Section 393-10 of the Income Tax Assessment Act 1997
In the current changing environment, the external market competition is increasing day by day which increases the overall difficulties in the path of a business. Taxation plays an integral role in ascertaining the future activities of an individual or group of individuals in the present time by determining the tax burden of the future period in advance which helps an individual in improving its existing position. In the current assignment, Australian taxation system has followed to answer the tax questions belongs to different taxation concepts as this helps in building stronger knowledge about this particular stream (Hoopes, Robinson & Slemrod, 2018). This assignment focuses on three questions such as explaining section 393-10 of the income tax assessment act 1997, second part emphasizes on section 8-1 about the deduction of all the expenses incurred in the tax returns of an individual in a particular financial year. Lastly, the third question focuses on the business revenue earned by an individual along with the tax incurred on all the business revenues earned by an entity in a particular period to ascertain its tax liability. A motive of this assignment is to build the strong taxation knowledge with the help of case laws and various rules and the regulations.
The current case study is about the determination of the tax liabilities incurred by Jenny for a particular financial year. In this case, Henry is a famous jazz singer who passed away recently as he was a tax resident of Australia. A published named as Jack wants to write a book on the life story of Henry in the form of autobiography to inspire other people who follow the lifestyle of Henry. After the death of Henry, jack the publisher approach his wife Jenny who is also an Australian tax resident to take interview of her to know about the life facts of Henry to write a book. The publisher offered an amount of $1 million to write a book on her husband’s life. $50000 was paid to Jenny as an advance amount before taking her interview and rest amount is paid to her after taking her interview. The tax consequences incurred on Jenny for accepting this amount is discussed as per the Australian tax ruling and case laws to determine the tax liability appropriately.
In the present case study, section 393-10 of Income-tax assessment act 1997 of Australia is applicable to determine the income earned by an individual. It includes income received by a person from salaries, bonus, commission, fee, pension and retirement benefits received by an employee from its employer. It also consists of income from business in the form of subsidies received and income generated by an individual from property consider as a part of the services deliver by personnel in an entity (Ingles & Stewart, 2018). Benefits and press received by an employee from its employer during and after the business tenure are also considered as a receipt of income by an individual for a particular financial year. Income produces from the sale of property by a person is considered as an assessable income. All these income earned by an individual is considered in context to the personal exertion as an employee earned these during the working period of the business where they offer its quality oriented services will form part of their personal income after leaving the organization.
Tax Consequences Incurred on Jenny
After stating all the laws and regulations relevant for the current study, the next step is to apply all these legal principles in finding the solutions to all the problems Aim of an individual in this case study is to determine the overall tax consequences imposed on Jenny for receiving the amount for writing story on the life of her husband.
Jenny was offered $1 million for writing story on her husband’s life story who was a jazz singer for which the publisher wants to take her interview. For this interview, she received a deposit of $500000 as a deposit and rest $500000 will be paid after completing her interview. In the above case, relevant sections of the income tax assessment act emphasize on identifying the assessable income by majorly focuses on the personal exertion income. But in the current case, Jenny has received money for writing a book by publisher on her husband’s life and for which she has to give interview will change the overall tax consequences incurred on its action. In this case, the amount received by her will not consider as a personal exertion income and nor the personal services income.
Personal services income earned by an individual should be more than 50% of the overall value of a contract for the services or labour of another party (Personal services income, 2017). In the present assignment, Jenny received 50% of $1 million that is $500,000 but this does not satisfy the requirement as per the regulations, the more than 50% should be received by an individual in form of contract but Jenny just received 50%. In determining the tax liability of Jenny, she can disclose the personal service income in its tax returns but the benefit of decreasing its tax returns of a particular year will not get achieved by Jenny as her receipt does not fall under the personal services income.
Hence, $1milllion received by Jenny from the publisher for taking her interview in writing an autobiography in the life of her husband is considered as a normal receipt which will be taxed according to the basic tax rates applicable on the total receipts without getting any tax deductions.
But at the same time, the tax consequences on the receipt received by jenny will get changes when the book on the life of her husband written by her. If the payment received by jenny for selling the copyrights of the whole book to a publisher is considering as a personal exertion income. Tax applicable to the personal income is usually considered as a progressive tax in which the rate is directly proportionate to the value of taxable income. The maximum marginal tax rate applicable to the personal income of Jenny will by 45%.
BRENT V. Federal Commissioner of Taxation Case Study
The judgment of the current case study of Jenny is taken with the help of previous law case of BRENT V. FEDERAL COMMISSIONER OF TAXATION (1971) 125 CLR 418 is based on the similar case where the wife sells the copyright of her husband’s life story to a publisher (BRENT v. FEDERAL COMMISSIONER OF TAXATION (1971) 125 CLR 41, 2017). In this case, the court given verdict that the sum of $10000 received by a wife for selling the rights of a book based n the life story of her husband is considered as a personal income taxable in the hands of a wife who is also a tax resident in Australia.
The legal issue of this case is to identify the tax consequences faced by Sally who is an accountant for which she utilizes the services of the day-care centre by outing her child in the day-care centre so that she meets her employment duty without any disturbance. The question arises in this case, is to know whether Sally can get a tax deduction under section 8-1 of the income tax assessment act 1997 in reducing its overall tax returns within a given period of time.
Income tax assessment act 1997, is applicable on all the tax residents resides in or outside Australia or any of the states of Australia used to determine the overall tax incurred on the taxable value of an individual. Section 8-1 is for all the deductions for the overall expenses incurred by an individual in a particular year. This section helps in checking the assessable income by excluding all the deductions taken for all the expenses incurred by a person (Allowable deductions, 2012).
Section 8 has two divisions such as 8-1 subsection 1 deal with all the conditions in determining the deductibility of the expenses incurred in the tax returns of an individual and 8-1 subsection 2 states the exclusions which are not deductible as it includes all those expenses which are excluded from the deductibility lists (Income under income tax, 2017). An expense is called as a deductible expense if it is incurred in the tax return of an individual or an entity in producing the assessable income. Expenses which are excluded from the deduction lists include capital expense, domestic expense, and generation of exempted income.
In the case of Sally who is an accountant and also a single parent who put her child in a day-care canter to fulfil its duties as part of their daily routine. Section 8-1 states that the expenses incurred by Sally for putting her child in a day-care centre as this helps in generating assessable income. The assessable income includes he salary, bonus, commission earned by Sally by doing its job to fulfil its social responsibility towards her child. Income tax assessable act 1997 helps in prescribing guidelines for determining the overall tax liability of an individual who is a tax resident of Australia.
Section 8-1 of Income Tax Assessment Act 1997
Before determining the tax liability of Sally, It is essential to apply the residency tests in determining the residency status of an individual whether resident or non-resident for the purpose of the tax. There are three kinds of tests used in determining the residency status of a person which helps in assessing the tax consequences of a person for a particular financial year.
The Domicile tests are applied in ascertaining the status of an individual as a person who has a permanent home in Australia or a person came to this country from outside to Australia for Employment purpose is also considered as a resident for the tax purpose (Residency tests, 2017). Another test is of 183 days tests in which an individual who resides 183 days in Australia is considered as a resident individual of an Australia otherwise consider as a non-resident in determining the tax liabilities. For an employee who resides in Australia, the residency status of all the employees is tested through the Superannuation fund of all the employees.
From the above residency test, the residential status of Sally is determined by using domicile test and the superannuation tests of the employee that is Sally who is an accountant.
Hence, with the help of section 8-1, the expense of day-care centre will consider as a deduction in reducing the overall tax incurred on the assessable income of Sally for a particular year (Business deductions, 2007). It is important to consider all the taxable components and also to determine the deductibility of all the expenses incurred by a user for a particular financial year. In the given case, Sally as an accountant incurred day-care centre expenses as being a Single Parent she has no one to take care her young child while she was at work.
Allowable deductions determine as per section 8-1 helps in determining the tax liability of an individual as this allowable deduction are excluded from the assessable income to determine the taxable income of Sally. Day-care centre expense is an allowable deduction which will get deducted from the salary earned by Sally to ascertain its taxable income on which tax is ascertained by using specific tax rates in Australia. Previous case laws and its verdict help an individual in taking decisions for the current case. In the case law of Charles Moore & Co (WA) Pty Ltd V FCT (1956) 11, ATD 147 is a case law in which expenses incurred by a taxpayer in producing the assessable income. The action of an individual is considered under the stage of first positive limb section. Every expense considers an individual in reducing its overall tax liability as their motive is to consider an expense which further helps in generating the assessable income. So in this particular case the court of law, consider the expenses as an allowable expense which gets deducted from the overall assessable income of a person.
This case is about paying interest on the loan taken for growing commercial crops to sell and earn profit out of the grown crops. Joseph in this case running its existing plumbing business who purchase additional 20 hectare of land along with the plants which he planned to harvest the same on the land with an intention to sell the same in the external market to generate enough returns in the external entity as their motive to is to earn extra income from its current business and also from harvesting of the crops. Initially, Joseph clears the land by using ploughing method and also uses compost. He ascertains the life of the harvest that it is expected to not to harvest for 5 years. He needs to pay the interest on the amount of loan taken from the external party or lenders to fund its requirements for various purposes such as for purchasing the land, preparation costs to transform the barren land into fertilizing land for growing commercial crops for earning higher profit, fertilizers costs and all the costs of purchasing plants samplings and seeds to grow different variety of plants. The legal issues identified in this case is to determine the tax consequences on Joseph who operates its business along with the diversification of purchasing and growing plants on the lands is separately different from their regular business.
On another hand, the purchase of the similar land for the business purpose or commercial purpose as growing plants on the vacant land will help in generating higher returns for an individual. A land considered as a commercial land due to some commercial activities performed on the purchased land is treated as a business asset on which GST is applicable. Goods and services tax rates are different for the different purpose of an individual as the officials of the tax authority of Australia will first assess the nature of the land and then impose GST rates. In contrast to this, a vacant land purchased as a capital asset for the longer time period in a business is treated in determining the capital gain from the sale of that asset in an entity. Capital gain is produced on the sale of an asset whose sales considerations is higher than the overall costs incurred on the same asset. A capital loss arises from the proceeds of the land whose sales consideration is less than the total cost of the assets and the entire improvement expenses incurred on the similar asset.
Conclusion
An individual will also need to pay tax on the capital gain arises from the sale proceeds of all the capital assets. A capital asset is segregated into two kinds such as short-term as well as a long-term asset depends on in the time period an asset is held by an individual.
Above discussed rules and the regulations is applied in resolving the legal issue of this case. In the current case Joseph is running its plumbing business and further he shifted its interest from the plumbing business to the purchasing of a vacant land on which plants are grown to sell all the plants in generating some returns to meet its overall costs of purchasing the land. For purchasing the land and other ancillary services used in preparing the land, fertilizing costs and purchasing of plants are funded by taking a loan from the bank as their motive is to satisfy the financial and non-financial needs of their existing business and also the new business started by them. Joseph is required to pay the goods and services tax for using the vacant land for the business purposes as land is tax-free but it should not be used for any commercial purpose. So, Joseph is required to pay Goods and services tax for growing plants on the vacant land aloes paying tax on taking loan from the banks as they pay interest on the land for 5 years as for initial five years harvesting will not be done on the land which results no income for Joseph which needs to pay the interest and instalments. But at the same time, the land will remain to vacate for five years which is considered as a vacant land which is a tax-free in the terms of the tax treatment of Australia as tax will be applicable after the furs five years from where the actual growing of crops will occur.
Under this stage, Joseph’s case is compared with another similar case where the verdict of the court of law will help an individual in taking the judgement of the current case.
Conclusion
It is summarized from the above study that the verdict of three cases is ascertained in the above assignment is discussed hereunder. These cases are all about the personal exertion income, deductions of expenses and finally, the last case is about the determination of tax consequences on the business venture income generated by Joseph for growing crops.
References
Hoopes, J. L., Robinson, L., & Slemrod, J. (2018). Public tax-return disclosure (No. w24318). National Bureau of Economic Research.
Ingles, D., & Stewart, M. (2018). Australia’s company tax: Options for fiscally sustainable reform. In Australian Tax Forum (Vol. 33, No. 1, p. 101). Tax Institute.
Allowable deductions, 2012. Available through: < https://www.cpdlive.com/charteredaccountants/seminarNotes/TaxForYoungProfessionals-AllowableDeductions-Essentials-TechnicalPaper.pdf> [Accessed on 14th May 2017].
BRENT v. FEDERAL COMMISSIONER OF TAXATION (1971) 125 CLR 41, 2017. Available through: < https://jade.io/article/66285> [Accessed on 14th May 2017].
Business deductions, 2007. Available through: < https://www.tved.net.au/index.cfm?SimpleDisplay=PaperDisplay.cfm&PaperDisplay=https://www.tved.net.au/PublicPapers/March_2007,_Tax_Basics,_Tax_Basics____Program_14___Business_Deductions.html> [Accessed on 14th May 2017].
Income under income tax, 2017. Available through: < https://www.ato.gov.au/Individuals/Lodging-your-tax-return/In-detail/What-is-income-/> [Accessed on 14th May 2017].
Personal services income, 2017. Available through: < https://www.ato.gov.au/Business/Personal-services-income/> [Accessed on 14th May 2017].
Residency tests, 2017. Available through: < https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/Residency-tests/> [Accessed on 14th May 2017].
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
