TAXATION LAW AUSTRALIA

Taxation Law Australia

Taxation Law Australia

Part 1: Section A

Australian Property Law is the system of laws regulating and prioritising the rights, interests and responsibilities of individuals in relation to "things". These things are a form of "property" or "right" to possession or ownership of an object. The law orders or prioritises rights and classifies property as either real and tangible, such as land, or intangible, such as the right of an author to their literary works or personal but tangible, such as a book or a pencil. The scope of what constitutes a thing capable of being classified as property and when an individual or body corporate gains priority of interest over a thing has in legal scholarship been heavily debated on a philosophical level.

Section 1031 of the Internal Revenue Code (Code) provides that gain or loss is not recognized when property held for productive use in a trade or business, or for investment (except stock, securities, and similar property), is exchanged solely for likekind property which also is to be held for productive use in a trade or business, or for investment. The like-kind exchange provisions do not apply to property held for sale to customers in the ordinary course of a trade or business. Thus, some timber properties will not qualify. Property acquired solely for exchange purposes is not considered held for productive use in a trade or business or for investment. Partnership interests also do not qualify. This section deals with voluntary exchanges and should not be confused with the discussion in the case of Allan and Betty who were living and working in Melbourne.

On postponing the recognition of gain or loss when property is involuntarily converted and qualified replacement property is acquired. See IRS Publication 544, Sales and Other Dispositions of Assets, for more details. Exchanges under Section 1031 sometimes are referred to as tax-deferred or nontaxable exchanges. Postponement of gain or loss is achieved by carrying over to the property received in the exchange the basis of the property transferred. The holding period of the property given up likewise is transferred to the property received. The realized gain is deferred until the property acquired in the exchange is disposed of in a subsequent taxable transaction. Thus, the gain is only potentially taxable. The tax may be avoided altogether if the replacement property still is held by the taxpayer at his or her death, when its basis is stepped up to its date-of-death value. If, however, Allan and Betty receive money or nonqualifying property in the exchange, their gain is recognized to the extent of the sum of money and/or the fair market value of the other property received, and is taxable. Cash and nonqualifying property received in an exchange often is referred to as “boot.”

If Allan and Betty wants to (or will only) exchange their property for another particular property, but the person who wants their property doesn't own the like-kind property that Allan and Betty wish to acquire, Allan and Betty can ...