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“Revenue Law” Exam

Task Description:

There are a total of 7(SEVEN) questions and you will be required to answer a total of 3(THREE) questions and ONLY 3(THREE) questions. All questions carry equal marks. There are a mixture of essay type as well as problem type questions involving fact scenarios. You are advised to spend an equal amount of time for each of the 3(THREE) questions you attempt.

Answers:

Answer 1

As per New Zealand income tax act 2007 every income is considered as gain and no matter from where the flow of income arises. All the monitory gains are considered as income and according to section CA1(2) it has been mentioned that flow of income is mandatory for income to fall in the criteria of this section. This was completely based on HC Simmons research. He finds out that receiving gifts or unexpected financial increase the recipient‘s financial potential. Also according to him the difference between the starting wealth of the person and the ending wealth in accounting year after the consumption is considered as income.

In Seymour case, the court held that although the income was not recurring in nature and no contractual entitlement was there but the gain was considered as income where is contradictory in Dixon case the court held that according to section CE1 the income was not taxable as it was not recurring in nature. In both cases the court‘s decision was different in relation to the income earned by the respective participants. However in the present case there are various incomes earned by the person that can be sub categorised into:

1) The match in honour of Ronald which was a gain of $ 10,000

2) Gain of $8000 to preserve him as a employee against the competitors

3) cash prices won by him $1000, $1500 and $2000

4) Gains by selling drugs to the students

In this case various gains needs to be interpreted as income. The first category of income that was for the honor of Ronald shall be considered as income as per section 1 of income tax act. As the section is drafted keeping in mind HC Simmons research. It indicates that any incoming gain shall be considered as income though it be a gift or an unexpected return. The second gain of Ronald was also a kind of income whereas he have been paid with a huge amount to retain him in the employment. The third were the cash prizes won by him and similarly to the first one they are also considered as income.

There is a clear desire for global policy that is reflected in cases that support the need to collect income tax to extend to revenue created by illicit activities. This preference has been expressed in a number of different ways. Take, for example, a look at the case law that was decided in A Taxpayer CIR (1997). This is just one example of the many different judgments that have been decided all over the world that deal with the subject of taxing on income. The income generated through unlawful methods has been recognised by the courts as being on par with income obtained through lawful means and is therefore subject to the same taxation (CA).

In order to prevent individuals from engaging in fraudulent activity of any kind by claiming their income in a false manner, the regulations of the tax department are kept under wraps. If those involved knew that declaring their earnings in tax returns could be evidence of incriminating prosecutions, then there would be no tax revenue that could be derived from illegal activities. The reasoning behind this is that there would be no tax revenue that could be derived from illegal activities. The conventional stance was to encourage the payment of taxes, to insist that tax collections be stopped from illegal activities, and to insist that it be made simpler by preventing the divulging of the information that was provided in tax returns to Inland Revenue to any other government agencies. This was done in order to encourage the payment of taxes. Because of the way the programme was set up, tax officials were able to pursue criminals who did not comply with their tax obligations and declare that those individuals were required to pay taxes even on illegal gains.

The above case clearly indicates that if the gains received from selling drugs illegally will be considered as income by the New Zealand government then it might be an acceleration to motivate the illegal nature of the offence. And therefore the income of Ronald by selling drugs to the students cannot be categorized as income under income tax act but a different act in respect of the taxpayers would be applied here.

Answer 6

The most significant issue in the New Zealand Tax law is that it fails to differentiate between income and capital. In the current instance, this matter was brought before the Privy Council for consideration. The significance of the case lies more in the fact that it will add to the already enormous number of cases that have been decided on this issue than in the fact that it is a perfect example of the judicial confusion that prevents the development of a coherent explanation for the difference between capital receipts or expenditures and income receipts or expenditures. In this particular case, the defendant, BP Australia Ltd., was trying to get a judgement regarding the kind of expenses it had to deal with. Since 1951, the company has used a strategy to resist the deterioration of the once open competitive system for the sale of petroleum and gasoline. This strategy was developed to ensure the company’s continued success. The owners of gas stations were able to stock and sell a range of fuel brands to customers of their businesses.

The one-time payments were deemed to be legitimate business expenses by the Privy Council, which means that they are exempt from taxation. The ruling that was handed down by the High Court’s appeals court was reversed. The High Court came to the conclusion that it concurred with Taylor J.’s assessment that the expense had a capitalist orientation, and as a result, it chose to uphold the lower court’s ruling. Despite the fact that Taylor J. accepted that gallonage was a factor in the case, he also determined that the cash payments were not in the nature of a trade rebate. His Honor came to the conclusion that B.P. had successfully purchased an asset due to the fact that the benefits it got are likely to persist into the future and defend it against competition.

It is generally agreed upon that this particular case, British Insulated as well as Helsby Cables v. Atherton, is the key source of guidance for English decisions. However, in that particular case, the Lord Chancellor simply ruled that the money spent on the acquisition of an item, regardless of whether it is physically or mentally present, qualifies as a capital investment. Because it provides the company with “the significant and lasting benefit of being able for the rest of its existence to ensure and maintain personnel who are satisfied and effective workforce,” the formation of a retirement fund for workers was regarded as an investment in capital.

When a taxpayer invests time and money into maintaining or expanding the value of a capital asset, that activity is undeniably an expense that results in increased revenue. However, if the taxpayer is purchasing the capital asset or defending their ownership of it, then that expense will not be associated with the generating of revenue. This cost will be considered an unrelated cost. This appears to be the criteria that has been applied in cases such as Sun Newspapers Ltd v. F.C.T., Hallstroms Pty Ltd v. F.C.T., Broken Hill Theatres Pty Ltd v. F.C.T., and John Fairfax and Sons Pty Ltd v. F.C.T.

On the other hand, I am not inclined to concede the point of view that the line between a recurrent expense and an investment expense is unclear, that it can be determined by random chance, or that it can be regarded as an open factual question.

Answer 7

Law:

According to Section 65 of the Income Tax Act of 1976, the following types of taxpayers are included in the scope of the income assessment process:

  • 65 (2) (a) Any and all funds gained via any and all forms of commercial activity
  • 65 To the extent that the taxpayer’s profession or trade involves dealing with such property, or in the event that the property was purchased for purposes other than the “purpose” that of selling it or disposing of it, the profits or gains that result out of the sales or disposal of personal property or interest in it (not being property, or an interest in it that is comprised of land as defined in section 6 of the Act), along with any gains or gains that result from the operation of the personal property or interest in it, are subject to taxation

It is important to note that if the purchase of the shares was made with the intention of later selling them for the purpose of making a profit, then any profits or profit obtained from the sale of the shares will be regarded gains.

Issue:

When an investor purchases shares in the company with the expectation of obtaining a return that is higher than the inflation rate, does the second section of Section 65(2)(e) of the Income Tax Act of 1976 apply?

Commission Argumentation

The earnings came from a company that was actively involved in the business of dealing with property (which falls within the purview of section 65(2)(a)). According to subsection 65(2)(e) of the Income Tax Assessment Act of 1936, any gains or profits obtained through the selling or disposal of an individual item in the event that the property was acquired with the purpose of getting rid of or disposing of and may be considered to be income that is tax deductible. This is the case even in the event that the property was acquired with the purpose of getting rid of or disposing of.

If the primary motivation was the wish to earn money, then it makes perfect sense to take advantage of the right opportunities.

Taxpayer’s Argumentations

The analysis of shareholdings did not take place on a regular or consistent basis.

There is no pressure coming from on high to increase the company’s profitability.

Advocates of stocks said that this would require a continuing commitment since it would be necessary to counteract the effects of inflation.

It is possible that every investor will be able to track developments in the stock market and sell their assets at the appropriate times. It is typical to do things in this fashion.

The primary goal of managing the portfolio in this manner is to ensure that your purchasing power is preserved even in the face of rising costs.

When the primary goal was not to sell products or earn a profit, breaking the law according to section 65(2)e is not authorised.

Majority Court Decision

The second part of Section 65(2), which is also a deeming provision, discusses the gains made from the sale of shares in the case that those shares were purchased with the intention of selling them later on.

When using “the subjective test of purpose,” it is necessary to take into account the mental state of the buyer in order to identify which of the many possible reasons that led to the selling of the item was the most significant motivation. The words “motivation” and “intention” are not synonymous in any way.

Because taxpayers wanted to contribute funds in the direction of New Zealand, a judgement in the Hunter as well as Holden case was significant because of this. Instead of moving the cash in New Zealand through the banking system, taxpayers elected to purchase shares of the government in sterling and then swap them in for dollars in New Zealand. This was done instead of transferring the funds through the banking system in New Zealand.

It is very clear that taxpayers were looking for a way to transfer funds out of England and into New Zealand, and the transactions were successful in accomplishing that objective. On the other hand, the taxpayer bought the shares with the intention of later selling it. The primary reason for purchasing the stock was with the intention of selling it.

If the first occurrence had not taken place, then the second one could not have been a possibility.

Because the shares were obtained with the intention of being resold, claiming that they were acquired in order to act as a hedge against inflation might not qualify as a valid tax deduction. The objective was to achieve the greatest potential profit, which could not have been accomplished without first making the transaction.

The onus of proof is placed squarely on the shoulders of the taxpayer to establish beyond a reasonable doubt that the asset in question was not acquired with the purpose of reselling it or otherwise getting rid of it. It is of the utmost importance to have a solid understanding of the specific features of the asset. There is a possibility that the owner will use one property for his or her own personal pleasure and satisfaction, while using other properties for their potential economic value. The acquisition of stock in a company that is actively traded on a public exchange is typically not done for the purposes of speculation or gambling.

The amount of time that passes between the purchase of shares and their subsequent sale is a crucial factor. It is possible that the fact that the shares have been held for a significant amount of time, despite the fact that the market may have experienced both gains and losses, is evidence that the purchase of the shares was not made with the intention of later selling them.

A small number of taxpayers may have purchased purchases without having a well-developed plan for how they will put them to use. It’s possible that the only thing they have is a hazy notion that buying something will improve the taxpayer’s financial situation in the not-too-distant future, but they don’t have any concrete ideas about whether they’ll keep the item or sell it at some point in the future. If the requirement is satisfied, then the legal burden of proving that the person who is paying the tax to the corporation did not buy the asset with the primary aim of selling it passes to the person paying the tax. To put it another way, according to the law, it is not necessary to demonstrate another reason in order to be excused from the burden of evidence.

It is not quite obvious whether shares that are kept for a period of 19 months on average may be regarded as long-term investments.

Opinion:

The Commissioner of Taxes filed an appeal against a judgement from the High Court that denied a taxpayer’s ability to deduct capital gains from their taxable income.

There are two significant factors that stand out and may have played a role in determining the outcome of the trial had they been present:

The first point that should be brought to your attention is that the taxpayer referred to the transaction as a “inflation security.” If it had been described as something other than “the acquisition of shares to develop capital for the future generations within the same family,” for example, the general public would have been more receptive to the idea.

The second reason was that the time limit for investing was not short enough, and the decision to sell the property was taken in a rush. if shares of stock were kept for a much extended period of time

The most recent version of the Internal Revenue Code, which is titled ITA 2007, has the following topics related to CB3Enterprise or Plan With the Goal of Profits:

Earnings are the amount of money that a person makes as a result of an idea or strategy that they developed or thought of with the intention of making profits. Earnings are also referred to as profits.

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