Taxation Questions And Answers

Question 1

The case scenario reveals the issue faced by Eric who is engaged in purchasing and selling of various capital assets. Now, he wants to calculate tax based on transactions related to purchase and sales.

The guidelines of capital taxation provisions in Australia, there are two different methods are applied on the basis of holding period of assets. Following points describe the conditions of applicability of taxations method:

• Discounting and indexation method: These two methods of taxation are applicable in case assessee hold the capital for the tenure of 12 months and more.
• Other method: Other methods are applied when assessing hold capital assets for the tenure of fewer than 12 months (Basu, 2007).

For the calculation of tax in the here-cited case, other methods are going to be applied in which assets are purchased and sold within last 12 month. However, it is  related to hold the asset for the tenure of less than 12 months.

The issue described in a case is of Brian, who was recruited as an executive in a banking institution, the remuneration package offered to Brian by his employer a 3-year loan of a total amount of 1m. Including this, special rate of interest is 1% p.a. that is to be paid on a monthly basis. As on 1^st April 2016, Brain was offered a loan on 40% of its borrowed funds for the purpose of income generation.  Here, the calculations of Loan Fringe Benefits are done to Brian while considering the facts.

According to the guidelines of Fringe benefits act, these kinds of benefits are the important part of the business; however, it is useful to attract experienced and superior staff.  On a contrary note, in case of a company is offering fringe benefits to staff, then it has to be self-aware regarding own obligations of tax (Woellner et al., 2011). To the viewpoint, it is to be said that Fringe Benefits Tax or FBT is considered to be an amount that is being paid against tax by the employers, to offer benefits to the employees, through replacing wages and salaries. The tax is being paid as a separate part that is further measured on the tax value of FBT. While considering the provisions of fringe benefits tax on the loan amount given to Brain, a special tax rate is to be offered on a different amount of tax rate. As per the Australian Taxation Office; interest rates for Loan Fringe Benefits, i.e. 5.65% for the year 2016.

Table 2 Calculation of taxable amount for Brian for Loan Fringe Benefits

• The calculation reflected that $ 46,500.00 and taxable amount are not going to be affected if only 40% is used in respect to income generation.
• Taxability  is not going to be affected even in case interest payment is made
• The total taxable amount will be $56,500.00 if Brian is exempted from paying

As per the given case facts, Jack and his wife purchased a rental property for which they both were joint tenants. There was an agreement formed in which Jake is entailed to 10% of profit and rest for her wife. However, the loss occurred of $10,000.00, and this case deals with the treatment of this loss in perspective of taxation. Further; discussion is provided in situations where the property is sold.

Question 2

In the given case scenario, legal provisions of TR 93/32 “Income Tax: rental property – division of net loss or income between partner” are applied, in which it is considered for the purpose of computing taxation either there is profit or loss (Australian Government, 2017). In case, certain exemptions are applicable as per the joint ventures are considered as a partnership for tax purposes, only in case, when the partnership is applied to carry out business. If an agreement is done for tax purpose, then the loss is not going not to be apportioned. According to the given provision, joint owner of the rental property are not considered as partners. Therefore, the agreement will not affect the computation of taxation.

The provisions of TR 93/32 “Income Tax: rental property – division of net loss or income between partner” are applied in the herewith case, as the business carried by Jack and Jill is merely for the tax evasion and no business is being carried  for the computation of tax, thus loss will be applicable in the ratio of 50:50.

A gardener was recruited by the Duke of Westminster and was given a significant post-tax income of Duke as remuneration. A covenant of equal amount was paid to him, as the wages of gardener were stopped in order to make a reduction in tax. Deduction to reduce his income to tax, and further reducing the liability to surtax and income tax was permitted to Duke in accordance with the tax laws. This has been said by Lord Tomlin after he lost the case in opposition to Duke.

The tax evasion is acceptable only if it follows the establish statue law according to the case of The Duke of Westminster (AbdulRazaq, and Adam, 2015). It also states that the tax liability of Duke is decreased in the general principle format of the covalent act and can make a claim for the yearly payment made for one year when applicable.

Under the most appropriate acts, every individual is liberal to order his/her affairs for attaching tax that would less than it was before. The Commissioners of Inland Revenue shows no gratitude in case he won in regulating them in order to save the result and even not oblige to pay out an increased tax. It can be stated the principle of Westminster but was in disagreement in essence of tax avoidance- tax evasion (Freedman, 2014). These formations are in accordance with law, to permit the companies and individuals make a formation in financial arrangements to decrease the liability of tax and being informed by the decision. The present Ramsay Principle  made by well-known WT Ramsay v. IRC decision of the House of Lords,(1982) AC 300 can be noticed.  This was kept in mind by the judges that this matter not to be made a formal rule, as in the prior case they will make the discussion about the ratio scope not being bound by its precise wording.

Question 3

Conclusion

Tax avoidance can be allowed to the extent it is being done in accordance with statute law. This has been concluded in accordance with the decision of above case. If any company adopts any device, it is responsible for the tax profit reduction exclusively, but wouldn’t be allowable.  The economic jurisprudence of the extensive and changed nation should be judged and observed by courts and committees to hold regarding tax planning that is proposed for tax evasion. This principle put down in Duke of Westminster [1936] AC 1 is not valid and should be rolled back by the court.

Several full-grown pine tree was there on a large piece of land owned by Bill. He intends to get it cleared as Bill plans to use the land for herd grazing.  A logging firm for removing timber from his land is ready to pay him $1,000 for every 100 m of timber. If the logging firm is given right to remove maximum timber from his land he gets the option of receiving $50,000. Description of tax implications of the above two situations is discussed in the present case.

In the initial event, the transactions concerned to bill’s disposable standing timber of 100 m timber for $1000 each to a logging entity, which is not considered in the ordinary course of business. Section 36(1) is applicable here, and as per this, the income is taxable. Coming to the next event, the transaction relates to disposable rights of standing timber trees. Section 25 (1) is applicable to this transaction, and the earned income is taxable according to this.

Conclusion

According to the provision applicability stated as above, if the timber has put into a sale then the revenue earned is assessable as per sec 36(1) , and the standing timber rights are into a sale than income earned is assessable as per  sec 25(1). Moreover, the estimate will be from the point 25 of ruling TR 95/6.

References

AbdulRazaq, M.T. and Adam, K.I., 2015. Anti-Avoidance Legislations: Issues & Doubts in the Application of Tax Rules in Nigeria. AGORA Int’l J. Jurid. Sci., p.1.

Australian Government, 2017. Taxation Ruling/TR 93/32. [Online]. Available at < https://www.ato.gov.au/law/view/document?docid=TXR/TR9332/NAT/ATO/00001 >[Accessed  on 22^nd September 2017 ]

Basu, S., 2007. Global perspectives on e-commerce taxation law. Ashgate Publishing, Ltd.

Freedman, J., 2014. Designing a general anti-abuse rule: Striking a balance.

Rohadi, D., Herawati, T., Padoch, C. and Race, D., 2015. Making timber plantations an attractive business for smallholders (Vol. 114). CIFOR.

Smith, H.F., Ling, S. and Boer, K., 2017. Teak plantation smallholders in Lao PDR: what influences compliance with plantation regulations?. Australian Forestry, 80(3), pp.178-187.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia.

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