PERSONAL HA3042 TAXATION LAW TRIMESTER 2, 2016 INDIVIDUAL ASSIGNMENT 1 Question 1 (5 Marks) Requirement: Discuss whether or not the three payments are income from personal exertion. Would your answer differ if she wrote the story for her own satisfaction and only decided to sell it later? Answer. The three payments from the Daily Terror newspaper which offers her $10000 for the life story of Hillary for travelling, with certain manuscripts to the Library of Mitchell for $5,000 and then the photgraphs for $2000. These three payments have been the income from the personal exertional as the book was written by her only and she personally wrote about her jounrye. So Hillary has complete rights on the manuscripts, information and the photos as per the law. If Hillary has been writing the story for her own satisifaction and then decide to sell it later, then the situation would have been same only. The income from the personal services whether received as an employee or any consultant constitutes under Section 6-5(1) that this represent the rewards to the taxpayers for the personal efforts and toil. The income includes the salary and the wages, the payments for the overtime work, commissions, tips and allowances. It also includes the different awards of retrospection, backpay and the lump sum compensation payment with appropriate bonus. As the payments for Hillary were mainly the gratuity from the newspaper and other areas, hence, the compensation received by her has been pertained as income. The personal services income are produced by the personal skills and the efforts of an individual. It covers the industry, trade and the profession which include the financial professional, information technology and people in different fields. The income is classified under the personal exertion where the personal income rules do not apply when your business has been under the personal basis. One can be able to receive the PSI if you are not the sole trader. Under the section 15-2 of the ITAA (1997), it has been seen that there is a need to include the accessibility income of the taxpayer. This depends on the gratuity from the customers, the cash allowance, bonuses and the compensation received. For Hillary, the personal exertion is based on: a. The tips which have been received from the different customers and are assessable under the Section 15-2 as they have the employment by-products with the reward representation for the different services rendered. This has been completely irrelevant to whether the payer is a employer or a normal customer. Hillary has been a normal customer who wrote the story just to present the different aspects of her travelling journey for the people. b. The allowances are made assessable for Hillary under Section 15-2 where there is a up-front payment that is made by the employer to a particular employee. This works on the predetermined amount for covering the expense as per the estimation. In this case, the travelleing allowance of Hillary to capture the pictures by going to the different places and then selling them to the companies for money will be included under the tax. c. The reimbursements occure mainly when the recipient has been compensation for the different agreed parts of the expense which have incurred. The provider needs to focus on considering about the expenses which are its own and incurs for the expenditure made on the behalf of the provider who is going to give the money. Here, in this case, Hillary is going to get the money from the different newspapers after she sells her travelling story and photos which she clicked. Question 2 (5 marks) Your client is a parent who lent $40,000 to her son to provide a short-term housing loan. The agreement is that the son will repay $50,000 at the end of five years. Reconsider this question in light of the following facts. The loan was made to the son without any formal agreement and without any security provided for the sum lent. In addition, the client (the mother) has informed you that she told her son that he need not pay interest. However, the son repaid the full amount after two years and included in his payment an additional amount which was equal to 5% pa on the amount borrowed. Only one cheque was presented for the total amount. Requirement: Discuss the effect on the assessable income of the parent. Question 3 (10 Marks) Scott is an accountant who purchased a vacant block of land in Brisbane on 1 October 1980. On 1 September 1986, Scott built a house on the land. At the time, the land was valued at $90,000 and the cost of construction was $60,000. The property has been rented out since construction was completed. On 1 March of the current tax year, Scott sold the property at auction for $800,000. Requirement: a) Based on the information above, determine Scott's net capital gain or net capital loss for the year ended 30 June of the current tax year. b) How would your answer to (a) differ if Scott sold the property to his daughter for $200,000? c) How would your answer to (a) differ if the owner of the property was a company instead of an individual?