TAXN201 WK6 L11 Personal Property

Question 1

What are the three sections of the Income Tax Act 2007 that deal with personal property?

Answer 1

1. s CB 3 Profit-making undertaking or scheme
2. s CB 4 Personal property acquired for purpose of disposal
3. s CB 5 Business of dealing in personal property

Question 2

What does s CB 3 cover?

Answer 2

Profit-making undertaking or scheme.
An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit is income of the person.

Question 3

What is an undertaking or scheme?

Answer 3

An undertaking or scheme requires a degree of forethought to have occured beforehand resulting in an organised plan with a specific end-goal in mind.
The mere realisation of a capital gain does not constitute a profit making undertaking or scheme just because the taxpayer chose to do so in the most advanatgeous way.

Question 4

What are the two questions you need to ask when considering whether a transaction is taxable under s CB 3?

Answer 4

1. Was there an undertaking or scheme entered into or devised and carried on or carried out?
2. Was the primary purpose of the undertaking or scheme to make a profit when the undertaking or scheme was entered into or devised?

Question 5

What does s CB 4 cover?

Answer 5

Personal property acquired for purpose of disposal.
An amount that a person derives from disposal of personal property is income if they acquired the property for the purpose of disposing of it.

Question 6

What is the difference between purpose and intention? Why is this relevant?

Answer 6

s CB 4 only considers purpose, not intention.
Purpose is the end-goal of an action, whereas intention is only the action itself.

Question 7

What are six points to consider when determining whether a transaction is taxable under s CB 4?

Answer 7

1. There must be positive steps taken in order to acquire and dispose of the asset. Therefore, a gift does not fall under s CB 4.
2. The nature of the asset
3. How the asset was used after acquisition and before disposal
4. The period of time between acquisition and disposal
5. The circumstances surrounding acquisition, use, and disposal
6. The number of similar transactions in a given timeframe

Question 8

What does s CB 5 cover?

Answer 8

Business of dealing in personal property.
An amount that a person derives from disposing of personal property is income of the person if their business is to deal in property of that kind.
The property must be sold in the same condition in which it was acquired in. Otherwise, it will not be taxable under s CB 5.

Question 9

What is an important condition for a transaction to be taxable under s CB 5?

Answer 9

The property must be sold in the same condition in which it was acquired in. Otherwise, it will not be taxable under s CB 5.

Question 10

What are the eight points to consider when determining whether a business of dealing in personal property exists?

Answer 10

1. Intention to make a profit
2. Nature of the activity
3. Period in which the taxpayer engages in the activity
4. Scale of operations and volume of transactions
5. Commitment of time, money, and effort
6. The pattern of activity
7. The financial results
8. Whether the operations involved are the same kind and are carried on it the same way as those which are characteristic of ordinary trade in the line of business in which the venture was carried out
   Volume of transactions is an important point to consider here.