Taxation Law Case Study: Capital Gain, Fringe Benefits And Rental Property Co-Ownership

Calculating net capital gain or loss on sale of assets

The problem given in this case mainly deals with the computation of capital profit as well as losses that is attained from sale of the assets that is described under the section 108-20 of the ITAA 1997.

i. Section 108-20 of the ITAA 1997

ii. Section 108-10 of the ITAA 1997

Under the section 108-20 of ITAA 1997, total loss of $1000 attained from selling of home sound system is not allowed for the given set off because no losses are considered on the basis of disposal of assets (Schreiber 2013). According to this section, the loss acquired by Eric cannot be kept off as against the profit in terms of sale of shares. In addition, Eric has attained capital gain of $15000 in terms of removal of common assets and does not involve any common capital of the present year or any types of valid reductions.

Conclusion

Therefore, it concludes from the above fact that as Eric has attained profit from removal of common assets, he cannot counterbalance the loss obtained from the collectibles.

The problem that is given below is mainly apprehensive with the FBT ascertainment that is related to the “Taxation Ruling of TRE 93/6”.

Application of Tax

Estimation of FBT

The taxation ruling of TR 93/6 defines that the financial companies strategizes to prepare plan in order to offset loan account, which refers to interest offset agreement (Sadiq et al. 2012).  In accordance with this Tax Rulings of TR 93/6, if Brian is released by the bank from reimbursing the loan interest , then he will not have any liability to pay this income tax amount.

Conclusion

Thus, it concludes from the above fact that if the bank releases Brian from paying interest on loan, then he will not have any responsibility to pay the income tax amount.

In this case, the problem mainly concerns with the loss allocation for the tax purpose that is obtained from the rental property that is purchased by Jack and Jill as joint tenants.

a) Section 51 of ITAA 1997

b) Taxation rulings of TR 93/32

c) F.C of T.v . Mc Donald (1987)

In accordance with the Taxation rulings of TR 93/32, it involves description of divisionary income or loss incurred by the co-owners from the purchase of rental property. The written agreement that the co-owners entered into provides that Jack and Jill is entitled to 10% and 90% of  profits from the property.

According to the tax rulings TR 92/32, co-ownership of the rental property refers to the partnership between two persons for the purpose of income tax (Zelenak 2012). However, according to the general law co-owners are not considered as partners for sharing the profit for income tax purpose only. Therefore, the present scenario of Jack and Jill reflects that they are not regarded as partners but is considered as co-owners of the rental property .

The taxation ruling of TR 93/32 defines that co-ownership of rental property are not deemed as partners according to common law (Krever 2013). This case highlights that the agreement does not influence the shared income value or loss acquired from the rental property.  Thus, one common factor between Jack and Jill is that they are the joint renters of the co-owned rental property.

Estimating taxable value of a fringe benefit and its application

In case of F.C of T.v Mc Donald (1987), it has been noted that both Jack and Jill owned two units as joint renters. The agreement that has been confirmed by both of them defines that the profit attained from rental property would be divided to Mc Donald and his wife by about 25% and 75% respectively. However, Mc Donald will bear the loss amount incurred from the rental property.

Conclusion

From the above case, it can be stated that both Jack as well as Jill are entailed in distributing loss in equal amount, as they are the joint owners of the rental property.

4. The law of IRC v Duke of Wetminster [1936] AC 1 quotes the incidence of tax avoidance. One standard that has been established from this case is that each person should arrange his dealings in such a way that the taxation is assigned to it (Chalmers et al. 2013).  The WT vs IRC principle adopts that the court will be hugely restrictive in the forthcoming period. This case highlights that the transaction has been arranged previously in artificial manner and is not used in terms of commercial purpose.  

5. This case study highlights the income evaluation from felled timber sale that has been discussed under subsection 6(1) of the Income Tax Assessment Act 1936.

i. Subsection 6(1) of the Income Tax Assessment Act 1936

ii. Mc Cauley v The Federal Commissioner of Taxation

Under this scenario, Bill basically aspired to utilize this land for sheep grazing and hence wanted to remove this plant. The taxation ruling in relation to 95/6, keeps aside the consequences of income tax that has been created from various activities such as temporary manufacturing and forestry. Therefore, subsection 6(1) of the Income Tax Assessment Act 1936 shows that the tax payer are involved in forest operational activities.

The receipts obtained by Bill from selling felled timber involve assessable tax payers earnings though the trees are not planted by them (Becker et al. 2015). Moreover, the amount paid by the taxpayer was $50000 by compromising the right to logging companies in order to remove timber amount. Thus, this receipt has been taken as Royalties. Under this circumstances, Bill will carry trade of operations of forest and hence planting of trees is not done by taxpayers for attaining profit. Thus, Bill receives the receipt amount as royalty that involves assessable income.

Conclusion

Hence,  amount received from cutting timber is taken as taxable proceed under this subsection 6(1).

References

Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.

Chalmers, J., Carragher, N., Davoren, S. and O’Brien, P., 2013. Real or perceived impediments to minimum pricing of alcohol in Australia: public opinion, the industry and the law. International Journal of Drug Policy, 24(6), pp.517-523.

Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.

Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.

Oats, L. ed., 2012. Taxation: A fieldwork research handbook. Routledge.

Sadiq, K., Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., McLaren, J., Obst, W. and Ting, A., 2012. Principles of taxation law 2012. Thomson Reuters.

Schreiber, U., 2013. International company taxation: an introduction to the legal and economic principles. Springer Science & Business Media.

Zelenak, L., 2012. Custom and the Rule of Law in the Administration of the Income Tax. Duke LJ, 62, p.829.

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