Accounting: Taxation Law Essay

Questions:

(1). Hilary is a well-known mountain climber. The Daily Terror newspaper offers her $10,000 for her life story, if she will write it. Without the assistance of a ghost writer, she writes a story and assigns all her right, title and interest in the copyright for $10,000 to the Daily Terror. The story is published and she is paid. She has never written a story before. She also sells the manuscript to the Mitchell Library for $5,000 and several photographs that she took while mountain climbing for which she receives $2,000.

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?
(2). 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.

Answers:

(1).

Hilary is a very famous for her mountain climbing skills and was known to be a good mountain climber. A newspaper named as daily terror offers her $10000 for her life story and the way she has spent her life if she will pen down on the paper. Without the help of anybody she writes down everything and assigns all her interests, rights, copyright for $10000 to the daily terror magazine. Later the story was published in the newspaper and she was paid. Before this she had never written a story before. Later on she sells the manuscripts to the library for $5000 and several photographs she took for some money

With respect to the due case, this case is ruled by section 115A of income tax act, any royalty received from any person resident outside India would be taxed @10%. Where royalty in consideration is transferred to any other person he will be taxed at the above rate. It won’t be consider as payments from personal exertion as they have aroused from her own skills and talent

If she would have written it for her own satisfaction and decided to sell later, the answer would be the same as she is selling her copyrights to a person. It would be the same.

(2).

The client who is parent to a child has lent $40000 to her son to provide short-term housing loan .The agreement said that her son needs to repay $50000 at the end of five years. The loan was granted to her so n without any formal agreement and no mortgage or security was taken against it. The mother (client) has told her son of not to give any interest. Later on the son has repaid the amount in full after two years and also lent his mother an additional amount of 5% of the sum borrowed that is $40000 and this was transacted through one cheese.

In this case the income of mother will be chargeable under the head other income from other sources, the maximum of interest amount received from granting loan to her son. The client has granted $40000 to her son on which she got $2000 as interest. $2000 will be treated as income from other sources and will be chargeable to tax to the client. Any repayment of capital is not taxable. Only the interest part is taxable that is received by the mother. On your tax return you have to give the amount of interest received in a particular tax year. If the child would be a minor and he would have gained something from the loan given then the income arising from that would be chargeable to any on the parent whose income would have been higher.

Reference

CGT exemptions, rollovers and concessions | Australian Taxation Office. 2016. CGT exemptions, rollovers and concessions | Australian Taxation Office .

INCOME TAX ASSESSMENT ACT 1997 . 2016. INCOME TAX ASSESSMENT ACT 1997 .

The taxation of capital gains . 2016. The taxation of capital gains .

Personal services income | Australian Taxation Office . 2016. Personal services income | Australian Taxation Office .

INCOME TAX ASSESSMENT ACT 1936 - SECT 6 Interpretation . 2016. INCOME TAX ASSESSMENT ACT 1936 - SECT 6 Interpretation .

Resident or non-resident? . 2016. Resident or non-resident? .

ATO Tax Calculator: 2015-2016 Tax Rates. 2016. ATO Tax Calculator: 2015-2016 Tax Rates.

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