Rules on Personal Exertion Income
Discuss about the Klaus Vogel on Double Taxation Conventions.
In this answer the rules in relation to “income derived for personal exertion has to be applied in order to find out that the three payments which have been received by Hillary are income derived form personal exertion or not. The definition of an income derived from personal secretion is provided in section 6 of Income Tax Assessment Act 1997 (ITAA 97). The section defines an income derived from personal exertion which is also known as income from personal exertion as any receipt consisting of commissions, fees, superannuation allowance, wages, salary, retirements benefits, gratuities or pension allowances received by a person while working in the role of an employee or from any other form of services provided by such person. It has been further stated via the provisions of this section that income derived for personal exertion include the receipt of an amount by a person in form of a bounty or subsidy as they have been operating a business activity. Any receipt which can be considered as an assessable income within the meaning of section 393-10 ITAA 97 would also be treated as an income from personal exertion. Any taxpayer who is provided with any receipt as a result of business activities alone or in partnership will also be treated as an income derived for personal exertion. The only things which are not to be regarded as an income from personal exertion are any rent, shares or dividends and sometimes interest received by a person if such receipt us not a part of the primary business carried out by a person. Person here means a tax payer (Auerbach and Hassett 2015).
The facts of the case study states that Hillary who is a mountaineer by profession has been asked by Daily terror news paper to write about her personal experiences by undertaking a trekking for which she would be provided with an amount of $10000 and she has acted upon the request. After the completion of project she has sold all rights in relation to the project to Daily terror news paper and as a result has received $1000. On these facts the principles of the above discussed section are to be applied to find out if the income is an income from personal exertion or not. it has been provided by the section that income from personal exertion is any receipt consisting of commissions, fees, superannuation allowance, wages, salary, retirements benefits, gratuities or pension allowances received by a person while working in the role of an employee or from any other form of services provided by such person. Here she has received a fee for services provided to Daily terror news paper and the income of $10000 is an income from personal exertion.
Application of the Rules on a Case Study
The income of $5000 which has been received by Hillary by selling the Manuscript of her writing and $2000 for selling the photographs clicked by her the Mitchell library are also income from personal exertion. Along with the provisions of section 6 this can be provide through the application of two cases. The first case is of Brent v Federal Commissioner of Taxation (1971) ATC 419. The case signified that a receipt of money for providing personal exeriance to a newspaper in form of story is an income from personal exertion. The second case is that of Housden (Inspector of Taxes) v. Marshall [1958] 3 All ER 639. In this case the court implied that sale of photographs, newspaper cuttings other informative documents to a news paper was a income. Thus as the same kind of sales have been carried out by Hillary her receipt would also be an income from personal exertion.
In T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355 it was stated by the court that isolated transaction with the view of making profit are to be held as an assessable income (Bankman et al. 2017). However here Hillary does not have view of making profit when she wrote the book and this in the second situation where the book was written for personal experience and latter sold it would not be an income from personal exertion.
An assessable income is any income which has the liability of being taxed. As provided by the ATO Assessable income includes income from Salary and wages, gratuities, tips and other form of payments arising out of your services, allowance for things like clothings, laundry, travel or car, interest received from bank, overtime or bonus of the employee, rent, pensions and commission as a sale representatives (Barkoczy 2016).
Taxation ruling 92/3 deals with the provisions in relation to whether money received from isolated transaction can be considered an income or not under the provisions of subsection 25(1) of the ITAA 36. Isolated transactions are those transaction which occur outside the ordinary course of business carried out by a taxpayer or those transactions which non business tax payer enter into. In the case of FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199 the tax payer company had made a loan to one of its subsidiaries. The right to receive the interest amount which was to be paid by the subsidiary was assigned three days later in return of a lump sum. The court in this case held that for two reason the amount which has been received by the company will be treated as an income (Becker, Reimer and Rust 2015). Firstly the transaction which has been entered into even if it was an isolated transaction was for a purpose of making profit thus it should be an income. The second reason was that the taxpayer has in return of a lump sum had sold the right to receive interest. In the case of FC of T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355 it was also stated by the court that isolated transaction with the view of making profit are to be held as an assessable income.
Assessable Income
It has been provided through the facts that the parents had provided an amount of $40000 as a loan to their son. They have further stated that they do not want to take any interest from the son but instead of an amount of $40000 the son was to provide them with an amount of $50000 after a period of five months. This clarifies that they had an intention to make profit although this is an isolated transaction and they gave up their right to receive interest for a lump sum. The son returned the amount on 2 years instead with an interest of 5% per annum which gives them a profit of $5000. Through the application of the case of FC of T v. Whitfords Beach Pty Ltd and FC of T v The Myer Emporium Ltd it can be stated that as they had an intention to make profit although this is an isolated transaction and they gave up their right to receive interest for a lump sum the interest amount would be assessable income.
Capital gain tax is a form of tax which is applicable where all other form of taxes fails to apply. CGT is only applicable on the sale of capital assets. There is certain step which needs to be followed for the purpose of calculating a CGT. In the first step it has to be analyzed whether there is a capital gain event. A capital gain event is ruled under section s. 104-5 under the rule the sale of a property is a capital gain event A1. Therefore as in this case there is a sale of a property the capital gain event A1 has been triggered (Boccabella 2015). There has to be a CGT asset as per section 108-5(1) which means any kind of property. Thus here the house is a CGT asset. Under S 109.5 the timing is the time when the asset has been acquired. Capital gain is equal to net proceeds subtracted by the cost base. As per the general rule under s 116.20(1) the capital proceeds are any money already received or entitled to be received. However there is an exception to the rule under S116-30 which states that where the transaction is conducted at arm’s length or no money is received that market value of the property is to be applied (Bronfenbrenner 2017). Under s.110-25 cost base includes Acquisition cost, Incidental costs of acquisition, Costs of owning and Capital expenditure of establishing. As per s. 114-1 property acquired before 11.45 am 21 September 1999 can reduce the CGT by 50% or apply indexation. However it has been stated by Section 115.10 that the discount provided in section s114-1 is not applicable to companies (Crossingham and Hubbard 2016).
In relation to the CGT in the second case where the property is sold to the daughter the modification of S116-30 will apply as the transaction is at arm’s length and the market value will be deemed as the capital proceed. Here the deemed market value is taken as $8000000 so the capital gain tax would be
In the third situation as the owner is a company 50% discount or indexation under section s114-1 will not be applicable as under Section 115.10 so the CGT would be
References
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American Economic Review, 105(5), pp.38-42.
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
Boccabella, D., 2015. Reconciling the overlap of charging provisions in regard to non-cash benefits from employment, personal exertion and business. J. Austl. Tax’n, 17, p.85.
Bronfenbrenner, M., 2017. Income distribution theory. Routledge.
Crossingham, D. and Hubbard, K., 2016. Arbitrage strategies-remuneration of business owners. Taxation in Australia, 50(10), p.603.
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