Taxation Law & Practice

Taxation Law & Practice

Part 1

Sub part: 1

Transfer of rights

Henrietta operates the business as a sole proprietor therefore the taxation rules applicable to corporations do not apply. The four quarterly tax payments totaling $500,000 will be in Henrietta's income tax liability. Sec 102B (1) Div 6A of Income Tax Assessment Act 1936 states that where consideration is due to be received or is it does come under assessable income. Note that this is not a capital gain. Instead it will be accounted for as an ordinary income as a part of taxable income.

Sale of business goodwill

Under the 2013 Australian taxation Office database, no deductions are available for acquisition of goodwill. Since Henrietta has sold her business goodwill the amount of consideration will be assessable but, not as income tax liability but as capital gains tax liability. Gains on sale of any business assets must be accounted for capital gains tax. Whether capital gains tax will be applicable, will depend on whether the disposal includes goodwill and will be determined by the outcome of the case, Commissioner of Taxation of the Commonwealth of Australia v Judith Stella Murry [1996] FCA 622 (25 July 1996); Section number(s) Pt IIIA; s 160A; s 160ZZR.

Sale of trading stock

The profit earned on the sale of trading stock will be assessable under the Australian Taxation Office rules. Since the sale of stock is as business income and therefore assessable income, tax will have to be paid on the amount of this business income. This will fall under ordinary income as precedented Australian Securities and Investment Commission Act 2000 (Commonwealth) s 12DA. which was judged on grounds of Section Australian Securities and Investment Commission Act 2000 (Commonwealth) s 12DA.

Other wine sales

Profit made on sale of other wine before business cessation will be an assessable income. Sale of wine in essence is the sale of stock and therefore assessable. As per Australian Taxation Office rules, taxable income = assessable income - allowable deductions. The amount of wine stock sold of $1,600,000 will be in the business taxable income and tax will be as per the tax rate bands for the year ended June 2013 which provided in appendix.

Sale of wine making machinery

Wine making machinery is a capital asset and therefore it won't come under the head of business income. Since it is a capital asset the gains (Selling price - realizable value) will be as per the capital gains tax liability rule defined by the Australian Taxation Office rules - Income tax assessment act 1997 - sect 995.1. Generally, capital gains are considered in assessable income. There are stringent rules defined by the ATO as per which capital losses cannot be lessened from taxable income and can only be set off against capital loss/gains. Sub part: 2

Legal Cost of $50Legal costs is in the normal operation of business and therefore is an allowable deduction as per Income Tax Assessment Act 1997, section 8-1. The legal costs of $50 are deductible from assessable income. The loan in context is a ...