Running Head: TAXATION LAWS 1

Taxation laws

Institution affiliation

Date
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PART ONE:

Question 1

The basic new tax measure that has been enacted in light of Covid -19 is that tax administration

should be based on long term incentives which will help in boosting the economy to bounce

back. As a result of poor economic performance which has been experienced across the globe,

the general applied tax laws need to be amended to prevent the economic recession.

Commonwealth countries have adopted an increase in the instant asset write off thresholds from

$30,000 to $50,000 and further the expansion market access to include business entities that have

a turnover of less than $500 effective until 30th June 2020,(Eurofins 2018).

Subsidizing the adverse economic effects caused by the Covid-19 pandemic required the

implementation of such considerate measures like allowing business entities to varying the Pay

As You Go (PAYG) installment amounts to zero. The argumentative theorem based on this tax

law is that those business entities which will vary their PAYG installment to zero will be in a

position to claim a monetary refund in the subsequent financial quarters. Payroll taxes have been

waived for the preceding four months of this financial year for such significant sectors which

include hospitality, tourism, and seafood industry businesses,(Eurofins 2018). The above

adoptive policies which have been fulfilled by commonwealth counties are based on several

rational that the commonwealth countries should not lose trace of equity because the crisis is

regressive, (Flood,2016) Strengthening the public revenue is the other basic rationale which has

been applied because counties will have to return to fiscal discipline when the pandemic will

end, (PWC 2020).  

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Question 2

The sale of products/services by Mitch is subjected to and conditional based on the customer’s

agreement (Linda) contained in the GST. The GST between Mitch and Linda applies in

exclusion of any other terms and condition the customer (Linda) may seek to incorporate unless

expressed in another consensus statement of the agreement which must be signed by the

respective parties. A valid lease contract between the lessee (Linda) and the lessor (Mitch)

according to the legal laws must include a statement explaining the period both parties will be on

the lease contract, name of the contracting parties, well explained subject matter and signatures

from the respective parties. Based on the appreciation rate contained in the GST, Linda (Lessee)

must adhere to the respective requirements provided in this document whilst Mitch (Lessor)

should not impose any change or rules or requirements from the original GST without the

consent of Linda (Lessee). A new tax system Act 1999 provides an insight into the basic

requirements which must be fulfilled for an effective and efficient GST contract,(Eurofins 2018).

When the contract term is concluded, several significant documents must be presented to ensure

the contract is valid. A binding contract based on the provisions of GST must incorporate a dully

signed document with a relevant date by both parties. Another relative document that must be

incorporated in a valid GST contract is the existence of a quote that will be market as binding

between Linda and Mitch. The aggregated price and payment terms in the GST document need

to be presented to both the contracting parties to ensure efficient and effective policy adoption.

The contract term between Linda and Mitch need to be must also contain a specification of the

building works sod to Linda. Limited warranties and liabilities, indemnity obligation to

customers, and safety warnings are the other significant clauses that must be fulfilled to validate

GST between Linda and Mitch,(Flood, 2016).

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Question 3

Taxation rules and regulations about income tax are based on the assessment Act 1997

(ITAA1997). The amount of income that will be received by Xlang based on a $150,000

purchase of 10 years annuity will be determined on whether the purchase is on pretax dollars

terms or whether it’s based on after-tax fund terms. The legal law based on taxation provides that

if any annuity purchase is based on pretax dollars, the expected payments earned from this

annuity will be fully taxable as income. Based on the purchase of an annuity that has after-tax

funds, payment of taxes is made only on earnings, (Eurofins 2018). The differed tax growth

mechanism is the one that is used in recognizing the annuity dues upon withdrawal of the funds.

The winning funds amounting to $25,000 will be subject to corporate taxation at a specified rate,

therefore, Xlang will receive a relatively low after-tax earning based on this winning. Income tax

liability expected to be levied on $25,000 needs to be recognized on an accrual basis to ensure

effective and efficient analysis of Xlang net earnings,(Flood, 2016). 

Question 4

The statutory rules governing companies' residence in Australia is contained in subsection 6 (1)

of the ITAA 1936. The guideline in this subsection provides that a company is considered a

resident of Australia if the voting power is controlled by shareholders residing in this country.

Green Energy Pty limited is therefore considered a tax resident in Australia due to its 50%

controlling interest belonging to shareholders from this country. Based on the securities which

are owned by shareholders, issuance of these securities in respect of the loan raised outside this

country, and unless there is an existing written description regarding these securities, they are

doomed to belong to commonwealth securities,(Eurofins 2018). Other significant provisions

offer a guideline on the relationship which exists between any given company and the
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shareholders which are used in determining the controlling interest of a company. Redeemable

preferences form a significant step in determining the controlling interest of a company.

Redeemable preference can be described as the money which is credited or distributed by a

company for the redemption. Redeemable preferences are those debts that will be paid to the

suppliers of debts within a given period. Irredeemable preferences constitute the other significant

measure in determining the controlling interest of a company. This can be described as the

perpetual debts which need not be repaid on the long-run perspective. In determining whether the

company’s residence belongs to Australia, redeemable and irredeemable shares must also be

analyzed,(Eurofins 2018).

The information contained in subsection 6 (1) of the ITAA 1936 highlights that the controlling

interest of a company must constitute more than 50 % of shareholders. The redeemable and

irredeemable shareholders need to be on a minimal range and should not exceed 25% of the total

debts. The total voting stock is also constituted by whether the shareholders have a limited

liability or unlimited liability. The controlling shareholders must have a wider range of limited

liability and unlimited liability to aid in enhancing the borrowing capacity of the firm. Green

energy Pty Limited is hence considered to be tax resident in Australia based on the subsection 6

(1) of the ITAA 1936which provides the guidelines used in describing the requirements needed

in determining the tax residence of a company,(Flood, 2016). 

Question 5

Lien (sole trader) and Pharma & pharma (P&P) are in a GTS contract which includes provisions

subject to the sales contract. The contracting parties must ensure the existence of a legal contract

with signs from both parties. The income tax consequences experienced between Lien (sole

trader) and Pharma & pharma (P&P) will be subject to corporate taxation and tax levied on
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capital gains. The payment made amounting to $55,000 by Pharm &pharm to Lien will be

subjected to taxation based on capital gains. Income tax law on capital gains provides that a

relative proportion of after-tax fund is paid upon capital gains or the profits made to business

from the payment of services rendered. A proportionate amount of tax will hence be made to the

government when the payment of services amounting to $55,000 is made to Lien which will be

subject to the provisions in the income tax clause. The awards of a non-transferable free trip to

London are classified as cash-equivalent fringe benefits. This award is taxable regardless of the

amount contained in them although the recipient (Lien) cannot convert them into cash. A

withholding tax is levied therefore based on the face value of the gift certificate. The item value

which is redeemable from this award made to Lien by the Pharma & pharma (P&P) organization

is termed as a ‘de minimis’ value whereby there is no basic need to withhold tax,(Eurofins 2018),

acknowledges. 

Question 5

An ordinary income can be described as the revenues which are earned and taxed at ordinary

rates. However, long term capital earnings and the increase in the value of any given investment

and dividends are not considered as ordinary income. A pay cut of Sunil salary to $4500 and a

compensation of $50,000 by the insurance firm is hence an ordinary income,(Eurofins 2018).

Based on the imposed ordinary tax rates which have been imposed as a result of the Covid-19

pandemic which has led to economic recession across the globe, taxable income imposed on the

salary earned by Sunil and compensation amount paid by insurance qualifies both aspects to be

ordinary income. The corporate setting provides that an ordinary income is enhanced as a result

of regular day-to-day business operations a part of capital gains.

PART TWO
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The sales proceeds for involving Simon and Barbra land disposal will constitute ordinary

income. Land disposal by both parties takes place 19 years after the initial day of purchase hence

this is classified as a long term capital gain,(Eurofins 2018). The relevant measures which give

an insight on the ordinary income are contained in the assessment act 1936 (ITAA 1936). Long-

term capital gains are earned from the proceeds of sales which are held for more than one year.

The sale proceeds of land by Simon and Barbra qualifies to be classified as ordinary income

based on the fact that the sale proceeds are more than the initial outlay of the land as in April

2001 which was $500,000. Section 1231 of the United States internal revenue code provides that

a lower rate of tax duty is levied at lower capital gains for ordinary income,(Eurofins 2018).The

ordinary tax rate will range from 0%, 15% and 20% depending on the tax exemptions provided.

The existence of a lease contract is another significant feature that is evident from this case

study. A dully signed lease contract needs to be present between Ben (Lessee), Simon & Barbra

(lessor)

PART THREE

Net capital gain/loss = Expected earnings – The expected expenditures. 

= $50,000+ 35,000- (10,800+ 5,000) 

Maria’s net capital gain = $69,200

Payment of $ 50,000 by the new employer of Maria will be taxed about the several taxing

mechanisms provided for cash and cash equivalents. The argumentative measures specified the

assessment Act 1997 (ITAA 1997) provides that cash and cash equivalent provided as awards

must be subject to taxable income whatsoever, (Eurofins 2018). Payment of proceeds through

bank checks and gift vouchers is a significant measure for cash equivalents. The award of
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$50,000 will be subjected to income tax under ordinary terms which must be recognized under

the accrual basis, (PWC 2020).

Cash received by Maria amounting to $35,000 will be recognized on the after-tax

procedure. It will be recognized based on cash and cash equivalents which will be taxed on an

ordinary income base. The relevant procedures are expressed in the tax system Act 1999 which

provides the recognition of deferred income tax on accrual bases. Accrual bases are the

recognition of accounting transition for income when it is earned and recognition of expenses

when they are incurred. Deferred tax is the process of recognizing tax occurrence on an accrual

basis. Accounting standards codification (ASC) 740 is an international accounting provision that

gives an in-depth analysis concerning income taxes, (PWC 2020). Several disclosures are

contained in these sections which explain in detail the accounting treatment for the $50,000

funds received and $35, 000 in the first quarter of 2020 by Maria. Accounting for income taxes is

a significant feature which aid in ordinary income taxation. Losses incurred are subject to the

accrual basis of accounting which needs to be recognized upon occurrence, (Barnes, & Ernst &

Young2019). Capital gain is subject to an after-tax mechanism which will be recognized on a net

basis. ...
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References

Barnes, J., & Ernst & Young. (2019). International GAAP 2019: Generally accepted accounting

practice under international financial reporting standards.

Eurofins. (2018) General terms & conditions of sales. Retrieved on 19th May 2020 from

https://www.eurofins-technologies.com/pub/media/productattachments/files/CSG002_-

_GTS_Technologies_2018.11.pdf

Flood, J. M. (2016). Wiley GAAP 2017 - Interpretation and Application of Generally Accepted

Accounting Principles.

PWC (2020). Tax measures in response to covid-19. Retrieved on 19th May 2020 from

https://www.pwc.com/gx/en/assets/tax/covid-19-global-master-master-document-tax-

measures-web.pdf