Tax Implications On Assets Sale, Fringe Benefit Loan, Rental Property Loss Allocation And Principle Of IRC V Duke Of Westminster

Assets Sale Tax Implications

Issue

Tax implications regarding the sale of assets by Eric in preceding twelve months.

Regulations

In the above-described case method of CGT, discount and indexation will not be applicable because holding period of an asset is less than 12 month. Thus; another method will be applied (Cao and et al., 2015).

One other method is there, which is considered to be the easiest method out of this three, in order to calculate capital gains (Saad, 2014). Individuals must make use of this method so as to compute their capital gains, when they have purchased or sold their assets in a year or less, usually, for CGT (capital gains tax) events are not inclusive of assets (Tran?Nam and Evans, 2014).

Usually, to make use of the other measure, the individual has just to subtract their cost from their capital profits. The profit amounts have been left over is the capital gain.

Applicability 

Conclusion

As per above calculations, $6000 capital gain will be taxable. Due to lack of information regarding other income, it is assumed capital gains are sole income and tax rate will be 10%, so the tax will be $600

Issue 

Taxability regarding Fringe benefit, i.e. loan provided at a special rate.

Regulations

Fringe benefits tax is the amount paid on some of the benefits which employers offer to employees instead of wages or salaries (Mishra and Ratti, 2014). All the FBT along with the value of taxes according to the Fringe Benefits Tax Assessment Act 1986, excluding fringe benefits of tax-exempt body entertainment, are solely responsible for the payroll tax (Burkhauser, Hahn, and Wilkins, 2015).

In case the benefit is not liable, excluding of the Superannuation Holding Accounts Special Account deposits, or contains zero value will not be responsible for the payroll tax (Mishra, 2014). The individual needs to state the real value of the entire fringe benefits for every month. However, individual can make use of  estimate method for every month, if they have payments of fringe benefits for 15 months or more than this (Bond and Wright, 2017).

If not, then the individual should provide the real amounts of fringe benefits. It can be performed on a monthly basis by adding up all the benefits further multiplying the total Type 1 and Type 2 by the appropriate Type 2 rate of gross for the particular year (Woellner and et al., 2016). The interest rate of the benchmark can be used in order to estimate the taxable value of the following:FBT provided in the way of loan, FBT  of a car, when employees want to measure the benefit by making use of operating cost method.

Applicability 

Note 1

$1000000*1%

Note 2

$1000000*5.65%

Conclusion

Taxability will not be affected if the amount of interest is paid annually instead of monthly instalments.

Jack and his wife had purchased property for rental purpose with the written agreement that Jack is entitled to 10% profit and remaining will be availed by his wife. However, they are not sure about tax consequence in case of revenue as well as capital loss.

Regulations

TR 93/32

Fringe Benefit Loan Taxability

Income tax: distribution of net profit and loss among co-owners

By a general proposal, it will be more suitable to distinguish the rental property owners in terms of Beaumont J in McDonald’s case at ATR p.969 and ATC p 4552 for co-owners, instead of being partners in business management (Braithwaite, 2017). As a result, rental property co owners are usually not considered as partners by the general law as they are not based not the applicable general law to a partnership comprising the distribution of gains and losses from the rental property.

Applicability 

In accordance with the cited provisions, there is no existence of partnership according to the general law among the respondent and their spouse. The relationship among them was said to be of co ownership, and if they agree to partnership under subsection 6(1), this situation will be stated as irrelevant, as their unreal partnership will carry such consequences that they have to treat each other as a pure partner for some specific purposes (Long, Campbell and Kelshaw, 2016).  It will not practise the deduction responded will make on the loss of business. They can only subtract the interest of the individual in the loss of partnership (Arnold and et al., 2014). The individual interest is that interest which is allowed entirely to the partner, be compared with their joint interest in the property as a whole: in this aspect case of FCT v Whiting (1943), 68 CLR 199 at 204; 2 AITR 421 at 425-6 can be referred.

Conclusion

Thus, it is essential to identify either both the respondent and his wife are just only notional partners for the intention of the Act or are pure partners according to the general law. By considering their deed partners will be liable for proportionate loss and can claim for the same.

Issue

IRC v. Duke of Westminster carried out an agreement of covalent with his associates inclusive of household helpers, servants, gardeners etc. In the particular agreement, Duke obliged to pay his fellow some money in exchange for their work. A letter was submitted to the fellows declaring that Duke will pay wages on extra sums, if there is any, for their services. Still, the servants received the same wage as before, however Duke was benefitted from this as he earned tax benefit under the law that applied at that time period, and the deed decreased Duke’s liability to additional charges.

Regulations

For this case, handed over to the House of Lords, the judge Lord Tomlin said that;  

Each and every person is allowed, if they arrange their own affairs so that the tax been attached according to the suitable action would be less than it should be (AO, M.D.A., 2015). If they get success in arranging them then they can safeguard the outcome, however, then no appreciation by the fellows or Inland Revenue Commissioners might be of their initiatives, and are not bound to pay surplus taxes (Barkoczy, 2017).

Applicability 

This case cited that the tax evasion will only be accepted if it practices initiated statue law or act that will reduce the liability of Duke, if it is allowed and do deed in accordance with the yearly payment. It is declared that if any company adopts such tools will be responsible for tax profit reductions, or else will not be allowable. Further, the court must look upon the broad economic jurisprudence and states in order to keep it up, in context with tax planning which will be introduced for tax evasions. Hence, the court must declare this principle as invalid.

Rental Property Loss Allocation

Conclusion

This case provides clear guidance regarding drawing difference better tax evasion and fair tax practices to ensure viable regulatory compliance.

Issue

In this case, Bill is the owner of a large parcel of land in which there are various tall pine trees. He has been offered to get paid $1,000 for every 100 metres of timber on this land by a logging company. Now he wants to know about tax implications of receipt and consequence if lump sum amount is paid for granting the right to the logging company.

Regulations

Rule of taxation

TR 95/6

Standing timber’s disposal, but not in regular business course

If a taxpayer owns a disposal of timber, which is planted for the reason of sale might lead to the value of those trees inclusive in the assessable income of the taxpayer, according to the subsection 36(1), during the period when disposal will take place (Blakelock and King, 2017). This might be either the taxpayer is running the business of forest operation or not, since the taxpayer is running the business and there is no disposal in the regular business course. The main thing being required is the trees comprise the total asset of business as a whole.

Either or nor a specific deed results in a tress disposal, been said by the distinct, from the sale of a land’s interest, rely on the basis of interpretation of that deed. The Subsection 36(1) will not be applicable if the trees are planted on leased land and if the lessee doesn’t contain entire ownership on trees were planted on the leased land (Lam and Whitney, 2016).

Rights disposal to standing timber

A tax payer running a business of forest operation might sell its standing timber via giving a right to any individual to remove or cut the standing timber, if there will be right or not to cut the timber is practised (Barkoczy. 2016). The profits earned from that sale are assessable in accordance with subsection 25(1).

Conclusion

By considering regulatory provisions, if Bill get a receipt of $1000 then income will be assessed as per provisions of 36(1) and if lump sum amount is paid then taxability will  be as per subsection 25(1).

References

Books and journals

AO, M.D.A., 2015. Modernising the Australian Taxation Office: Vision, people, systems and values. eJournal of Tax Research, 13(1), p.1.

Arnold, B.R., Bateman, H., Ferguson, A. and Raftery, A., 2014. The size, cost and asset allocation of Australian self-managed superannuation funds.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

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.

Bond, D. and Wright, A., 2017. A Snapshot of the Australian Taxpayer.

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

Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.

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.

Lam, D. and Whitney, A., 2016. Taxation and property: Practical aspects of the new foreign resident CGT witholding tax. LSJ: Law Society of NSW Journal, (21), p.84.

Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in Australia. St Mark’s Review, (235), p.94.

Mishra, A.V. and Ratti, R.A., 2014. Taxation of domestic dividend income and foreign investment holdings. International Review of Economics & Finance,31, pp.218-231.

Mishra, A.V., 2014. Australia’s home bias and cross border taxation. Global Finance Journal, 25(2), pp.108-123.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Tran?Nam, B. and Evans, C., 2014. Towards the development of a tax system complexity index. Fiscal Studies, 35(3), pp.341-370.

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

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