Question 1
The present issue is concerned with the determination of assessable income of Susie from the royalties under subsection 6 (1) of the ITAA 1936(Barkoczy 2016).
- subsection 6 (1) of the ITAA 1936
- FC of T v. McNeil
- Stanton v. Federal Commissioner of Taxation (1955) 92 CLR 630; (1955)
- Taxation Determination of TD 96 /D5
- Ashgrove Pty Ltd & Ors v. FC of T 94 ATC 4549
According to the subsection 6 (1) of the ITAA 1936 defines royalties as a certain form of payment that are considered as royalties for the purpose of Income Tax Assessment Act (Braithwaite 2017). The Taxation rulings of TR 2660 defines royalties in Australia as the Australian double tax agreements in the identical terms of the subsection 6 (1) of the definition. As evident from the present case study of Susie, being the avid inventor of the new lawnmower Dynamow which is capable of being activated by voice directions. From the case study it is evident that Susie has patented the agreement with the Malaysian company for the purpose of manufacture and sale in Malaysia. As defined under the subsection 6 (1) royalty is also defined in the Australian double taxation agreement to the extent of the treaty definition and the views expressed in this ruling in relation to the domestic law definition will be equally applicable to the definition in the double taxation agreement (Caoet al. 2015).
As evident from the current case study of Susie royalty is being paid to the resident of Australia and hence it is considered as the taxable income. In compliance withSubsection 6 (1) of the ITAA 1936Susie consider the amount into her assessable income within the ordinary meaning of the act (Saad2014). As defined in the case of FC of T v. McNeil the high court in its judgement stated that the value of sell-back rights to the shareholder constitutes income in nature under the ordinary concepts. The selling back of rights in the case embedded the value of right to sell back the SGL shares for more than their market value which could not be regarded as the dividends for the purpose of income tax law (Taylor and Richardson 2013). This does not constitute preclude to the rights being an income in terms of the general concepts. On arriving at the decision selling back of rights constituted income in the hands of taxpayer and does not represented dividend. The judgement relied on establishing the principles which determine the character of income.
In compliance with the Subsection 6 (1) of the ITAA 1936 royalty is viewed in the case of Stanton v. Federal Commissioner of Taxation (1955) 92 CLR 630; (1955) where the contemporary presentations of the word appears to fall within the two heads. They are namely the outgoings that guarantees monopolies in the form of patents and copyrights received under the heads of license and payments received by the owner. In compliance with the paragraph (c) of Subsection 6 (1) of the ITAA 1936 a imbursement made to Susie from the Malaysian firm represents a considerations for the supply of profitable information or material that should be made to the holder and constitute a royalty (Lang 2014).
Question 2
In accordance with the Taxation Determination of TD 96 /D5 disposal of right by Susie to Malaysia Company represents that the right is granted (Miller and Oats 2016). As held in the Ashgrove Pty Ltd & Ors v. FC of T 94 ATC 4549 states that an agreement by which person grants the right to another person to cut and remove the timber from the land of the guarantor may accounts as profit. The disposal provided by the guarantor happens at the time when the agreement is made, that grants the right to cut and remove the timber, which subsequently creates an interest in the land.
As evident in the present case royalty is paid to Susie in Australian by a Malaysian company and she is considered as an Australian resident. In compliance with Article 12 of the Double Taxation Avoidance Agreementbetween Malaysia and Australia tax might be imposed in Australia (Davison, Monotti and Wiseman 2015). The payment received by Susie represents the payment that is made to Susie for the lawn mower with the purpose of not making the technology available to others. Susie will have tax implications with reference to Subsection 6 (1) of the ITAA 1936and will be considered for assessment either in Australia.
Conclusion:
To conclude with, the Malaysian company might withhold tax paid that is paid on royalties however the sum should not exceed beyond 15% or $15,000 of the balance amount. Therefore, for Susie tax might be imposed in Australia.
The present issues is concerned with the income tax and capital gains application under subsection 160M (6) and 160M (7) to restrictive covenants and trade ties under the ITAA 1936.
- Taxation Ruling of TR 95/3
- Subsection 160M (6) and 160M (7)
- FC of T v. Woite 82 ATC 4578; (1982)
- subsection 25 (1) or paragraph 26 (e)
- Hepples v. FC of T (1991) 173 CLR 492
As evident from the current case study of Baz Baxter who is leading rugby player approached by the Queensland to play with them in the upcoming season. However, Baz did not accepted the offer but agreed not to play with other club for a period of two years and in return received $40,000. After a number of argumentsBaz decided to leave the club and Rambos $20,000 to release from his contract and further $10,000 to release Baz to cover the cost of moving from one club to another.
The Taxation Ruling of TR 95/3 is concerned with the income tax and capital gains application under subsection 160M (6) and 160M (7) to preventive contracts and employment ties under the ITAA 1936 (Tran-Nam, Evans and Lignier 2014). Characterization of employment associated contracts and payments made under the contract of service are stated under the case of FC of T v. Woite 82 ATC 4578; (1982). According to the judgement stated under this case defined the sum was for depriving the player of a chance that could else have been available to him. However, this paves the question that whether the sum that is received for one of the preventive agreements or for any kind of separate positive or negative covenants where a minimum part of payments received represents an assessable income.
Question 3
Given the fact that the restrictive covenants is related to both the present period of service and to the phase following the conclusion of the service the share of the considerations received related to the phase of the service shall be considered as the assessable income under subsection 25 (1) or paragraph 26 (e). In the present case of Bax Baxter the part of considerations which is related to the period following the conclusion of the service shall be considered taxable underneath the new subsection 160 M (6)(Woellneret al. 2016).
With reference to the present scenario of Baz the ruling provides the consequences of the decision of the high court of Australia in Hepples v. FC of T (1991) 173 CLR 492 for the tax assessment of the considerations that is received in regard to the restrictive covenants (Robin 2017). The restrictive covenants of Baz is related to both the current period of employment and after the period of that employ and the portion of considerations received by Baz shall be considered for assessment under subsection 25 (1) since it relates to the period of employment.
Conclusion:
On arriving at the conclusion for Baz the restrictive covenants is related to the period of current service and phase following the employment with the part of considerations received is related to the period of employment and shall be considered for assessment under subsection 25 (1).
The present case study is concerned with the expenses incurred by the tax payer to prevent the quota on the yearly number of components imported into Australia for bikes.
- Income tax ruling of ID 2001/83
- subsection 51 (1) of the ITAA 1936
- FC of T v Snowden and Wilson Pty Ltd (1958) 99 CLR 431)
- 8-1 of the ITAA 1997
- Herald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113
- Magna Alloys and Research Pty Ltd v. FC of T (1980)
The Income tax ruling of ID 2001/83 determines that legal expenditure incurred in challenging the validity of the decision are considered as the allowable deductions under the subsection 51 (1) of the ITAA 1936(Vann 2016). As evident from the following scenario it can be stated that the Gonzales Ltd had incurred expenditure for challenging the quota imposed by the federal government for yearly number of quota imported in Australia for racing bike. The company in response to the quota imposed challenged the federal government announcement and spent $750,000 on placing the advertisement in the Australian media attacking the system of quota to demand for its repeal.
The taxpayer encourages these practices in order to make the good commercial sense. The Gonzalez Ltd does not incur the legal expenditurefor any other purpose instead the expenditure was incurredfor defending its business method. The decision by Gonzalez Ltd was to challenge the announcement of quota that is imposed by the federal government is henceforth related with to the essential portion of the taxpayers business namely receiving of income to insure the expected outlay (Anderson, Dickfos and Brown 2016). The expenditure incurred by Gonzalez Ltd was for carrying on of trade with the objective of attaining the taxable earnings.
Question 4
In addition to this, the negative limbs defined under subsection 51 (1) of the Income tax Assessment Act 1936 does not possess any application because the legal expenditure are not capital in nature (Snape and Souza 2016). The expenditure incurred by Gonzalez Ltd does not generate an advantage of a continuing nature nor is it related for the preservation of capital asset. Citing the reference of FC of T v Snowden and Wilson Pty Ltd (1958) 99 CLR 431)the fact the expenditure are infrequent and the taxpayer during the preceding instance did not required to take into the considerations the legal actions and this does not prevent the expenditure incurred from being deductible.
As defined under section 8-1 of the ITAA 1997 a deductions is considered as permissible for all the losses and outgoings to the amount to which they are occurred at the time of deriving and producing the assessable income apart from the extent where the expenses are in the nature of capital, private or domestic in nature (James 2016). As held inHerald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113 the legal costs are considered for deductions given that the legal actions arises out of the daily income generating activities of the taxpayer.
An important considerations stated under section Herald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113legal expenditure are considered for deductions however it may not be subjected to deductions if it is not undertaken for the purpose of protecting the profit making structure of the taxpayer (Xynaset al. 2014). Hence, legal expenditure are deductible provided that the expenditure are incurred possess further than the outlying association to the trade of the taxpayers. As defined under Magna Alloys and Research Pty Ltd v. FC of T (1980) legal expenditure might be considered as deductible provided that the legal expenditure has arise out of the litigation regarding the professional conduct.
Conclusion:
With reference to the section 8-1 of the ITAA 1997 legal expenditure occurred by Gonzalez ltd is in the process of gaining and generating the taxable income, is considered for deductions. Since the expenditure incurred was for protecting the purpose of profit making structure.
The present issue is concerned with the deductibility of the expenses occurred following the cessation of the business. The subject brings forward the question whether the taxpayer shall be allowed for an allowable deduction under the section 8-1 of the Income Tax Assessment Act 1997 for the legal expenditure occurred following the end of business (Peiros and Smyth 2017).
- Section 8-1 of the Income Tax Assessment Act 1997
- Placer Pacific Management Pty Ltd v. FC of T95 ATC 4459; (1995) 31 ATR 253
- AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975)
- Taxation Income ID 2003/210
Subsection 6 (1) of the ITAA 1936
The interpretative decision defined under the ID 2003/210 takes into the considerations the entitlement of the deductions defined under the section 8-1 of the Income Tax Assessment Act 1997 concerning the legal outlay occurred following the cessation of the business (Burnett, Taylor and Wong 2015). The ruling provides that the taxpayer shall be considered entitled for allowable deduction under the section 8-1 of the ITAA 1997 for the legal expenditure that is occurred following the end of the business where the circumstances of the outgoing in incurred in their preceding commercial activities. The taxpayer in the present case study is operated the business of shipbuilding in business. However, because of the downturn in the business it ceased operations shortly before the Christmas. Shortly, all the assets of the company was disposed and Waterside Investment Pty Ltd was formed. Waterside Investment Pty Ltd paid the workers a compensation amount in the form of settlement after the parent company has been wounded up.
As defined under the Section 8-1 of the Income Tax Assessment Act 1997a deduction is considered as the allowable deductions to the degree to which they were occurred in generating and producing the taxable returns (Dunneet al. 2016). However, Section 8-1 of the Income Tax Assessment Act 1997 is not applicable under circumstances where the expenses are in the nature of capital, private or domestic nature.
As held in the case of Placer Pacific Management Pty Ltd v. FC of T 95 ATC 4459; (1995) 31 ATR 253 the taxpayer was considered as the producer of the conveyor belt system. It undertook the decision of selling up the trade to another entity (Martin 2015). As the portion of the sales contract, the company continued to be accountable for any forms of repairs that arise from the setting up of the system before the sale. After some time the business was sold in the form of claim that was made against the tax payer. A settlement was reached where it made an payment of $325,000 and subsequently incurred the expenditure of legal outlays of 58,379.
In order to make the deductions allowable for both the expenditure incurred the federal court by referring to the judgement made under the case of AGC (Advances) Ltd v. Federal Commissioner of Taxation (1975) unanimously passed its judgement (Schenk 2016). In its opinion, AGC must be considered as creating the proposal which provided the circumstances of commercial outgoing to be found in the trade operations that is in the direction of producing the taxable income. The circumstances that the outgoing was occurred in the later part of the year in which the income was generated and evidently, in the mean time the trade under the regular sense might have been ended would not determine the issue of the deductibility. If the circumstances for loss or outgoing form the part of the business operations directed in the process of gaining and generating the taxable income such losses and operations would be considered for deductions.
Taxation rulings of TR 2660
The circumstances of the taxpayer outgoing is noticed under the preceding business functions. In the present case, the reality compensation claim was in the nature of outgoing after the business has been ceased does not sever this association (Murphy and Higgins 2014). In accordance with the subsection 8-1 of the ITAA 1997Waterside Investment Pty Ltd is entitled to deduction for the compensation claims that arose for the settlement of the payment company that had been wounded up.
Conclusion:
To arrive at the conclusion legal expenditure in the present context of Waterside Investment Pty Ltd will be considered deductible since it was incurred in the settling of payment for the cessation of their business.
Reference list:
Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. INSOLVENCY JOURNAL, 24(2), pp.127-140.
Barkoczy, S., 2016. Foundations of Taxation 2016. OUP Catalogue.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Burnett, C., Taylor, C.J. and Wong, J., 2015. Qualification of Taxable Entities and Treaty Protection: National Report for Australia.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.
Davison, M., Monotti, A. and Wiseman, L., 2015. Australian intellectual property law. Cambridge University Press.
Dunne, J., Taylor, H., Batten, N. and Krapivensky, N., 2016. 2015 case review: High ATO success rate continues. Taxation in Australia, 50(10), p.609.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.
Lang, M., 2014. Introduction to the law of double taxation conventions. LindeVerlag GmbH.
Martin, F., 2015. Overseas travel by employees: When does FBT apply?. Taxation in Australia, 49(7), p.382.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Murphy, K.E. and Higgins, M., 2014. Concepts in Federal Taxation 2015. Cengage Learning.
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor’s commission. Taxation in Australia, 51(7), p.394.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Schenk, D.H., 2016. Federal Taxation of S Corporations. Law Journal Press.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.
Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.
Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, p.137.
Vann, R.J., 2016. Hybrid Entities in Australia: Resource Capital Fund III LP Case.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.
Xynas, L., Blissenden, M., Villios, S. and Kenny, P., 2014. Allowable deductions, cost base of CGT assets and the GAAR: a minefiled for taxpayers and their advisers. Australian Tax Law Bulletin, 1(5), pp.94-98.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
