Legt2751 Solution Essay S1 08

Topics: Capital asset, Capital gain, Capital gains tax Pages: 15 (6406 words) Published: September 19, 2009
Introductory Notes References to sections are to ITAA 1936 (e.g. s 88) or ITAA 1997 (e.g. s 43-10). Note up-front that this is a fairly comprehensive answer. We are not expecting students to come up with an answer as comprehensive as that attached. We are looking for: a coherent approach to the question, quality of argument, identification of key points, absence of self-contradiction in later part of paper, familiarity with primary sources, absence of heresies (e.g. expenditure is capital under s 8-1 because it purchases something that is a CGT asset), original and logical analysis and engaging with the primary materials. Question 1 Receipt to van owners of $500 1.1 Non-Capital Gains Tax Provisions Students should consider whether the receipt is income under ordinary concepts s6-5. One view would be that the amount is not income on ordinary concepts as it is not a product (comes from) of an income-producing activity. Occupying the van in Snake Gully Pty Ltd’s caravan park is not an income-producing activity. It is a holiday activity, which does not give rise to income. Hayes and Scott are the authorities. More specifically, or another way of looking at it, the question is whether the receipt in all the circumstances is a product of an income producing activity? Reference could be made to some of the factors mentioned in the cases (e.g. receipt is unsolicited, the van owners have met all their obligations to Snake Gully Pty Ltd under the licence). Better answers would raise the question as to whether receipts like this are common or ordinary incidents to van owners. Another way some students might put it is to say that the amount is a “mere gift”. Given that Snake Gully Pty Ltd feels a moral obligation towards the van owners, it may be appropriate for students to refer to some of the mere gift cases. In the end, it doesn’t matter much. Note that the donor’s motives (moral obligation, saving of legal costs) are relevant but not determinative. A good answer will note that just because there is no legal entitlement to receive an amount, does not automatically mean it cannot give rise to income. Further, based on Brent’s case, a receipt can be income as a reward for services even though there is no employment relationship with the payer, and even though the recipient is not in the business of providing relevant services. Brown’s case also supports this (politician that is given a home unit for introducing overseas businessman to Australian businessman). A good answer would consider whether the receipt can be characterised as being in respect of providing the service of vacating the property? The facts state that notice is given, but do not state that the required one month’s notice was given. If one month’s notice is not given, then the receipt might be able to be characterised as return for giving up valuable rights and would

not be income: Higgs v Olivier, Jarrold v Boustead. If one month’s notice was given, then the van owner did not give up a valuable right. The problem then becomes, has the van owner performed a service by simply acting in accordance with his/her legal obligations. It could be argued that leaving voluntarily involves the performance of a service as it saves costs such as legal costs for Snake Gully Pty Ltd. In practice one would think that the van owners would not be assessed notwithstanding the Brent arguments. Section 15-2 cannot apply for the reason is that occupying the caravan park is not an employment, and it does not amount to services rendered (Note the analysis above on services rendered). 1.2 Capital Gains Tax Provisions The contractual occupancy rights each van owner has with Snake Gully Pty Ltd will be a CGT asset: s 108-5(1)(a) and/or s 108-5(1)(b). These have “come to an end”, therefore CGT event C2 has occurred. It is arguable that the $500 received is the capital proceeds in regard to the CGT event. Query however whether the $500...
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