COMLAW 301 Taxation

Issues:

Is the taxpayer activity amounts to carrying on the business of acquiring personal property for the purpose of re-sale or whether the activities of taxpayer amounts to hobby?

Relevant Laws:

As per the CB 5 it mainly deals with the taxpayer that are in the business of dealing in property (Prebble, 2015). The common essential elements of CB 5 are as follows;

1. There is a sale of property
2. The taxpayer is in the business of dealing in property of that type
3. Majority of the property is sold as the part pof that business.

The meaning of business is given in “Grieve v CIR (1984)” where a business is defined as any kind of profession, trade, manufacturer or undertaking which is carried on with the objective of earning profit (Elliffe, 2018). Under the sec YA 1 a business normally involves the nature of activities and the ultimate intention of taxpayer to get indulge in that activity. A business needs an activity to be undertaken in a very organized and in a coherent manner which is directed with a reasonable chance of producing profit.

Application of relevant laws to case:

In the current circumstances it is found that Susan as a university student has started purchasing laptops that are in need of repair and sells them to the customers. She is also found to have advertised about her work on online platforms. With respect to the decision made in “Grieve v CIR (1984)”, it can be stated that the activities of Susan cannot be considered as an hobby rather the activities is falling within the purview of business given in sec YA 1 of the ITA 2007 (Sawyer, 2016).

Analysis:

The activities of Susan is falling under the CB 5 because she is involved in the business of dealing property and it is sold as the part of her business. The laptops are acquired by her with the objective of resale and to earn profit. The activities of Susan cannot be treated as hobby rather it is a business under sec YA 1 of the ITA 2007.

Issues:

Is the taxpayer activity of acquiring the shares will be considered as carrying on of a business under the CB 4?

Relevant Laws:

CB 4 deals with the personal property which is purchased for the purpose of sale. As per the CB 4 an amount which an individual obtains from disposing the personal property is treated as an income given that the property has been purchased with the ultimate objective of disposing it. The dominant purpose is considered important in determine the existence of business. As held in Plimmer v CIR (1958) the taxpayer did not bought the preference share with the objective of resale, even though it was the taxpayer’s intention (Sawyer, 2016). The dominant purpose of taxpayer was to purchase the company.

Similarly in case of “Williams Property Development Ltd v CIR (1980)” the contingent purpose of taxpayer might be considered as the dominant purpose under the CB 4 (Rankin, 2016). If an indivudal purchases a piece of land because he believes that the price will go up and later he would be able to derive profit from resale, then it appears open to consider it as resale at profit as his eventual purpose, despite the fact that his ability to meet that purpose is reliant on the contingency of increase in value.

Section CB 4 is largely applied in regard to transactions relating to shares. As all the shares are bought with the ultimate objective of resale, the law court have not adopted any literal interpretation (Marriott, 2016). The law court have understood that shares are bought with the objective of earning income or for the benefits of ownership. Shares that is held for that purpose will not be considered taxable under the CB 4 despite the fact that the taxpayer had bought the shares for selling it.

Application of Laws:

In the current circumstances Adam reports purchasing 15 parcel of shares and held them for the period of 6 months and 2 years. He is found to have made an investment of $12,000 which have increased the value of his capital by $5,000 and also made dividends of $2,000.

With regard to the decision given in “Williams Property Development Ltd v CIR (1980)” the contingent purpose of Adam was to hold property and this should be treated as the dominant purpose under the CB 4 (Evans & Krever, 2017). Adam bought the shares with the anticipation that its price would rise in future and then he will be able to produce profit from resale.

“McClelland v FCT (1970)”The shares that is bought by Adam cannot be considered taxable under the sec CB 4 of the ITA 2007. The shares were held by Adam for general investment purpose in order to produce return and for the benefits of ownership. Even though it is assumed that Adam contemplated to sell the shares but the shares held and dividends earned will not be taxable under CB 4.

The sale of land by Kwan Yin will be classified under the CB 4 as the personal property that was acquired for the purpose of disposal. The amount that is derived by Kwan Yin from selling the property will be treated as income from business under the sec YA 1 of the ITA 2007. This is because the property was purchased with the objective of reselling it.

CB 4 of the ITA 2007 deals with the passive acquisition of property (Rehm & Yang, 2020). As held in “McClelland v FCT (1970)” if an individual is provided with the item of personal property in the form of gift or inheritance, then it is not considered under this section because the taxpayer is not considered to have acquired the property in the initial place.

In the present circumstances, the sale of property by Kwan Yin will not be caught under the CB 4 of ITA 2007. Referring to “McClelland v FCT (1970)” the property was not brought by Kwan Yin in the initial place.

Reference:

Elliffe, C. (2018). International and cross-border taxation in New Zealand. Thomson Reuters.

Evans, C., & Krever, R. (2017). Taxing capital gains: a comparative analysis and lessons for New Zealand.

Marriott, L. (2016). Advancing better tax policy: the role of wealth taxes in New Zealand. Policy Quarterly, 12(3).

Prebble, Q. C. (2015). New Zealand Taxation and Taxation Law. Issues on Taxation in the South Pacific/Regards sur la Fiscalité dans le Pacifique Sud Comparative Law Journal of the Pacific Hors Série XVIII (2015), 99.

Rankin, K. (2016). Basic income as public equity: The New Zealand case. In Basic Income in Australia and New Zealand (pp. 29-51). Palgrave Macmillan, New York.

Rehm, M., & Yang, Y. (2020). Betting on capital gains: housing speculation in Auckland, New Zealand. International Journal of Housing Markets and Analysis.

Sawyer, A. (2016). Complexity of tax simplification: A New Zealand perspective. In The Complexity of Tax Simplification (pp. 110-132). Palgrave Macmillan, London.

Sawyer, A. (2016). Complexity of tax simplification: A New Zealand perspective. In The Complexity of Tax Simplification (pp. 110-132). Palgrave Macmillan, London.

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