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Taxation Law: Wage From Individual Effort

Read the given case study in your textbook and present a detailed analysis of Hilary's case in light of various sections applicable from Australian Taxation Law.

Answer

HA3042 Taxation Law

Answer 1

Hilary was an uncommonly popular lady since she was a famous personality from a sports-cum-adventures background. She was a incredible peak climber; in this way she turned into an expert professional one, which drove her to gain wage from different sources; each of which has been talked about underneath for the tax collection appropriateness purposes. Everyone on the planet is always particularly restless to consider and learn about the life and struggles of a sportsperson. Everyone necessities to go ahead with a presence like them, so one of the principle day by day papers had asked for that her create a story on her life. This made heaps of vitality among the lovers of Hilary and even the general populace. This narrative would facilitate them to be acquainted with how an athlete lives his daily life. For this narrative she was given $10,000, yet subsequent to the narrative being over she was required to submit every single patent to the Daily Terror. She had a keenness of taking snaps, and in this mannerism she managed to put on sale some of the photos for $2,000 and along with that she fetched another $5,000 for providing unique content to another outstanding library in the city. 

Dr Clarke Braedon (2004) expressly characterizes the significance of pay according to common ideas and statutory pay that has been characterized in the duty enactments. Wage from individual effort is characterized in s 6 of ITAA 1936 as 'salary comprising of profit, pay rates, compensation, commissions, expenses, rewards, annuities … stipends and tips gotten in … connection to any administrations rendered… '. 

As pointed out by Australian Taxation Law, the pay from individual exertion combines pay from commission, compensation, benefit, stipends, and tips. Each one of these pointers would be deemed to be treated as pay of an individual as per the guidelines laid down by the Section 393-10 of the Australian Income Tax Act (AustLII 2017). 

In the present scenario, given the courses of action of Australian Taxation Law, it can be safely presumed that the receivables gotten by Hillary for her narrative, cannot be connected with her as pay from individual exertion. On the other hand, the other two sales would be considered as individual pay, given that this is something she regularly engages in! The provisions which support this statement are given below (AustLII 2017). 

Hilary was just a peak-climber and not an author or a story-teller or a novelist. In the case that she engaged full-time in the job of offering characteristic articles as a source of living and on a regular basis, it would have been considered as individual wage. In any case, here she has made a story in light of the way that the Daily Terror had exhorted her to do all things considered. Accordingly this wage gotten from the day by day paper would not be considered as wage from individual effort. The other two profits which she managed to earn came from a source of action which she exercises for her daily source of bread and butter. A mountain climber can only show his feat through the means of photography, and thus she used to do this on a regular basis. In this way, these two profits would be assessable under wage from individual effort. 

Thusly out of these three cases, only two wages would be considered as pay under individual effort. The difference between a typical salary and wage from individual effort was a benchmark decision on the account of the case study of Stone v FCT as grouped under the Revenue Law Journal, Vol. 14 [2004], Iss 1. 1, Art. 9. 

Answer 2 

The characters revolving around this case study are a mother-son duo. Mother had lent a signifying amount of $40,000 to her kid. There was acceptance between both the parties that the son will pay the measure of $50,000 toward the completion of those five years. Nevertheless, it was clearly established that the communication or arrangement between the mother and son was not on papers, viz-a-viz, official. Despite for the entirety advanced no security was given by the tyke. This exhibits the understanding terms have been impacted as a result of the relationship. The case states that the mother requested the son not to pay any interests on the total value of the loan given. Therefore, no payment was made by the son to the mother during the year or the 5-year-period. At the end of the five year period, the son paid the total amount along with 5% interest to his mother, against the loan taken 5 years back. The whole aggregate was paid back through the methods for a solitary check, introduced to the mother by the child. 

Keeping in mind the end goal to survey the assessable wage of the mother, we have to give a couple of actualities lucidity and comprehend the elements that influence the assessable wage of the parent. In this, the connection between the mother and child is unique and henceforth there was no appropriate contract kept up, nor any security sold by the child to the mother against the credit of $40,000 given to the child. In this way, we have to painstakingly inspect other case-laws to comprehend the certainties accurately and afterward put into application the arrangements of Australian Taxations so as to present the case properly. 

In the case study of Riches v Westminster Bank Limited (1947) AC 390, the court had given ruling that the commission charge was not to be treated like interest taking keen knowledge from the provisions of Subsection 128A (1AB) of the ITAA 1936 (ATO 2017). Correspondingly, in the present situations, there are no interest liabilities from the son’s side to the mother. However, given the bonding the mother and son have, the son did not apprehend to pay the 5% interest to his mother at the end of the 5 year contract period. Therefore, since such an act was made out of love and gesture, and not bounded by legal liabilities, they must be treated as a gift rather than income for the mother. Having said that, the legal provisions and taxation laws of Australia do make it mandatory for the interest to be calculated as wage as it is considered as a gift and not an income. It must be considered as a gift and should not to be considered as compensation of the parent. 

This case is in a general sense the same as the case of Glasbrook v Glamorgan County Council [1925] AC 270 (Clarke 2010). 

Answer 3 

Capital Gain is a mighty affair in Australia and the current case will help us in understanding the diameters of the same. In a layman’s language, capital gain is defined as the excess of sale value of a capital asset over its actual cost. The definition of capital loss is exactly the reverse of the previous statement. The provisions of the Australian taxation allow for the capital loss to be adjusted in the subsequent years, as well, something which is not true in the case of capital gain.  The loss can similarly be passed on forward for quite a while. Capital gain can be figured from different points of view; one way is the indexation method. This scheme would be pertinent accurately when an asset is held for over a year. In any case, if the proprietor of the asset is an individual then it has the other option to choose refund methodology or discount procedure. Under this discount procedure capital gain would be diminished considerably. This discount methodology is not relevant on account of associations. Any asset which was purchased before 20.09.85 would not be subjected to capital gain appraisal, as per the given policies of Australian taxation.

Area a) 

The case is about an accountant named as Scott who had touched base to Australia, for the first time on 1.10.80. On 01.09.86, Scott invested in a property for the purpose of development of a house for himself. During that time, the value of the land was taken at $90,000 and for property it was kept at $60,000. The property was not used for his personal residence; rather he had rented out the apartment to a tenant. We witnessed him sell the property in the later years on the date of 1st March at a valuation of $800,000. Now this clearly gives rise to a case wherein there is birth of capital gain. Given the fact that Scott is an individual, he has the decisive power to either put into use the discount method or the indexation method. The computation for both the techniques has been given underneath.

Discount Method: 

In this system we need to go very much requested. He had acquired a land and after that built up a property on it. The total valuation of land and property was $90,000 + $60,000 = $150,000. Out of this 60% adds to Land and the modify 40% added to property. Land was purchased on first September 1980, which infers it was exempted from Capital Gain tax collection as indicated by Australian Taxation Law. Therefore the calculation is given underneath: 

Selling Price of the property: $800,000 * 40% = $320,000 

Actual Cost of the property: $60,000 

Capital Gain: Selling Price – Actual Cost ($320,000 - $60,000) = $260,000 

Since Scott is an individual and the property was held for more than 12 months refund of half would be relevant. Along these lines, last capital gain on the property would be $260,000 * half = $130,000 

Indexation Method: 

Under this procedure we need to explode the cost for actual cost of the advantage and improvement, according to present qualities. So for this we need to know the cost of inflation record for the years in which the advantage was acquired and created. 

Indexation for the year 1999 was 68.7 

Indexation for the year 1986 was 43.2 

Net Indexation would come to 68.7/43.2 = 1.59 

Recorded cost of obtainment would come to $60,000 * 1.59 = $95,400 

Selling Price of the property was $320,000 

Capital gain on the property would come to ($320,000 - $95,400) = $224,600 

We can see that the capital gain was much lower in the discount method, so Scott would choose the former as compared to the latter, considering that any individual would want to ethically reduce his taxation liability.

Part b) 

For this circumstance Scott has sold his property to his daughter at an entirety of $200,000. As indicated by Section 116 - 30(2) bargain estimation of a capital asset should be either the marker value or at the entirety which the benefit is sold, whichever is higher. At this circumstance offering cost was $200,000 while the market value was $800,000. Thusly, market value is to be considered for this situation which we have at hand.

Accordingly capital gain for this circumstance should be same as the essential question which would be $130,000.

Part c) 

Association must choose between limited options to settle on a discount method or an indexation one, so for this circumstance capital gain would be figured just on the start of indexation methodology. As indicated by indexation system capital gain would come to $224,600. 

All the above cases resembled the occurrence of Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309

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