Taxation: Responsive Regulation Essay


Discuss about the Taxation for Responsive Regulation.


1. Issue

According to the case study it is observed that mountaineer named Hillary is famous for her achievements, and thus, a news paper Daily terror offered her a huge payment of $10,000 her real story, how was her life style, how she achieved such a glory and what are the obstacles she had to face during the process of her mountaineering. She accepted the offer and wrote her life story herself without taking help from any ghost writer as it was one of the terms and conditions from the Daily Terror. She assigned the entire right, title along with the copyright for $ 10,000 to Daily Terror (Prince, 2013). Besides this she sold her story's manuscript to the Mitchell Library for $5,000, apart from this, she sold her photographs of mountain climbing for $2,000. The issue is whether all these three payments received by she are considered as income from personal exertion or not and in the case of she wrote her story for her satisfaction and then decide to sell it then what will be the tax consequences.


According to the Australian Taxation Act, income tax is one of the significant tax, which levies to the residents of the country according to their annual income. The application of income tax can differ by the nature of the income. As per the Income tax Act 1936 along with its amendment of 1997 personal exertion income include the income from salaries and wages, bonuses and commissions, fees, superannuation allowance, pension, retiring gratuities and retiring allowance (Woellner et al., 2016).


The application of the rule determines the income generated from the activities must be under the taxation law. Here in this particular case, it is observed that Hillary is not a full-time writer and writing was not her original profession. She wrote the story as the Daily Terror Newspaper pleads to her to write her story for them. Thus the income cannot be considered as income tax. The manuscript and her photographs are falls under capital gain tax (Yu, 2008). And in first case, her income from Daily Terror will be considered as ordinary income.


The income from Daily Terror and manuscript along with photographs all would be considered as capital gain income. In the case of she wrote her story for her satisfaction. As per the income tax act 1997, and section 26 AB,in the first case, of the case study will be assessable income. And rest of income may be considered as capital gain tax under section 1108-410.

2. Issue

In this case, the client is a mother who had lent her son an amount of $40,000 to help him with a short term housing loan. A verbal agreement was made between the mother and the son where it was agreed that the son would pay his mother an amount of $50,000 after five years. It should be noted that while giving the money there was no written agreement between the two parties and the son was also not asked to pay any security against the amount of money being borrowed by him. After two years the son returned the full amount of money to his mother along with an interest of 5 percent per annum on the amount of money borrowed by him. The whole amount of money was given to the client in a single check. The mother had not asked for any interest but still the son paid it. The question that comes in the scenario is the effect that the extra amount given by the son will have on the income of the client.


As per the Australian Taxation Law, assessable income of an individual is defined as the amount of money earned by that person, which can be taxed when the money earned by the individual is more than the tax-free threshold granted by the Australian Constitution (Mason, 2010). Assessable income of a person consists of salary, wages received by a person for the work done by him or her; dividends and incomes earned as a part of investments made, etc. (Parsons, 2011).


In this particular case, the loan given by the mother to her son cannot be considered as an investment as she did not want any interest on that. Therefore it is not an ordinary income of the client and not assessable. Moreover, the amount of interest paid by the sum is equal to 5 percent of $40,000 for two years which equivalates to a sum of $4,000. Now this amount of money is less than the threshold of assessable income as indicated by the Australian Taxation Office (Woellner, 2013). Therefore considering these two conditions the amount received by the mother will not be a part of her assessable income.


The extra amount of money given by the son to his mother is not an ordinary income of the client and also does not cross the threshold of assessable income. This is the reason why the sum of money will not have any effect on the assessable income of the client under section 10-1.

3. a)

According to the case study, it is observed that the accounting professional Scott had purchased a vacant block of land in Brisbane in October 1980. At the time of building the house, the value of the land stands at $90,000 as well as the construction cost is $60,000. After the completion of the house, he rented the property and as per the consideration of the current taxation, the Scott sold the property for $800,000 at auction. As Scott holds the profession of an accountant, he is seemed to be not involved in the development of the property (Robertson, 2008). Thus the income generated is seemed to be in the form of the ordinary income as per the law of taxation of ATO 1936 which must be considered as the capital gain and the deduction of tax should not take place in the form of capital gain tax.

According to Australian Taxation Law, income generated from the sale of the assets is considered as the capital gain under section 408. The person or the organization has to pay tax on the gains derived from the sale of the asset. The property would be considered as long term capital as it is purchased before three years. The capital gain tax was introduced in the year 1985, and thus transactions before 1980 should not apply to capital gain tax (Barker, 2005). In the given case study, Scott purchased vacant land as on October 1980, and the land value was $90,000, and construction cost was $60,000. The total value of the property was $150,000. The property after building houses was given to rent and income generated from rent would be considered as ordinary income. The property was sold at auction for an amount of $80,000s. Therefore, net earnings of Scott were $650,000, and it would be considered as assessable income. The capital gain tax would be calculated on $650,000 as per the Australian Taxation Law (Watson, Gleeson and Higgins, 2013).

Total value of the property = (Value of the land $90,000+ construction cost $60,000)

= $150,000.

The property sold for $ 800,000

Thus, Total Capital gain = ($ 800,000-$150,000) = $650,000 and it is assessable income.


In the given case study, Scott purchased a vacant land as on October 1st, 1980. In the year 1986, the value of the land was $90,000 and building cost was $60,000. The house was sold by Scott and capital gain tax was applicable on the sold amount. The capital gain is the amount of money earned by an individual from the selling of an asset. Capital gain tax is the tax charged on the income generated from the sale of the assets. Capital assets include land, building, machinery, patents, trademarks, property, etc. In the given case study, Scott would sell the property to his daughter at $2, 00,000. The capital gain tax would not be calculated on the selling price of the property because the capital gain tax is not applicable when a property is being inherited (Woellner, 2013). According to Australian taxation law, the property will be considered as a gift that would be exempted from capital gain tax. Therefore, the capital gain tax will not be calculated, and the asset would be considered as a gift.


If the owner of the property is the company rather than an individual, then the answer world a bit different which seemed to be directly dependent on the type of the company discussed. In this case study of the ordinary company, the property would be looked upon as the capital asset, and therefore the capital gain taxes are applied (Loffman, Presant and Rubin, 2008). The capital gain taxes will also be implemented on the individual if the case of the individual is considered. If the company is considered as the real estate company dealing with the selling and buying of the houses and the properties, then the company would not be charged with the capital gain taxes (WALLER, 2007). The reason for this is the in any real estate company, the selling and buying of the properties are the part of the ordinary income, and since it is ordinary income, then the tax would fall under the normal income tax.


Loffman, L., Presant, S. and Rubin, B. (2008). Tenth annual real estate tax forum. New York, NY: Practising Law Institute.

Robertson, P. (2008). Australian master tax guide 2008. Sydney: CCH Australia.

WALLER, V. (2007). The Challenge of Institutional Integrity in Responsive Regulation: Field Inspections by the Australian Taxation Office. Law & Policy, 29(1), pp.67-83.

Mason, T. (2010). Income tax law. Frenchs Forest, N.S.W.: Pearson Australia.

Parsons, R. (2011). Income taxation in Australia. Sydney: Law Book Co.

Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.

Barker, D. (2005). Essential Australian law. Sydney, N.S.W.: Cavendish.

Watson, J., Gleeson, J. and Higgins, R. (2013). Historical foundations of Australian law. Annandale, N.S.W.: Federation Press.

Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.

Prince, J. (2013). Tax for Australians for dummies. Milton, Qld.: Wiley Pub. Australia Pty Ltd.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. (2016). Australian Taxation Law 2016. Melbourne, Vic.: Oxford University Press.

Yu, Y. (2008). Determinants of variations in state per capita personal income: a panel data approach. Applied Economics Letters, 17(3), pp.235-239.

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