HA3042 Taxation Law T2 2018 Individual Assignment

HA3042 Taxation Law T2 2018 Assignment

Decision

A lottery has been conducted by Lotteries Commission named as ‘SET for Life’. It has been provided in terms of lottery that in case any participant scratches three ‘set for life’ panels will win $5000 for each year for twenty years. Moreover in the event of death outstanding amount will be paid to the deceased’s estate.

Australian Taxation Office provision relating to other income which comprises Lottery and winning are as follows:

In case any individual has won something in prize draws, or lottery run through their banks, building society, credit union or any other investment corpse, the individual should proclaim on his tax return the value of any profits or prizes that is received by him that same are taxed under head other income and considered as part of assessable income. Further, prizes might comprise cash, low-interest or interest-free loans, a tour package or cars (Woellner et al. 2016). Hence, there is no need of proclaiming prizes that are won in normal lotteries like lotto draws and raffles. Moreover, if anyone is playing a game show and also its contestant than in that case, he can only proclaim prizes that he had a win by receiving appearance fees or game show-winnings commonly. Moreover, on case individual is selling or disposing of an asset which was won as a prize from a lottery than in that case it will be considered as capital gain as it is earned by selling off assets (Sharkey, 2016). The same will declared on the tax return.

Yes, the amount which is received by lottery or prize draw is the annual payment income since it is the part of other income. Moreover, mode of payment does not change the core meaning of income from lottery and winning.  Thus, in the present case of Lotteries Commission, if anyone is winning the lottery called Set for life if the winner has scratches three cards named ‘set for life ‘of the lottery than he will get $50000 each year for 20 years. The income which will be received by winning the lottery will be taxable and recorded in other income.

Further, taxes which are deducted from winning prizes like lottery or jackpot is subjected in the country of residence such as income tax are the duty of winners and not of the Lotter. Thus, in the present case, the payment received as lottery income will be taxed at the rate of 30%. However, the amount is taxable only at the time amount has been paid. It means that the amount will be taxed annually in the same manner in which amount is being received by the winner.

Statement presenting taxable income of Corner Pharmacy

Federal income tax is charged on the taxable profits of an individual or an organization. It is calculated on the assessable income by subtracting any permissible deductions. Assessable income is usually which is earned by the business – it does not take in any GST owed on sales made by them, or GST credits.

Note: 1

Note 2

Allowable deductions are deductions for a convinced operating cost that is necessarily acquired in connection to the business. In the present case, as rent and salaries are relating to business. Thus, allowance of same will be available as an expense. As per Australian Taxation Office provisions, an individual can proclaim a deduction for various expenditures that are incurred in operation of business since they are directly linked to earning of assessable income. There are some golden rules which are necessary to keep in mind while claiming the expenditures of business and they are:

• The funds should have used up for business and not for private expenditures.
• In case it is for a mix of business and private utilization, then, in that case, the claim will be made on the part which is related to the business.
• It is necessary that the company must have records to certify it.

In the present case as all the requirements for claiming a deduction as business expense have been fulfilled for salary and rent; thus same have been deducted from income from business activity.

The Pharmaceutical Benefits Scheme (PBS) is a scheme of the Australian Government that offers subsidized prescription drugs to the populace of Australia, in addition to convinced foreign guests enclosed by a Reciprocal Health Care Agreement (Pharmaceutical Benefits Scheme, 2018). The PBS investigates to assure that the Australian populace has reasonable and consistent access to a broad variety of essential medicines (Barkoczy, 2017). The PBS has a deal with the increased inspection because its prices have greater than before.  The income under same is required to be evaluated on an accrual basis for taxation purpose; however the same is assessed under head non-taxable income as no income tax is required to be paid on same.

Under PBS a taxpayer who is entitled to payment is assessable on the amount when it is originated. With regards to when amounts payable under PBS are computed, it is essential to find out time at which a recoverable debt is generated (Blakelock and King, 2017). Moreover, it is believed that a pharmacist accounting for income is ascertained on an accrual basis, i.e. it records PBS income at the time a product is distributed to the consumer.

The case of the Duke of Westminster is usually known as tax avoidance. The full title of the case was Inland Revenue Commissioners v. Duke of Westminster A.C (1936). in which Duke of Minister has employed a gardener and reimburses him with post-tax income. In order to lower the tax, he stopped paying the wages of gardener and drew up an agreement to provide equal amount at the end of every specific period. Now, in accordance with tax law of times, Duke was able to claim expenses as deduction through reducing its taxable income as well as the liability of tax as well. Due to the same Inland Revenue has challenged his arrangement as a claimed that the arrangement made by duke is eventually leading to tax avoidance and also took Duke to court.

Facts of case

The decision was passed by the judge that everyone is entitled to order his transactions so that the tax attaching under the appropriate acts is lower than it otherwise would be. At the same time, it was considered that in case the assessee succeeded in proving the same to secure the result that even though the commissioner of Inland Revenue or his fellow taxpayers are ingenuity, but same will not be able to compel the assessee to pay the enhanced tax (Woellner and et al., 2016).  Hence, the decision was made in favour of the assessee, and it was proven that an individual has appropriate right to reduce the tax liability in a legal manner to possible extent and same does not eventually lead to tax avoidance.

The decision was passed by a judge of the court that everyone is allowed to reduce the tax liability if he is able to order his activities so that the tax connecting with the suitable acts is lower than it otherwise would be. The same implies that if he gets success in arranging them in to secure this outcome then unappreciative the Commissioners of IRCs or his associate taxpayers might be inventiveness; he could not be obliged to pay an increased tax (Swarb.Co.Uk, 2018). At the same time, it was noticed that if this rule will be continued in the same manner that all will try to avoid tax legally through producing intricate structures. Further due to the same reason the decision, in this case, is not continued in an exact manner, and the conclusion of the Ramsay case law have been adopted now onwards. Virgo, 2018 asserts that the decision of case states that if the transaction has pre-ordered imitation steps that provide up no purpose commercial objective, however, the main aim was only to save the applicable tax, due to the same manner all the transactions were judged as whole rather the being individual. In other words, same could be interpreted as in a situation in which pre-ordered imitation steps have been developed which serve no commercial goal excluding saving of tax, then it will not be considered on an individual basis, and all the transaction will be accessed as a whole.

The courts are now concerning themselves not only with the authenticity of the transaction but also with the anticipated cause of it on fiscal objectives granted (Alstadsæter, Johannesen and Zucman, 2018). Now, nobody could get away from the tax evasion project with the simple statement that there is nothing illegitimate about it. Earlier, it has been seen in previous decision that by giving the statement it is nothing illegal about tax evasion and everyone do it they get away, but in present time it is a moral duty of taxpayer to follow the law, they are bounded by the laws, but are not bounded beyond the edict for except for the law, tax will be blackmailing or racketeering. The intention behind the same is not only attainment of actual tax liability but against crime a sovereign moral responsibility. It can be concluded from a case study of Ramsay that by evasion of tax taxpayers are not paying off the appropriate quantum of tax, the same will be not an ethical concept which can be allowed to be continued . Thus, the decision of the case of Westminster which specifically stated that principal of cardinal is available here and it no situation it is should be exaggerated or overextended in order to take inappropriate advantage of the decision made by the court (Braithwaite, 2017). Moreover, the same be reformed, and the decision made by the court in Ramsay case law now supersede the decision of Westminster that  the fundamental substance of the transaction will be evaluated in order to ascertain the main aim behind same.

The conclusion of the case

In the cited case, Joseph is an accountant and Jane is his wife, both borrowed money and purchased a rental property acting as a joint tenant. In this aspect, a contract was formed, stating that, Joseph is entitled to 20% profits while Jane is entitled to 80% profits from the rental property. On the other hand, if the property suffers from loss, then Joseph is 100% entitled to the loss. Last year, $40000 amount of loss took place. Further, the case is conducted on the basis of loss evaluation and entitlement for the taxation intent and the result of profits or losses. In addition, it will also assess the manner by which the capital loss or gain will be accounted if the property is sold by the joint tenants. Ultimately the issue in the present case scenario is that to whom the tax is entitled.

In accordance with the applicable provision of the TR 93/32 “Income Tax: rental property for this specified case distribution of net gain or loss amongst the partners, proportionate aspects will be assessed by the business partners who are also justifiable for the purpose of tax  if it is profit or loss. On the other hand, there is the presence of some exemption to this user under which joint tenancy is considered since partnership for the purpose of the tax is held if individuals conduct business. In the context of the agreement, which is conducted for the tax purpose then in this case loss will not be allocated according to the agreement given by both Jane and Joseph.

Further, it is also stated by the provision that joint tenants of rental premises are not meant for partnership thereby they agreed aspects cannot create an impact on taxation.  It is reasonable to do division of the owners of rental property (Anderson, Dickfos and Brown, 2016). Consequently, the co-owners of rental property are not stated as partners under the law; it is because they are not on the basis of the applied general law to include the gain or loss from the held rented premises.

With the application of the provision given under TR 93/32 “Income Tax: rental property, the net gain or loss division amongst partner, in the present scenario, it can be cited that the both Joseph and Jane as joint tenants are only for the tax purpose of tax evasion and are not conducting business thereby the agreement is not applied for taxation calculation and the loss will be divided proportionately (Shaw, 2017).

References

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.

Virgo, G., 2018. The Principles of Equity and Trusts. Oxford university press.

Alstadsæter, A., Johannesen, N. and Zucman, G., 2018. Tax Evasion and Tax Avoidance. Routledge.

Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. Insolvency Law Journal, 24(2), pp.127-140. 

Shaw, A., 2017. Tax files: Why small really is better: Accessing the lower corporate tax rate for small business entities. Bulletin (Law Society of South Australia), 39(10), p.39.

Swarb.Co.Uk, 2018. INLAND REVENUE COMMISSIONERS V DUKE OF WESTMINSTER: HL 7 MAY 1935 (online) Available through < https://swarb.co.uk/inland-revenue-commissioners-v-duke-of-westminster-hl-7-may-1935/>. [Accessed on 6 September 2018].

Sharkey, N. 2016. Departing Australia: A complex tax situation with possible benefits and hidden traps. Tax Specialist, 19(5), 180.

Barkoczy, S., 2017. Core Tax Legislation and Study Guide. OUP Catalogue.

Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), p.18.

Pharmaceutical Benefits Scheme (PBS), 2018. (online) Available through < https://www.pbs.gov.au/pbs/home;jsessionid=w25595c9lp6u13sbzkvwqdxq7>. [Accessed on 6 September 2018].

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