Contract - Loan and Capital Gain Tax Law Australian Tax Law

Question: Discuss about the Contract, Loan and Capital Gain Tax Law for Australian Tax Law. Answer: 1: Income from personal exertion means income from earnings, wages, commissions, fees, bonus, retiring allowances, superannuation allowances, and gratuities which an employee receives in relation to any service provided. Such income would be included in the income of an employee as per Section 393-10 of the Australian Income Tax Act. If the contract was as such Hilary would own the copyright of her story and would ultimately sell for $10,000 then the payment would not be regarded as payment made for services rendered. In the case of Brent v FCT (1971) 125 CLR 418, payment made was regarded as the sale for copyright.[1] But this case is completely different since The Daily Terror newspaper has told Hilary to write her story and then she would assign all her rights, interests and title in the copyrights for $10,000 to the newspaper. If Hilary had a business of selling articles then such payment would have been considered as ordinary income. But in this case she has never written any story before, and now she is doing it only because a newspaper agency has told her to do so. As per these assumptions the said payment of $10,000 which Hilary received from the newspaper would not be regarded as ordinary income. It would also not be taxed under Section 15-2 of the Income Tax Assessment Act 1997 since it was the payment for giving up the copyright. Instead it would be taxable under Capital Gains. The other two incomes which Hilary has earned would be considered as income from personal exertion. She received $5,000 from the Mitchell Library for selling manuscripts. While climbing mountain she had also took some photographs which she had sold for $2,000. These two incomes are considered under income from personal exertion. If she would have written her story for her own satisfaction then it would have been considered as income from personal exertion. 2: In the present case parent has given a housing loan to her son. The amount which was given as loan was $40,000. This loan was given without any formal agreement and even without giving any security. Since it was an informal agreement, parent told her son not give any interest as well. After the end of 5 years the loan was repaid by the son including interest. It was decided that no interest should be paid but still son repaid the full amount including interest. The interest paid by the son was equal to 5% pa on the amount borrowed. There was no part payment made by the son, instead at the end of 5 years a single cheque was presented by him to his parent. As per the Australian Income tax act, the said agreement between the parent and son would not be regarded as a contract since there was no formal agreement between them. It is assumed that they had an oral agreement that no interest should be paid on the loan. But inspite of this son at the end of 5 year repaid the full amount includ ing interest. Now this is considered as an income of the parent. But this amount was not at all discussed at the time when agreement was made. Since the amount was not at all discussed and as per the Australian Taxation Law the said income received by the parent would not be considered as an income of the parent.[2] The total amount received by the parent at the end of 5 year would also not be considered as income of the parent since it was a loan which is repaid to the parent. 3: As per Australian Taxation Law capital gain tax would not apply if a capital asset is bought before 20th September 1985. In the given case Scott is an accountant who had purchased a vacant block of land in Brisbane on 1st October 1980. On 1st September 1986 he had also built a house for which construction costs $60,000. At the time of construction value of the land was $90,000. After the construction was completed the whole property was given on rent. Then on 1st March Scott sold the entire property for auction for $800,000. Now since Scott has sold his property it would attract capital gain tax.[3] Part a) Scott is an individual who has let out his property on rent and then in March he had sold his property for $800,000. After the construction of the property Scot didnt stayed there, instead he had rented out his property. In this case any capital gain arising from such situations would be exempt under the Temporary Absence Rule. But such case would only apply when the property is sold within six years. But in Scott case property is not sold within six years. But still he would be exempt from paying capital gain tax since his property was purchased before September 1985.[4] Part b) In this case Scott has sold his property to his daughter for $200,000. In this case capital gain tax would be attracted since property is sold to the relative. Amount on which tax needs to be charged would be ($200,000 - $150,000) = $50,000. Capital gain tax would be 50% of $50,000 = $25,000 Part c) In this case property was owned by the company instead of Scott. Exemption provision was only applicable on individuals and not on company. Company needs to pay capital gain tax on it. References Aussie Home Loans | Mortgages | Loan | Personal Loans Australia' (Aussie.com.au, 2016) https://www.aussie.com.au/ accessed 20 August 2016 Barnet Jade - Find Recent Australian Legal Decisions, Judgments, Case Summaries For Legal Professionals (Judgments And Decisions Enhanced)' (Jade.io, 2016) https://jade.io/j/?a=outlineid=66285 accessed 20 August 2016 Exemptions | Australian Taxation Office' (Ato.gov.au, 2016) https://www.ato.gov.au/General/Capital-gains-tax/CGT-exemptions,-rollovers-and-concessions/Exemptions/ accessed 20 August 2016 Guide G, 'Taxes Are High In Australia' (Global Property Guide, 2016) https://www.globalpropertyguide.com/Pacific/Australia/Taxes-and-Costs accessed 20 August 2016 [1] Barnet Jade - Find Recent Australian Legal Decisions, Judgments, Case Summaries For Legal Professionals (Judgments And Decisions Enhanced)' (Jade.io, 2016) https://jade.io/j/?a=outlineid=66285 accessed 20 August 2016 [2] Aussie Home Loans | Mortgages | Loan | Personal Loans Australia' (Aussie.com.au, 2016) https://www.aussie.com.au/ accessed 20 August 2016 [3] Exemptions | Australian Taxation Office' (Ato.gov.au, 2016) https://www.ato.gov.au/General/Capital-gains-tax/CGT-exemptions,-rollovers-and-concessions/Exemptions/ accessed 20 August 2016 [4] Guide G, 'Taxes Are High In Australia' (Global Property Guide, 2016) https://www.globalpropertyguide.com/Pacific/Australia/Taxes-and-Costs accessed 20 August 2016