Payments on Account of Writing, Manuscript, and Photography

The given facts indicate that Hilary receives three payments on account of the story, manuscript and expedition photographs respectively. The objective is to ascertain by reference to case laws and relevant statutes (especially s.6-5) if the payments are termed as income on account of personal exertion.

A hefty sum of $ 10,000 has been offered by newspaper despite she lacking any meaningful writing experience. This action on the part of the newspaper provides clear hint that it is not seeking writing of Hilary but the contents of her story. These contents are of interest to the newspaper since they have potential commercial value as these pertain to the life of the famous mountaineer Hilary. Further, only Hilary has these details, hence this information can be gained only from her. The act of writing is the medium through which Hilary is sharing her personal story with the newspaper. Hence, the real asset of value which is justifying $ 10,000 payment is the information about Hilary’s life. This stance is upheld by the proceedings of a similar case i.e. Brent vs Federal Commissioner of Taxation (1971) 125 CLR (Barkoczy, 2015).   Hence, considering that writing does not have any commercial value, any the proceeds from story would fail to be recognised as income from personal exertion.

Considering the above conclusion that writing does not produce anything which has any commercial value, hence the commercial worth of the manuscript does not come from the personal exertion and skill of Hilary as a writer. This worth is derived from the fact that the manuscript has information about Hilary’s life which would interest the audience. Since writing acts a transfer mechanism, hence proceeds from manuscript would fail to be recognised as income from personal exertion (Gilders et. a., 2016).

It is apparent that Hilary does not process any extraordinary photography skills and hence the buyer is not interested for buying these as these are clicked by Hilary. But the buyer is interested, since the subject matter captured by the photographs is valuable as it highlights the expeditions done by famous mountaineer Hilary. The activity of clicking photographs does not produce any income here and hence the given receipts fail to be recognised as income from personal exertion (Deustch et. al., 2016).

Now there is an intention change on part of Hilary since she decides to write the story without any offer but only after completion decides to sell. The tax treatment remains unaffected by this intention change since through writing the assessable income is not being derived. Hence the motive driving the activity of writing does not play any role here considering the futility of the writing activity. Thus, proceeds would still fail to be recognised as income from personal exertion (Sadiq et. al., 2016).

Commercial Worth of Manuscript and Photography

The statutory formula presented in section 9, FBTAA 86 is listed as follows  (Woellner, 2014).

For making use of the above formula, the input value related discussion is carried out below (Barkoczy, 2015).

• A – The base value of vehicle in this equal would be taken as the purchase value of the car since no depreciation can be charged on the car as of now. Hence, A = $ 50,000.
• B – The statutory percentage is delinked with the distance travelled and would be considered as 20% or 0.2.
• C – This information has already been presented in the data provided. Hence, C= 183
• D – The given assessment year which has been considered for this computation has only 365 days. Hence, D = 365.
• E – In according with the statutory formula, any operating expenses related to car that are spent by the employee would be paid back by the employer and hence deducted. However, s. 10A FBTAA 1986 highlights that this should be done only when the supporting documentation is there with employee. In this case, the employee has relevant proof, thus E= $ 1,000.

Having determined the value of the necessary inputs for the computation of the car fringe benefit taxable value, the taxable value can be calculated using the formula provided in the manner shown as follows.

In regards to the situation at hand, a son approaches the parent to seek financial assistance for house to the extent of $ 40,000 which the parent agrees to provide. The son promises that the money would be given back within 5 years along with interest. But the parent makes it clear that no interest is desired.  After two years have elapsed, the son manages to clear the debt by giving a $ 44,000 cheque to the parent whose implications with regards to tax need to be ascertained.

For detailed analysis of the money that the parent has received, it makes sense to segregate the same into following components.

• Repayment of Principal – This money was earlier lent to the son and now has been received, hence clearly there is no income character since the receipt is capital and hence would be insulated from any tax implication (Barkoczy, 2015).
• Interest amount – Analysis needs to be done for the appropriate tax treatment of $ 4,000 paid by the son.

Section 6.5, ITAA 1997 cannot account for this amount since the given facts clearly highlight that the parent has no involvement is any money lending business. The testimony of this is the manner of extension of loan to the son whereby no security or legal documentation was carried out. This conduct is not similar to the business conduct (Gilders et. al., 2016).

Section 15-15, ITAA 1997 cannot account for this amount since a key requirement is that the taxpayer should be driven by the intent to profit which has been found missing in the given case. The testimony of this is the statement by the parent addressed to the son whereby it is stated that interest income is not wanted and just principal repayment is important (Woellner, 2014).

Hence, the $4,000 amount is treated as gift under TR2005/13 as the following arguments highlight the fulfilment of the necessary conditions (ATO, 2005).

• The payment transfer has already taken place as cheque is given to parent.
• The parent never wanted the interest which confirms voluntary nature of payment.
• The son would have no expectations for any return favours due to the nominal amount transfer.
• The motive driving the transfer is gratitude towards parent.

As receipts of capital nature and gifts both fall outside the purview of taxable receipts, hence the parent would not have to pay on tax on the $ 44,000 amount received from son.

As per the given facts, Scott is an accountant who purchased the land in 1980 which falls in the period when capital gains were not taxed. As a result, the sale of land would not lead to capital gains being taxed and thus these can be ignored. However, the same cannot be said about the house which was constructed only in 1986 when capital gains tax had already come into existence. Hence, any capital gains on house would not be exempted (CCH, 2013).

Intention Change and Deriving Income

The focus of this discussion would only be the house whose cost base would be $ 60,000 or the construction cost in accordance with s. 110-25.  Considering the market value of property today and valuation of both land and house in 1986 when construction was complete, the market value of house would be 80000*(60000/(60000+90000)) = $ 320,000 (Gilders et. al., 2016).

The capital gains computation can be proceeded with using the method from the below mentioned which yields minimum taxable capital gains (Barkoczy, 2015).

As per division 115, net taxable capital gains on house = 0.5*(Gross capital gains) = 0.5*(320000-60000) = $ 130,000

Indexation Method

Cost of house post inflation adjustment from 1986 to September 1999 = (68.72/43.2) * 60000 = $95,400

Capital gains subject to CGT = 320000 – 95400 = $ 224,600

Scott would go along with the discount method. Hence capital gains from sale of property would be $ 130,000.

Here the selling price is significantly lower than the market value as Scott liquidates the property to her daughter. Section 116-30, ITAA 97 is applicable in this case.  This section clarified that capital gains calculation need to consider the value which is higher when the market value and selling price tend to differ (Deutsch et. al., 2016). In this case the higher value is $ 800,000 which leads to the same set of computations yielding the same capital gains as above i.e. $ 130,000.

The company is the owner and not an individual. Thus, capital gains on the property can be computed only through the use of indexation method as Division 115 prohibits usage of discount method for companies (Gilders et. al, 2016). Therefore, computation of capital gains through the indexation method (indicated in part (a)) results in $ 224,600 being the net capital gains on the property that would be subject to CGT.

References

ATO (2005), Tax Ruling TR 2005/13, [online] available at https://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR200513/NAT/ATO/00001  

Barkoczy, S. (2015) Foundation of Taxation Law 2017. 9^th ed. Sydney: Oxford University Press.

CCH (2013), Australian Master Tax Guide 2013, 51^st ed., Sydney: Wolters Kluwer

Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016) Australian tax handbook.  8th ed. Pymont: Thomson Reuters.

Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016) Understanding taxation law 2016. 9^th ed.  Sydney: LexisNexis/Butterworths.

Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2016) , Principles of Taxation Law 2016, 8^th ed., Pymont: Thomson Reuters

Woellner, R (2014), Australian taxation law 2014 7^th ed. North Ryde: CCH Australia