Free Essay

Tax Law

In: Business and Management

Submitted By ELLEAL
Words 2902
Pages 12
Question 1
Michael Jones and his family reside on a small farm on the Mornington Peninsula outside Melbourne. Michael purchased the farm in 1984, and over the years developed the property into a successful dairy farm.
In September 2013, during a routine ‘controlled burn’ operation carried out by the Country Fire Authority, the fire got out of control and burned a significant part of the Jones’ property. The fire damaged fences, sheds and water tanks and also killed 25 dairy cows, as a result of which, Michael lodged a claim for $250,000 against the Country Fire Authority. Preferring to avoid bad publicity, the Country Fire Authority agreed to settle Michael’s claim for a lump sum of $200,000, which Michael accepted on 15 December 2013.
As a result of this experience, Michael and his family decided to give up farming and move to the city. He sold his remaining cows and dairy equipment to his neighbour for $140,000 and put the farm on the market for $2.5 million.
Despite much advertising, Michael received no offers for the property. On the advice of a friend in the real estate industry, Michael decided to subdivide and develop the property. To this end, he engaged surveyors, town planning consultants and lawyers to bring about a change in the zoning of the property. Having obtained permission from Council, he set about subdividing the property into 100 residential blocks and organized the water supply to each block. He then arranged the provision of roads, electricity, sewerage and other essential services, and organized extensive marketing of the properties in the local press and media.
By 30 June 2014, Michael had sold 60 of the 100 residential blocks for an average price of $300,000 each. A further 10 blocks were compulsorily acquired by the government at a cost of $350,000 each.
Required:
Advise Michael about the likely tax consequences of all of the above transactions, citing all relevant legislation and case law to support your answer.

* The lump sum of $200,000 is business compensation as Michael is carrying on a farming business [Ferguson]. * The compensation takes the character of what is being compensated [Dixon]. The lumps sum is a composite and undissected amount including for fences and sheds etc. which are profit making structure [California Oil; Glenboig] and for cow as a trading stock [Wade], the whole amount is treated as capital receipt [McLarin]. * Under CGT legislation, the end of these assets are categorised as C1 event [s 104-20], and the time of this event occurs is when Michael settle the claim on 15/12/13. The asset is a general CGT asset [s 108-5] and not in exemption. He makes a capital gain or loss depending on the cost of the asset. * The sale of cows-trading stocks [Wade] is normal proceeds of business [GP international], and thus is ordinary income [s 6-5, Brent]. The sale of dairy equipment is a depreciating asset which has limited life and depreciating over time [s 40-30] that Michael held [s 40-25]. Therefore, the transaction triggers balancing adjustment [s40-295] as the disposal of depreciating asset [s 40-25(7)]. If the termination value > adjustable value the difference is included in assessable income, and if not the diff included in deductions. * The sale of residential blocks forms extraordinary/isolated transactions which are not normal proceeds of business of farming. The development of farm land forms business activity itself [Whitfords Beach; California copper] because first, Michael substantially involved in the development and town planning and zoning, further, he organised water supply for the blocks and arranged road electricity and other services, he also organised marketing activities. Moreover, the development is extensive which included the entire farm. * Also under Myer strand one [Myer], the transaction is also business transaction as the sale of developed land, he had a profit intention when he decided to develop the farm [Cooling; August]; and the profit made matches his intention to develop and sell the land [Westfield]. * In conclusion, the sale of land blocks including 60 blocks for $300,000 each and sales to government of $350,000 each for 10 blocks is the normal proceeds of the business and is ordinary income and will be assessed under [s6-5, Brent]. It does not matter whether the government or other buyer acquires the land.

(If argue the capital) – Mere realisation of asset [Statham]: not extensive enough; and not enough self-involvement [Whitfords Beach]. Also argue for Myer two strands are not satisfied. Then because the land was acquired in 1984 before 20/09/1985, it is a pre-CGT asset and the land is exempt asset, however, the proceeds would be assessed under s15-15 as the profit made from profit-making undertaking or plan.

Question 2
Part A: Qantas domestic airfares include meal and other services for $110
Qantas is making a taxable supply of a domestic airfare [s 9-5] because the supply is the airfare service [s9-10; Qantas airway], with consideration of money [s9-15], it is made in the course of Qantas enterprise [s9-20] within Australia [s9-25], and Qantas is registered for GST [s23-5], also the supply is not GST-free [DIV 38] or input taxed [Div 40]. The supply is a composite supply that treated as a single supply, and the dominant part which is the airfare determining the GST consequence. (If mixed supply: s9-80). The value of the airfare is $100 [s 9-75] and GST is $10 [s 9-70].

Part B: Mercedes case
Manufacturer’s recommended price is a taxable supply as it is a supply of car [s9-10] with consideration of money [s9-15], is in form of retail business [s9-20] in Australia [s9-25], and Mercedes is registered for GST [s23-5]. Same applies to maximum dealer delivery. None of rest is taxable supply. The price $79240 of the car incl. GST [s9-40] and the value of the car 10/11 of the price which is *** [s9-75] and GST amount is 10% of the value which is ** [s9-70].
Advise Mercedes of a trade of $9240

Supply: New Car $79240 inc.gst

Customer
Mercedes

Consideration: Cash + old car$9240

Mercedes acquired the old car from customer. The acquisition is relating to carrying on a retail enterprise [s 11-15], and not a GST free or input taxed supply; the consideration is the new car to the customer [s9-15]; Mecedes make taxable supply of new car; however, the private customer is not registered for GST [s 9-5] so the customer is not making a taxable supply. Therefore, the acquisition is not a creditable acquisition [s11-5].

Question 3
Volkscar is an international motor vehicle manufacturer, with offices, manufacturing and distribution outlets in Australia. Volkscar produces and sells in Australia a car model called the ‘Journey’. The Journey has been one of the highest selling product lines in Australia.
On 1 March 2014, Anderson, an owner of the Volkcar Journey experienced technical difficulties with the vehicle while driving on a major Melbourne freeway. Anderson’s vehicle experienced rapid loss of power and loss of driver control. Anderson’s vehicle was the source of a major accident on the freeway, where two other vehicles collided with Anderson’s car when it suddenly stopped. At the risk of reputation damage, Volkscar immediately responded by placing an advertisement in all national newspapers defending the allegations. These advertisements cost $1,300,000 and were ordered on 1 April 2014.
The investigation uncovered that Volkscar was using a faulty gearbox in the Journey. Lobby groups called for the owners of Volkscar to be held personally responsible for the death of Anderson. Volkscar incurred legal fees in the amount of $44,000 for the defence of their owners from the potential prosecution charges.
In an attempt to maintain a revenue stream, in return for 10% of net sales of vehicles sold, Volkscar assigned the right for another car manufacturer to take over production and sale of the Journey vehicle. The revenue received from this assignment was paid directly to Volkscar’s owners and Volkscar described the payment as a ‘salary’ in its financial accounts. Volkscar annual staff salary costs the 2013/14 income year is $3 million, of which $250,000 was paid on 2 July 2014.
Required:
Advise Volkscar about the likely income tax consequences of all of the above transactions, citing all relevant legislation and case law to support your answer. * The advertisement cost of $1.3 million is an outgoing of the business and therefore, incurred in gaining assessable income [ss8-1]. However, in assessing the negative limb, as the expense can be capital in nature because it is used to defend Volkscar’s reputation. Following Sun Newspaper test, firstly, the expense is creating lasting benefit as in long term reputation; secondly, the benefit in regarding reputation that Volkscar can relyon once for all; and lastly, Volkscar pays the amount as a lump sum, and in conclusion the expense satisfies the negative limb of capital in nature [s8-1(2)(a)]. Therefore, the expense is more likely to establish a business structure and not deductible under s8-1. However, it may be deductible under Blackhole provision [Div 40I: s 40-880] that can be deducted in equal proportions over five years [s40-880(2)]. * The legal fee of $44,000 is a outgoing of the business, but the expense is not incurred in gaining assessable income [s8-1(1)(a)]. However, the nexus test of occasion of the expenditure test [Payne; Day; Magna Alloys] provided that legal expense is necessarily incurred in carrying on a business [s8-1(1)(b)], it is for Volkscar to determine whether the legal expense is necessary to the expense. * The 10% net sales forms a royalty to Volkscar [McCauley], and the physical payment goes to the business owner which forms the constructive income. In this case, Volkscar is still assessed regarding this sale [s6-5(4); Federal Coke]. Since Volkscar derive the royalty to the owners as salary expense which is outgoing to be incurred in gaining assessable income [8-1(1)(a)], it is not a capital expense as it is a temporary benefit and recurrent payment [sun newspapyer], not a private or domestic expense or incurred producing exempt/non-assessable income [s8-1(2)]. Therefore, it is deductible under s8-1. If the payment is unreasonable higher than what the normal amount should be, it forms excessive payment and the deduction maybe limited by commissioner [s109 ITAA36; S26-35].
VolksCar
Revenue Stream:Royalty(McCauley)
Car
Customer
New Manufacture

Reality - payment
Money

Salary: Constructive income

Business Owners

* The $250,000 from the $3million is not paid until 2/7/14, however, Volkscar has commit to this expense and is already occurred in 2013-14 income year, and does not have to be paid in that year [Nielsen Development; James Flood].

Question 4
Part A - June Shields is an economist and employed by UAS Ltd, a prominent investment banking firm based in Melbourne, Victoria. She sold an investment property on 1 September 2013 to her son for $350,000. The market value at the time was $500,000.
The property was purchased on 1 May 1985 for $20,000. At the time, it was a vacant block of land. On 1 June 1990, June built a house on the property at a cost of $220,000. It has been rented out since completion. At the time of completion of the building, the land was valued at $200,000. On 1 October 2011, June repaired the floor boards of the property. The repair cost $3,000. Rent received for the 2013/14 income tax year is $20,000.
Required:
Advise June of the income tax consequences arising from the above. * The sale of investment property constitutes a CGT event A1: disposal of CGT asset [s104-5]. The property is a CGT asset [s108-5]. As building is not depreciating asset [s40-45], it is not exempted under CGT. Although the sale to her son is only $350,000, the market substitution rule [s116-30] applies since the transaction is not dealt at arm length with the buyer. Thus the proceeds are deemed to be $500,000 [Spencer]. * The land was purchased before 20/09/1985 and the building was constructed after the date, therefore, the land is a separate CGT asset and pre-CGT land is exempt asset [s108-55]. As a result, apportionment rule [s116-40] applies as the proceeds are received in connection with a transaction that in relation to above assets. | Amount | % | Land value: 1/6/1990 | $200,000 | | Building value :1/6/1990 | $220,000 | 52.38% | Total Value | $420,000 | |
As a result the capital proceeds [s116-20] = $500,000 × 52.38% = $261,900 * Obviously the capital is held more 12 months and acquired before 21/9/1999, both indexation [subdiv 960M] and discount methods [s115-5] are available. Repair cost is not included in cost as it is deductible under s25-10 [ss110-40(2)~110-45(1B)]. | Indexation | Discount | Capital Proceeds [s116-20] | $261,900 | $261,900 | Indexed cost base [s110-25]: 68.7÷57.1=1.2031.203 × $220,000= | ($264,660) | | Cost base [s-110-25] | | $220,000 | Nominal gain | N/A | $41,900 | Less 50% discount | N/A | ($20,950) | | ($2,760) | $20,950 |
Indexation method is recommended as it produces less gain, and because there is no gain under this method, capital loss is calculated with reduced cost base [s110-55: $220,000 - $261,900 = ($41,900). As the result, the capital proceeds are less than the cost base but more than reduced cost base, there is no capital gain or capital loss [s100-45(7)]. * $20,000 rent income flows from the investment property and constitutes ordinary [s6-5; Adelaide fruit], and $3,000 repair can be deducted under s8-1 as it is incurred to produce rent income, however, specific deduction s25-10 is more appropriate to capture this deduction [s8-10] from the ordinary income.

Part B - During the 2013/14 tax year, Ken Moore, a share trader disposed of the following assets: * A rare postage stamp from Ken’s stamp collection for a selling price of $1,000. He had originally acquired the stamp in September 1997 at a cost of $550 (this was the market value of the stamp at the time of purchase); * A painting for a selling price of $10,000. The painting was originally purchased by Ken in March 1990 at a cost of $12,000; * A yacht for a selling price of $22,000. Ken had originally acquired the yacht in May 1994 at a cost of $31,000 for his own personal use; * A parcel of 10,000 Qantas shares for $10,000. Ken had purchased the shares less than 2 months ago for $9,500; * A computer for $1,000 on 30 June 2014. The computer was purchased on 1 July 2013 for $2,500 and had an effective life of 4 years.
Additional information: * Ken Moore also has a carry forward capital loss of $15,000 from the 2010/2011 tax year.
Required:
Advise Ken of the income tax consequences arising from the above. * All assets are considered under CGT A1 event [s104-5] as Ken disposed those assets. The stamp and painting are collectible [s108-10(2)], sale of Qantas share is normal business proceeds as Ken is a share trader, and the computer is depreciating asset [s40-30(1)] which is exempt from CGT [s118-24(1)]. * The stamp > $500. Held for more than 12 months and acquired pre 09/1999, both indexation [subdiv 960M] and discount methods [s115-5] are available. Option 1: Indexation Method | Amount | Capital Proceeds (s116-20) | $1,000 | Less Indexed Cost Base (s110-25):(68.7/66.6)=1.0321.032×$550= | $(567) | Capital Gain | $433 | Option 2 | Amount | Capital Proceeds (s116-20) | $1,000 | Less Cost Base (s110-25) | $(550) | Nominal Gain | $450 |
Capital gains of $433 is selected as producing less gains * The painting > $500, sold as loss: | Amount | Capital proceeds [s116-20] | $10,000 | Less Reduced cost base [s110-55] | ($12,000) | Capital loss [s104-10] | $2,000 |

* Collectable Net Capital Gains/Loss: | Option 1 | Option 2 | Gain from rare postage stamp | $433 | $450 | Loss from painting collectible | $(2,000) | $(2,000) | Capital Loss – Carry Forward | $1,567 | $1,550 | Capital Loss | Amount | Capital Proceeds (s116-20) | $22,000 | Less Reduced Cost Base (s110-55) | $(31,000) | Capital Loss (s108-20(1) – Disregarded | $9,000 | * Yacht > $10,000

* Shares Qantas shares | Amount | Sale proceeds: ordinary income (s 6-5) | $10,000 | Purchase: general deduction (s 8-1) | $(9,500) |
As Ken is a share trader thus the share is his trading stock [Wade] and treated revenue assets [GP international].

* Computer
Decline in value – Prime cost method: $2,500 x 365/365 x 200%/4 = $1,250
Closing adjustable value: $2,500 - $1,250 = $1,250
Balancing adjustment [s 40-285]: Termination value of $1,000 less < Adjustable value of $1,250, therefore $250 is deductible. * The prior year capital loss of $15,000 can be carried forward as it is not applicable in this income year. The collectible capital loss can only offset collectible capital gains in future years due to the quarantining rule.

Similar Documents

Premium Essay

Tax Laws

...Professor Emanovsky Econ 2015 Should Tax Laws be Reformed to Encourage Savings? What defines a nation’s way of life and standard for living depends entirely on its ability to function economically. In addition, the rate at which a country saves is the key to determining its prosperity from a long term perspective. More businesses with more facilities and more equipment equal a greater degree of productivity and greater income for employees. This formula transfers to show greater income for consumers and proves clear relationships between national saving rates and terms in which we measure economic well-being. In addition to the large scale national example, there is also an obvious connection between increased savings and families who are able to overcome financial obstacles and decrease overhead. For the average consumer, financial security means little to no debt, increased credit, increased education, home ownership and retirement options. In a perfect world, people would benefit directly and completely from their hard work and efforts to better themselves and their lifestyles. Nearly every American, and non-American for that matter, believes that if they work hard enough and save enough money, they will have opportunities to move upwards on the social economic ladder. The potential for a better future is the primary reason for most Americans to even attempt to save money in the first place. Unfortunately, current policies that support the achievement of such goals......

Words: 1294 - Pages: 6

Free Essay

International Tax Law

...United States company but based out of Germany and there is a problem that needs addressed. You will need a complete management staff on the ground in Germany to oversee any problems. Depending on the situation it could require you to go on location which could take you a few days to get there as opposed to a local based company that you could be within a few hours from. This location in Germany does have a few benefits for online companies. It is centrally located to where shipments could ship faster across the world. Customers would receive products faster and that would increase overall satisfaction. Taxes will need to be considered in Germany. There are several pages of tax law that would need to be analyzed by a legal team to make sure the company pays all appropriate taxes and receives certain tax breaks they qualify for. Germany is known for high taxes and it would all depend on how they vary compared to being based in the U.S. Being an online company the language barrier should not be too much of an issue. There are programs for online stores to use to simply select the language of choice while shopping online. However, when dealing with the local government the company will need a spokesperson that is fluent in German. This will be another position the company will have to pay for and most translators for business purposes receive a very good paycheck. Germany’s business policies could vary greatly from those in the U.S. The hours allowed to...

Words: 415 - Pages: 2

Premium Essay

Tax Law

...Question 1 Is the payment of $45,000 over 12 months to the owner of the new building is classified as an ordinary assessable income? Assessable income is defined as consisting of ordinary income and statutory income, but does not include ordinary income or statutory income which is exempt income or non-assessable non-exempt income (S6-1,S6-15 ITAA97) The money $45,000 over the next 12 months received by the new owner of the new building is held to be an ordinary assessable income as it can be explained in lease incentives where it is found to be their business activities. This can be explained in the case of FC of T v Cooling 90 ATC 4472 where the court held that the payment received by the land lord are assessable as they induce the client to move to new business premises, these payments are also found to be received in the ordinary cause of their business activities. Under Section 15.7 Income from property , Section 15.2 the flow concept is used to support section 15.7 where the money received from the exploitation of the asset is ordinary income in nature which relates to the fruit and tree metaphor. This can be explained in the case of Adelaide fruit and produce exchange Co Ltd v DFC of T (1932) 2 ATD 1. The rent received by the lessor from the lease of property is income where the fruit is the rent and the tree is the asset which relates to the fruit and tree metaphor. In conclusion, the amount of money $45,000 over the 12 months received by the land lord is ordinary...

Words: 1971 - Pages: 8

Premium Essay

Tax Law

...There are many differences between the tax system in Australia and the tax system in the United States. In Australia, the government provides a payment to the families to support raising children, whereas in the US, the government allows exemptions to reduce taxable income to save on taxes. Both systems have the same fundamental idea, however their approach to it is quite different. Both governments support individuals who engage in certain activities: from taking care of children to investing in companies, the government takes an active role in helping to alleviate the costs of doing such things. The government financially rewards for those who take part in supporting the economy. This is only one of several other ways in which the government puts money back into the taxpayer’s pocket. In Australia, the government also supports those with dependent children. Rather than having exemptions on the income tax return to decrease taxable income and save more money, the government issues payments to families that meet the criteria. This benefit is known as the family tax benefit. There are two different family tax benefits that families can benefit from. There is a family tax benefit part A, and a family tax benefit part B. The family tax benefit part A is much like the exemptions allowed in the United States in that the taxpayer will have more money if they meet the conditions of a dependent child. The family tax benefit part A is designed to help families......

Words: 1326 - Pages: 6

Premium Essay

Tax Law

...a partnership and unless it is a company. An income from office can be from an individual or income from employment. The history goes back to 1918 when Public offices and employment were charged and income tax law does not define its terminology it leaves it open so that everyone could fit in. 1922 they transferred employment charges from schedule D to E. However it does not matter under which schedule you are charged 1956 Act charged income from all employment in schedule E and our law today charges from sources of income under part II of the Act, and this is a very important part because it affects you and imposes taxes on all incomes. Part – II is actually called imposition of tax and they base it on all income the most famous section 2(1) Income tax does not know citizenship whether you are an Australian you can be liable to Kenyan income tax. Income tax is chargeable on an annual basis and it is taxed separately independently, and it is upon income it is not from anything else. But if you look at the section of the Act there is no definition of income and yet that is what you pay tax on. You are required to pay tax as a resident and not as a Kenyan. Section 3 (2); What is income? They don’t tell you but they tell you “ income upon which tax is chargeable” subsection 2 says, “gains and profits from the following: a) business for whatever period of time carried” even if you carry business for half a day in a year you will be taxed on......

Words: 2103 - Pages: 9

Premium Essay

Tax Law

...Tax Law and Accounting Craig ACC 483 June 21, 2010 Jeff Hough Modern taxation comes from a long history of changes in the United States beginning with the Revenue Act of 1861 that was designed to assist with funding the Civil War. This tax was repealed 10 years later. “In 1894 Congress enacted a flat rate federal income tax, which was ruled unconstitutional the following year by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state” (Terrell, 2009, History of Tax Law, para. 2). In 1913, the Sixteenth Amendment enacted modern day federal income tax in the United States. Before 1913, the federal government relied on customs duties and excise taxes as its source of income. As America developed the U.S. government needed additional income to sustain its operations. The Sixteenth Amendment consisted of just one sentence: “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration” (Pope, Anderson, & Kramer, 2010, p. 1-3). The implementation of income tax remains one of the most remarkable institutions created in this era. Modern Income Tax Statutes The primary objective of modern tax statutes is to generate revenue to sustain governmental operations. The largest source of federal revenues is individual income taxes. Other sources come from corporate income taxes and......

Words: 1146 - Pages: 5

Premium Essay

Tax Laws and Accounting

...Tax Law and Accounting University of Phoenix/ACCT 483 July 20, 2009 Tax Law and Accounting The history and time line of federal, state, and local tax systems within the United States follows events in history that have shaped the current tax laws of today. Today the law is almost inconceivable with so many interpretations and loopholes. In today’s business world not only are companies governed by federal income tax laws, but also accounting guideline established by the national framework of generally accepted accounting principles (GAAP). Due to the complexity of the guidelines and tax laws, many questions arise with regard to the interpretations. Taxpayers may ask are the practices used to reduce taxes, tax avoidance, or tax evasion. History of Income Tax Income taxes can be traced through history, in colonial times; individual taxpayers had nothing to do with the federal taxing authorities. The government, instead, received income from excise taxes, tariffs, and custom duties. Prior to the Revolutionary War, colonies held more responsibility; therefore, needing greater access to revenues. Post Revolutionary War, in 1781, the Articles of Confederation was adopted. The article gave full rights to each State as an entity allowing the state to levy tax as each state saw fit. The idea of central government was still strongly rejected [ (Unknown, n.d.) ]. In 1789, the Constitution was adopted. At this time in history, the governing powers recognized that a need for......

Words: 1448 - Pages: 6

Premium Essay

Tax Law

...method under ITAA 97 s28-25. calculated as blow: 60×0.74=$44 (*) *Div 28, cents per km method, Travel between two separate work places if two places of employment. From http://www.ato.gov.au, it is 74 cents per km. D3, Work related uniform, occupation specific or protective clothing, laundry and dry cleaning expenses The $330 of sport clothes (tracksuit and running shoes) cannot be deducted, because under Subdivision 34-B ITAA 97, it restricts deductions for non-compulsory uniforms. AAT Case [2006] AATA 100. Medical expense offset Cynthia spends on prescription reading glasses. Base on ITAA97 s13-1 and ITAA36 s159P, that is medical expense. While the amount is not over $1500 threshold, she can not get 20% tax offset. So, $400 is disregard. D5, Other work related expenses (1) Stationery fee $45 Base on ITAA97 s 8 -1(1), as Cynthia only has the $45 receipt, even though the stationery is $120 totally, only the $45 is deductible. AEU $656 Under TR 95/14 paragrah225 and ITAA97s8-1, the union fee can be deducted and indicates an essential connection with her work. D8, Gifts or donations According to ITAA97 Division 30, student is not deductible gift recipient. So the $75 textbook gived to a student as a...

Words: 783 - Pages: 4

Premium Essay

Tax Law Components

...Internal Revenue Code provides the framework for the federal tax system, and serves as the foundation for all other components of the tax law. The IRC provides the ultimate authority when it comes to income taxes. This is because the IRC reflects the original statutes that Congress passes and the president signs into law. However, because the IRC often includes very broad tax principles and is riddled with technical legal terminology, it doesn't always provide much guidance to the average taxpayer. This is why Congress authorizes the Department of the Treasury to provide further explanations of the law with Treasury regulations. Treasury Regulations The Treasury Department drafts numerous regulations for each code section that explain the tax law in more detail and with examples. However, the Treasury has no authority to create new tax law and must always interpret the IRC with Congress' original intentions in mind. But in terms of tax law hierarchy, you can think of these Treasury regulations as second in command. Essentially, the regulations have substantial authority, but in cases where a regulation conflicts or misinterprets a code section, the courts must step in and decide on what Congress' intentions are. The federal court system is a vital component of the federal tax laws. Federal courts only intervene when there is a dispute between a taxpayer and the IRS as to how a tax law should be interpreted. For example, suppose you own a......

Words: 420 - Pages: 2

Premium Essay

Fedral Tax Law

...CHAPTER 1 UNDERSTANDING AND WORKING WITH THE FEDERAL TAX LAW SOLUTIONS TO PROBLEM MATERIALS DISCUSSION QUESTIONS 1. (LO 1) When enacting tax legislation, Congress often is guided by the concept of revenue neutrality so that any changes neither increase nor decrease the net revenues raised under the prior rules. Revenue neutrality does not mean that any one taxpayer’s tax liability remains the same. Since this liability depends upon the circumstances involved, one taxpayer’s increased tax liability could be another’s tax saving. Revenue-neutral tax reform does not reduce deficits, but at least it does not aggravate the problem. 2. (LO 2) Economic, social, equity, and political factors play a significant role in the formulation of tax laws. Furthermore, the IRS and the courts have had impacts on the evolution of tax laws. For example, control of the economy has been an important economic consideration in passing a number of laws (e.g., rapid depreciation, changes in tax rates). 3. (LO 2) The tax law encourages technological progress by allowing immediate (or accelerated) deductions and tax credits for research and development expenditures. 4. (LO 2) Saving leads to capital formation and thus makes funds available to finance home construction and industrial expansion. For example, the tax laws provide incentives to encourage savings by giving private retirement plans preferential treatment. 5. (LO 2) a. Section 1244 allows ordinary......

Words: 5591 - Pages: 23

Premium Essay

Tax Law & Accounting

...Tax Law and Accounting ACC/483 Income Tax Accounting The first step to understanding taxes is to first understand why we have taxes in the first place. As citizens many people take for granted what benefits we gain from the government developing the country around us. The various infrastructures, public systems, education, and the very safety of the citizens in a country are all affected by government funds. People generally are unable to pay for these services directly out of their own pockets, so the government provides for the care of its citizens out of its own funds. As most people know, the United States tax system is special in that citizens generally can pay taxes to a variety of levels: federal, state, and even city taxes depending on where you live. Regardless of whom you pay taxes to, or if you live in the United States or in some other country around the world, the objective of income taxes still remains the same. Just as was mentioned in the previous paragraph, taxes are used to fund various government activities that affect the citizens of a country throughout their everyday life. Income taxes provide a way to ensure that the government is able to collect revenue from its citizens efforts at a variety of governmental levels to provide proper care and service for its people and keep the country running. After understanding why taxes are important, another important aspect to......

Words: 1013 - Pages: 5

Free Essay

The Austtilia Tax Law

...can be income if it can be converted into money * If the receipt is inconvertible, it does not become income merely because it saves expenditure. * The inconvertible benefit falls outside the revenue net, not because it is a gratuity, but because it is not money or money’s worth, and there is no statutory provision which widens the net to catch it. S21A of ITAA 1936 reverses the decision of Cooke Tennant v Smith: established the valuation rule: a benefit, which cannot be turned into cash, is income with a zero value Abbott v Philbin: * This case concerns share options given to employees as part of their salary- this raises question of valuation and derivation issues * HL: no amount could be included- any tax consequences arose only when the option had been granted * The terms of the grant prevented the taxpayer from assigning the...

Words: 841 - Pages: 4

Free Essay

Sin Tax Law

...Sin Taxes House Bill 5727, or the Sin Tax Bill, aims to restructure the existing taxes imposed on alcohol and tobacco goods. Duties on these products are a potential revenue source that will help fund the Universal Health Care Program of the administration. Likewise, higher taxes—and consequently higher costs—are seen as a deterrent to the consumption of “sin” products, whose adverse effects are mostly borne by the poorer segments of society. Why are we supporting it? 1. To promote health by discouraging vice. 2. To collect more revenue for healthcare. Health According to the Department of Health (DOH), the Philippines has an estimated 17.3 million tobacco consumers, the most number of smokers in Southeast Asia. Filipinos on average consume 1, 073 cigarette sticks annually, while the smokers in the region consume less than a thousand sticks yearly. This high consumption rate is seen as a result, among others, of the very low cigarette prices in our country.Smoking is responsible for 71 percent of lung cancer deaths in the world. Consequently, lung cancer is the leading form of cancer in the Philippines. DOH statistics reveal that 10 Filipinos die every hour because of smoking.According to the DOH, a 10 percent increase in tobacco taxes will reduce the number of smokers by two million by 2016. A significant decline in the number of smokers will likewise reduce the number of smoking-related deaths. Revenue The Department of Finance (DOF) has determined the following......

Words: 1286 - Pages: 6

Premium Essay

Australian Tax Law

...AUSTRALIAN TAX LAW Contents ANSWER-01(A) 1 CASE STUDY 2 Facts 2 Option: (b) 2 Option: (c) 3 ANSWER-01 (B) 3 CASE STUDY 4 ANSWER-02 (A) 6 CASE STUDY 6 ANSWER-02(B) 7 CASE STUDY 8 REFERENCE LIST 10 ANSWER-01(A) Fringe Benefit Tax Assessment Act, 1986 (FBTAA, 1986), states that entertainment is not allowed as a tax that can be a deductible expense, as given under section 955-1 of the Income Tax Assessment Act, 1997 (ITAA, 1997). This is however only, unless till the time a Fringe benefit Tax (FBT) @ 46.5% has been paid upon the same. One also has to keep in the considerations important factors such as: * GST to be levied at 10% of the fringe benefit amount. Section 136 of FBTA also states that if there is a benefit which is provided to the employee or to the third party who is related to the third party who may be the spouse, and such a benefit has been provided in a manner which is either full or in part, as a work benefit and a liability that arises for the payment of FBT then Goods and Services Tax may also be applied on the same and the tax payer denied of the GST credits, it may also apply the lower gross-up rate for FT. There are many Companies which may organize entertainment functions for the people employed under them and the third parties with respect to these employees in the form of either gifts or parties. The party maybe on the site or offsite and include food and drink with recreations like banks and gifts may also form a......

Words: 2576 - Pages: 11

Premium Essay

Tax Law Changes

...There have been many changes to the US income tax code for the year 2013. Some of them are small and will have marginal impact On payers of income taxed to the US government. Other changes will be more significant. The budget battles in Congress in 2012 while the country was deemed to be heading for a fiscal cliff resulted in tax code changes that are supposed to raise revenues for the federal government while simultaneously leaving the economic recovery in the United States unaffected. The main change in the federal tax code to be highlighted in this paper is the Unearned Income Medicare Contribution. It is also referred to as the Medicare contribution tax, the 3.8% tax, the investment tax, and the Medicare tax. This new tax is unique or different from other taxes in a number of ways. First, this tax is levied on income in addition to an income tax. Income is always subject solely to the income tax. Under earned income includes rents, dividends, earnings to subchapter S corporations and various partnerships and other entities. Surprisingly, the government revenues from this tax will be deposited into the general fund and will not be sent to Medicare directly. It is highly unlikely, due to the politics involved, that these funds purportedly raised to help Medicare will ever be spent for that purpose (Viard, 2012). It is expected that this tax could adversely affect small business owners and especially self-employed farmers. 2 senior citizens on Social Security and other......

Words: 1596 - Pages: 7