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Taxation Law for Under Federal States


Describe about the Taxation Law for Under Federal States.


1. This question is about Hillary who is a well known mountain climber. He is offered a sum of $ 10, 000 by the Daily Terror Newspaper for her life story if she will assist in writing it. He therefore writes the story without the assistance of any ghost writer and for that reason he retains all the rights of any other professional writer who might have done the same. This earns him an interest of an estimated amount of $ 10, 000. She also sells her manuscript to Mitchell’s library and on the same note, she earns $ 5,000 and $ 2000 which is paid courtesy of the several photographs that he took while climbing the mountain (Black 2002).

Discussion on whether or not the three payments are income from personal exertion

According to the Income Tax Assessment Act of 1936 under section 6, personal exertion is defined as the money that an individual earns inform of either wages, salaries, bonuses, commissions, pensions, allowances and even gratitude on the service rendered. According to the subject Act, it can be deduced that for the three payments made to Hillary, they are of personal exertion income. The first concept of justification is that on the $ 10, 000 which he earns on top of the initial proposed $ 10, 000 by the Daily Terror Newspaper because he has used his own personal effort without the help of any ghost writer to write his story (Cheah 2006).

On the same note, she sells the unpublished story inform of manuscript to Mitchell’s library for a sum of $ 5,000. All these are based on her personal efforts and earn an additional $ 2000 on the photograph she took while climbing the mountain. I therefore conclude the first part of question one that, the income earned by Hillary is on the basis of personal exertion. If in any case the money was to be deducted, then that would have been the case where we would have analyzed the task with reference to the Income Tax Assessment Act of 1997 under section 8-1.

Whether my answer would differ if she wrote the story for her own satisfaction and made a decision to sell it later

My answer would not have differed because the provisions that would have still been in control are on the Income Tax Assessment Act of 1936 under section 6. Hilary was still going to sell something that she applied her personal effort to achieve (Hacker, Mason & Morgan 2007). The only difference is that she wrote the story for her own satisfaction which is not relevant to this particular taxable law case. The major concerned is on the income earned from the selling of the writings.

2. The second question is about my client who is considered a parent who had lent his son a sum of $ 40,000 in order to offer a short term housing loan. The agreement was for the son to take back $ 50, 000 at the elapse of five years.  The question is supposed to be tackled with the view of the following consideration; that the loan was made to the son without any formal agreement. The client has also confirmed that she advised the son not to pay back the loan with interest but the son paid back the loan with an interest (Hopkins & Blazek 2003).

Discussion on the effects of assessable income of the parent

Assessable income with regards to this concept is in the income which is supposed to undergo taxation provided the amount of money that is earned is enough to exceed the tax free threshold. In most cases, assessable income is usually in the form of salary and wages, interest from bank accounts and even dividends. According to the Income Tax Assessment Act of 1997; the effect on the assessable income of the parent is in line with chapter 2 of the subject Act under liability rules and general application.

The same is also covered under division 15 the second part of the chapter n question. The first effect of the subject is that it covers both the exact amount of money refunded to the parent and also the interest. This is because, in calculation of the assessable income of the parent, we must put into consideration the amount of money that is received in the ordinary course. The ordinary course in this situation is about the amount of money that would have been paid back by the client’s son in normal circumstances without including any interest (Indiana 2003). After that, the interest also plays a major role because it will have to be included in the end of calculation and the inclusion will take the format of addition.

The second effect of the assessable income of the parent is that, the income is likely to undergo taxation that will reduce the final amount of money given to the parent by the mother. It is argued by great intellects within the taxation law field that; in working the assessable income, a formula of assessable income= taxable income + allowable deductions is adopted. This case therefore proves that for the aspect of taxation to be realized at any level; then either the actual loan that the client (mother of the son loaned) lent to the son is taxed before any interest is added. This proves the likelihood of a depreciation effect with regards to the total amount of money that the mother of the son will receive in the end.

The final effect with regards to the above question is that the assessable income of the mother is that her money may remain the same without being altered especially when there are no deductions to be made. The Income Tax Assessment Act of 1997 provides for provisions that outline cases where one can be exempted from both taxation and any form of deduction. It is at this level where we bring the reconsiderations that were mentioned in the question in context, that the loan which was made to the son had no formal agreement and no collateral was also offered to act as loan security. This shows that the loan was offered under friendly or domestic basis and therefore the ITAA of 1997 provisions should make considerations under section 8-1.

On the same note, the question goes further that the additional amount of money that was provided by the son to the mother was not within the agreement and therefore it was out of the son’s good will. The further explanation in the previous sentence affirms the message of the latter sentence since they share the same objective. This particular effect can thus come into picture if we cover a wider perspective of the mother’s assessable income and the circumstances. I therefore conclude the subject question with the view of the three effects as explained in detailed perspective (Law Institute of Victoria & Queensland Law Society 2010).

3. This particular question is about one Scott who is an accountant who made purchase of a vacant block of land in Brisbane on 1st October 1980. In 1986 on 1st September, Scott built his house in the purchased land. The value of the land at that time was valued at about $ 90,000 and the construction cost was estimated to be $ 60,000. The subject property is believed to have been rented out at the moment of completion of the construction (Macfarlane & Fisher 2006). The question ends by mentioning that on 1st of March of the current tax year, Scott made a decision of selling the property at auction for a sum of $ 800,000.

Determination of Scott’s net capital gain

Net capital gain = total capital gains of the current year in question- total losses including any net capital losses of the previous year if exist any- capital gain tax if also exist.

Therefore total capital gains of the year in question= $ 800,000

 Total losses will be viewed in terms of the expenses used by Scott first in purchasing the vacant block and the cost of construction.

Net Capital gain = $ 800, 000- ($ 90, 000+ $ 60, 000).

= $ 80, 000 - $ 150, 000

Net capital gain is therefore = $ 650, 000.

How the answer in (a) would differ if Scott would have sold the land to his daughter for $ 200,000

My answer would differ in terms of the value of the net capital gain since in this scenario; there is no net capital loss. The previous expenses incurred were still below the final auction price. The difference would be as illustrated below.

Net capital gain = $ 200,000- ($ 90,000 + $ 60, 000)

= $ 200,000- $ 150,000= $ 50, 000

The difference as shown is therefore in terms of the value of the net capital gain. The first calculation in ‘a’ was $ 650, 000 and in ‘b’ it was $ 50, 000.

How my answer to (a) differ in case the owner of the property was a company not an individual

There would be great difference if the owner of the property was a company but not an individual, because the net capital gain would have been divided with reference to the company policy of shares. An individual company owner is likely to pocket all the net capital gain but in the case of the company, the money is divided according to shares held by partners (Niederman, Kundu & Salas 2010).


Black, H. C. (2002). A treatise on the law of income taxation under federal and state laws. Union, N.J, Lawbook Exchange.

Cheah, P. (2006). Thinking through the body of the law. New York, New York Univ. Press.

Hacker, K. L., Mason, S. M., & Morgan, E. L. (2007). Digital Disempowerment.

Hopkins, B. R., & Blazek, J. (2003). Private foundations: tax law and compliance. Hoboken, N.J., J. Wiley & Sons.

Indiana. (2003). Effects of increasing the taxable wage base under the Indiana Unemployment Insurance law: summary of a study. Indianapolis, Indiana Employment Security Division.

Law Institute of Victoria, & Queensland Law Society. (2010). Law Institute journal: the official organ of the Law Institute of Victoria. Melbourne, Stead's Pty. Ltd.

Macfarlane, P., & Fisher, S. (2006). Churches, clergy and the law. Sydney, Federation Press.

Niederman, F., Kundu, S., & Salas, S. (2010). IT Software Development Off shoring.


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