrations and might offer him $1000 for every 100 meters of the trees’ timber.

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The prime inquiry that emerges behind such belief system is whether the appropriate duty on Bill for the repeating sum is acquired by the organization. Additionally, as the given inquiry makes no illumination with respect to the reality o the correct measure of got receipts after the leeway of such trees, it can be expected that an incomes receipt to be taken care of by Bill (Andreas & Markus, 2014). This likewise signifies the pick-up in the capital expense does not account Bill. In the event that Bill happens to achieve a gigantic whole of the sum which is $50000 for allowing the logging organization for the expulsion of timber from the land, the equivalent sum must be considered as the capital receipt by Bill. The reason behind such occasion can be meant to the way that such installment, by nature, is single amount and there will be no repeating receipt.

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In addition, this exchange happens because of the offering of the rights to the gathering for evacuation; of the trees frame the land. Consequently, in general, as it is an instance of the receipt that is single amount in nature, the same must be attempted as a capital receipt. In this way, it will be assessable in the hands of Bill under the capital increase. In both the cases, Bill happens to accomplish cash. The receipt, in the principal case, is little and repeating in nature while in the last case, the receipt is not repeating in nature. There is an offering of the privilege to the gathering for agreeing to the necessities of the freedom of the trees (Weinzierl, 2014). A similar receipt is a gigantic one and is additionally single time receipt as once trees are cleared frame the land. It will require some measure of investment for developing once more. Thus, as indicated by the second case, Bill is accepting enormous sum present giving ideal on the inverse party; such exchange can be taken as offering of a resource for a business association for thought that is singular amount in nature. Other than that, as per tax collection law, amid the offering of a benefit by one gathering to another, the same might be embraced as a capital receipt. In inverse to this, as the principal case does not occur to pull in any sort of pick up in the capital assessment, it should be dealt with under ordinary duty rates and not picks up in capital.

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