Taxation Law Small Business CGT Concessions

Question: Discuss about the Taxation Law for Small Business CGT Concessions. Answer: Introduction: The current study is based on the Peter who is an occupant of Australia and is professionally engaged as a guitarist for a reputed brand in Australia. The band was highly popular in Australia however, in the year 2016 the band members moved to Britain for attaining more success. During the month of October in 2017, the band members returned permanently in Australia. From the period of 2015-17, Peter earned his income from his profession as well as from other sources (Woellner et al. 2016). The existing report determines the assessable income of Peter ranging from the period of 2015-17. The study is centrally based on the determination of taxable amount for each period. In addition to this, the study also consists of recommendations in order to lessen his taxable income. As stated under the Australian taxation act, an occupant of Australia shall be held liable for the payment of tax on each kind of income derived by them within the territories or outside the territories of Australia. A non-resident of Australia is under the obligation of paying income tax derived from any Australian source. Therefore, it is mandatory to determine the status of residency of a person for the purpose of tax, if a person stays outside the territories of Australia for a significant period to time (Saad 2014). As the band members moved to Britain Peter lived there for a period of one year with his residential status for that period of 2015-17 must be assessed under the residential test. In the below listed table, the residential status of Peter is assessed for the stated period in compliance with the residential tests, as stated under the income tax assessment act 1998; Taxation Period Domicile Test 183 Days' Test Superannuation Test Residential Status 2015-16 Having permanent place of dwelling in Australia Living for 198 in Australia days Is not considered as a member or eligible employee under Superannuation Act, 1990 1976. Resident 2016-17 Having permanent place of dwelling in Australia Not a resident of Australia Is not considered as a member or eligible employee under Superannuation Act, 1990 1976 Resident 2017-18 Having permanent place of dwelling in Australia Resided for 182 days in Australia Is not considered as a member or eligible employee under Superannuation Act, 1990 1976 Resident As stated under the ITAA 1997, an individual meeting any one of the above stated criteria he or she would be considered as an occupant of Australia for the purpose of tax. Peter is by profession a musician and hence he is not covered under the superannuation act 1976 (Barkoczy 2017). In addition to this, he is does not falls under the scheme of superannuation so he will not be considered as a resident based on superannuation test. During the year 2015-16 peter stayed in Australia for 198 days and in the year 2016-17 Peter was not present in Australia with 182 days for the period of 2017-18. According to the 183-day test, Peter is considered to be an Australian resident for the period of 2015-16. As evident from the study, Peter has a house in Brighton that is used as a permanent place of living. During his visit to Britain Peter had leased the house. The study throws light that the house in Australia is considered as his permanent place of living for the period ranging from 2015-17 (Taylor and Richardson 2013). Therefore, Peter has successfully met the criteria of domicile test each year and Peter is liable to be assessed as an Australian occupant for each period of taxation commencing from 2015-16 to 2017-18. Peter shall be liable to pay income tax on the income derived within and outside the territory of Australia for the above stated period. The income of Peter earned within the stated period are assessed below for the purpose of taxation based on assumptions and different rules of taxation. Peter by profession being a guitarist performs in live concert and records music albums. A large amount of annual income is generated from his live concert. Those incomes derived from the live concerts forms the part of his personal service income and it must be included in his total assessable income under division 84 of the ITAA 1997 (Cao et al. 2015). Incomes derived from Royalties: Royalties are generally derived from the intellectual properties and it is regarded as incomes from investment. Music and songs form the part of intellectual property of the singers and musicians (Davis et al. 2015). Any kind of royalties received can be regarded as income from investment stated under section 15.20. Peter is not involved in the trading of car or shares for deriving any ordinary incomes. Hence, both the assets must be regarded as his capital gains taxation assets. As stated under section 102 of the ITAA 1997, profits and loss derived from the sale of such assets should be included in the assessable income of Peter. In the year, 2010 and 2011 Peter had bought car and shares, which he eventually sold in 2016. Therefore, this states that the assets were owned by Peter for more than two years and shall be eligible for an exemption of up to 50% on the profits made (Barrett and Elsayed 2014). On incurring any kind of loss Peter may adjust, the same with the profit derived from other assets and may carry it forward in the subsequent year of taxation. Lease rent is regarded as an investment income and the value of lease rent derived from the house property is not specified. Under section 25 AB of the ITAA 1936, lease rent should be considered in determining the assessable income of Peter (Fenech, Fang and Brown 2016). Computation of Peters Assessable income Particulars Details 2015-16 2016-17 2017-18 Total Revenue from concerts and albums Within the territories of Australia $ 1,40,000 $ 1,40,000 Outside the territories of Australia $ 1,50,000 $ 1,50,000 Royalties Within the territories of Australia $ 30,000 $ 30,000 Outside the territories of Australia $ 2,50,000 $ 15,000 $ 2,65,000 Cash awards Within the territories of Australia $ 20,000 $ 10,000 $ 30,000 Outside the territories of Australia $ 16,000 $ 16,000 Rental Income from Lease Sum of total Ordinary Income $ 3,10,000 $ 2,90,000 $ 31,000 $ 6,31,000 Capital Gains Tax: Proceeds from sale of cars $ 60,000 Less: Purchase considerations $ 95,000 $ (35,000 ) Proceeds from sale of shares $ 11,000 Less: Purchase considerations $ 5,000 $ 6,000 Net Capital Gain Taxation $ (29,000) Capital loss $ (29,000) $ (29,000) $ (29,000) $ (29,000) Sum of Total Assessable Income $ 3,10,000 $ 2,90,000 $ 31,000 $ 6,31,000 Recommendations: As evident from the above stated computation that the total amount of ordinary income after excluding the lease income of Peter for the following year are as follows For the year 2015-16- $310,000 For the period ended 2016-17 $290,000 For the Period 2017-18 $31,000 Peter net amount of capital loss for the year 2015-16 stood $29,000. On incurring, a capital loss on CGT the assets would be set off against the capital gains on the CGT assets and it will not be adjusted in the ordinary income of Peter. Such capital loss would be carried forward in the subsequent years. It is noteworthy to denote that Peter had to pay tax on foreign income to the British government and according to the treaty formed amid the United Kingdom and Australia; Peter can enjoy the tax benefits on the amount paid to British department of tax. He can lessen the net taxable income for the period of 2017-18 by deducting the rental expenditure from his lease rent income as well. References and Bibliography: Arthur, G., 2016. Tax files: Taxation duties of executors.Bulletin (Law Society of South Australia),38(2), p.28. Barkoczy, S., 2017. Core tax legislation and study guide.OUP Catalogue. Barrett, J. and Elsayed, A., 2014. Deductibility of employer contributions to employee remuneration trusts-where are we at?.Governance Directions,66(5), p.307. 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