HI 6028 Taxation Theory, Practice & Law

Introduction

The study shall mainly deal with conducting detailed discussions related to five cases of studies. The first case is related to the finding of net capital loss or gain the second question is regarding the finding of taxability of fringe benefit and it shall also include a discussion regarding some other cases. The third case shall deal with the taxability of the couple regarding the loss suffered by them. Detailed discussion shall also be conducted regarding cases given in the question. The fourth one shall be dealt with by conducting a discussion regarding a famous Australian case law study. The last question deals with the identification of the taxability of a piece of land owned by an individual and the income gained by him out of it.

Detailed discussion shall be conducted on every case and relevant case laws shall be attached to each of the cases. The study shall be done mainly based on the terms of the IRAC method, which comprises the identification and discussion of the issues, rules, analysis, and conclusion regarding each of the cases or the portions of the study. Each of the studies shall be concluded and the final results shall be mentioned. The study shall be concluded with an overall concluding statement in the last portion of this assignment.

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Question 1

Issue: The issues here are mainly related to the calculation of the overall capital or the capital gain encountered by a person named Eric. The capital gain or the capital gain shall arise as a result of purchasing and selling different items that were mainly kept for his personal use.

Rule: This case shall be mainly treated and various kinds of decisions shall be made under the clauses of the Capital Gains Tax Act, 1999.

Analysis: The overall analysis related to this case can be shown with the help of the following sum. It is seen that Eric has purchased an antique chair, shares in a listed company, a painting, an antique vase, and a home sound system. These commodities were purchased by him apparently, but due to some reason he later decided to sell them off (Woellner et al. 2016). He sold some of the commodities at a price higher than the purchase price while some were disposed of at a lower price than the overall price at which he purchased those.

Statement showing capital gain or loss which has arisen due to the undertaking of different selling and purchasing activities

	The price that had to be given by Eric to procure all these commodities	The outcome of the act of purchasing and disposing of as taken up by Eric	The various kind of capital gain or capital loss as encountered by Eric from the various acts	The outcome as a result of these acts (Profit/ Loss)
*Details of the transactions*	*Amt ($)*	*Amt ($)*	*Amt ($)*

Antique vase	2000	3000	1000	P
Antique chair	3000	1000	-2000	L
Painting	9000	1000	-8000	L
Home Sound System	12000	11000	-1000	L
Shares in a listed company	5000	20000	15000	P

Total Profit/Loss	31000	36000	5000	P

Conclusion: It can be concluded that Eric has purchased all of the commodities and sold them off at some price. In an apparent way, he made a profit in the overall activity. He sold half of the commodities at a loss while half of them were sold by him at a profit. In the final place, he could earn a profit of $5000 by undertaking the whole act of purchasing and selling off the things.

Question 2

Issue: This case is mainly related to the case of the identification of taxation of the fringe benefit enjoyed by a bank executive. Here the person is Brain and he had taken up a loan from the bank at a very low rate of interest. The taking up of loans at a much low rate of interest can be termed to be fringe benefits. Fringe benefits have different kinds of tax treatment and the overall taxation on fringe benefits as a source or kind of income is treated as per the various rules and guidelines provided by the Australian Taxation laws (Berg and Davidson, 2016).

Fringe benefit tax arises if an employer allows the loan to its employee without any interest rate or at an interest rate, which is lower than the benchmark interest rate. The deduction shall be equal to the above-mentioned benchmark rate.

The primary issue identified here is that of the actual country of tax liability to be charged to Brian regarding the fringe benefits enjoyed by him.

Rule: The primary facts that relate to the case fall under the provisions of section 136 of the Fringe Benefits Tax Assessment Act, 1986.

Analysis:

Calculation of normal tax liability of Brian:

It is noted that $ 1,000,000 was the initial amount and 40 % of it is invested in a project. Thus, the tax liability will be calculated on the amount that is so far used by the client.

Net assessable income = $ 1,000,000 X 40 % = $ 400,000

Notably, the interest rate in the market is at 12 %. On the other hand, it is seen that Brian is getting a loan at 1 %. Hence, the actual fringe benefits tax = (12-1) % = 11 %.

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Therefore,

Tax liability = $ 400,000 X 11 % = $ 44,000

Hence, Brian needs to pay a tax liability of $ 44,000 against the fringe benefits enjoyed by him

Calculation of tax liability if the interest on the loan is paid every month:

The interest rate on a loan amount as well as the method of payment of interest is an important factor and affects the tax implications that are levied on an individual. Notably, the interest on a loan amount can be paid either every month, every quarter, or every year. If the interest is paid every month, then in that case, the interest amount will be divided by 12 and tax liability will be levied on the resulting figure. On the other hand, if the interest amount is paid on an annual basis, then in that case, the tax will be charged in the whole amount of interest paid at the end of the year (Pinto, 2010).

In regards to the case study, it is seen that Brian has procured the loan from the market at a floating interest rate. Hence, he is required to pay interest on the loan amount based on the current interest rate in the market.

Tax implications in case Brian is liberated from payment of interest on a loan:

In case Brain is liberated from payment of interest from the bank, then in that case, the whole amount of 12 % will be deemed as a fringe benefit for Brian. In this regard, tax liability will be levied on a full interest amount of 12 %.

Tax liability = $ 400,000 X 12 % = $ 48,000

Conclusion: It is evident from the above discussion that, the tax liability levied upon an individual tends to vary based on the fringe benefits enjoyed by the assesses. Here, attempts have Fringe Benefits Tax Assessment Act, 1986.

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Question 3

Issue: The issue can be mainly related to the fact of identification of the taxable liability of the couple Jack and Jill. Here It has been seen that the couple has purchased a house for themselves. They used to live in rent in that house in the initial phase. Now, a loss has been encountered by them due to some reasons. The sum shall mainly deal with showing the overall assessment to be made related to the loss suffered by them. The sum shall also deal with the case of taxability of income that shall be received by them if they decide to sell off the property at some price.

Rule: The case here can be mainly related to subparts 3-1 and 3-3 of the Income Tax Assessment Act, 1997 (Clauses 100 to 1 and 152-425). The rules are mainly related to the section of capital gains that are mainly related to the treatment of the taxability of various types on different types of property.

Analysis: The analysis has been made based on some basic line of assumptions. It has been assumed that the couple, Jack and Jill have decided to sell their house at $50,000. Now, the overall income gained from the house shall be liable for taxation. The sum shall deal with finding the overall capital gain of the couple that shall be liable for taxation (Taylor and Richardson, 2013).

Details of the transactions and the activities	Amt ($)
Grand Disposal price of the house property held and owned by the couple	50000
Less: the loss encountered by the capital to be included here as a deductible expense	10000
The total amount of money received by selling off the house after treatment of the deduction	40000

Division of income between Jack and Jill based on their profit-sharing ratio
*Details of the cases*	*Amount ($)*	*The breakup of the overall calculations related to this case*	*Amount ($)*	*The breakup of the overall calculations related to this case*
	Jack		Jill

		40000*10%=		40000*90%
	4000		36000
Overall taxation liability encountered by the couple: Jack and Jill	1333.333333		12000
		4000-1333.33		36000-12000
The total of the gain encountered by the couple can be held liable for taxability	2666.66667		24000

Conclusion: It can be said that the couple has to pay the tax on a total amount of $40,000 after the deduction has been applied. Now the amount has been divided between Jack and Jill and Jack is liable to pay tax on the amount of $26666.67 while Jill needs to pay tax on the amount of $24000. The overall tax liability for capital gain is 15%. Therefore each of them has to pay tax based on the tax slab rate of 15%.

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Question 4

Issue: The issue here can be identified to be the case of tax evasion. The Duke of Westminster had made up different kinds of plans and strategies to evade a high amount of tax.

Rule: The case IRC v Duke of Westminster [1936] AC 1 paved the path for the formation of different acts to stop tax evasion.

Analysis: In this case, the Duke of Westminster has employed a gardener to maintain his big gardens. He paid a salary of a considerable amount to the gardener. However, soon he made a plan to use his gardener as a tool for evading tax. He alternatively paid off the gardener and showed the expenses to be under his deductible categories. Thus he could finally evade huge amounts of taxes (Pinto, 2010). No sooner, he was legally charged for evading taxes and apparently, we won the case. There were no laws related to the evasion of taxes before this incident. The nation did not have or possess any kind of stringent legal support to case suits against the people who evaded Taxes. However, this case led to widespread tax evasion and so the Duke got noticed in the eyes of the authorities and a legal suit got filed against him. He won the case, however, various kinds of acts and legislations were formed based on the facts and the different loopholes to be found in this case. The loopholes can be mainly related to the loopholes in the overall legal system.

The authorities could no longer take the penalties from him. Still, this case principle paved the path for the formation of acts to restrict tax evasion. Many case laws were formed based on the things received from this case (Petty et al. 2015).

Conclusion: The case principle is still relevant in present-day Australia. Different kinds of laws related to stopping tax evasion were formed based on the essence of this case.

Unit 6 – Research Project

Question 5

Issue: The case here is related to the fact that Bill owned a piece of land and he contracted with a timber company to pay him and take the timber. There are two cases. The discussion shall be conducted based on two of them.

Rule: This case is mainly related to clauses 100-1 and 152-145 of the ITAA, 1996.

Analysis: In the first instance, Bill agrees to receive the payments for timber related to $1000 for the timber on 100 meters of land (Cao et al. 2015). The whole income received shall be taxable and no deductions shall be available as it is not capital gain. The overall income received by Bill shall be treated as his royalty that is the royalty on his land. Any kind of income received on grounds of royalty is fully taxable as per the rules and regulations of Australia. In the second instance, Bill takes a total sum of $50,000m for the timber on the whole of his land. The total amount shall be taxable and here also no deductions shall be available as this is also not falling under the terms of capital gain (Davis et al. 2015). The second instance also can be linked with cases of royalty and thus, the total income received by Bill shall be fully taxable.

Conclusion: This case is not related to capital gain and the whole thing has been shown.

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Conclusion

The study has mainly dealt with conducting detailed discussions related to five cases of studies. Detailed discussion has been conducted on every case and relevant case laws shall be attached to each of the cases. The study is mainly done based upon the terms of the IRAC method, which comprises the identification and discussion of the issues, rules, analysis, and conclusion regarding each of the cases or the portions of the study.