Accounting Taxation Law Assignment

Question: a). Discuss with reference to appropriate legislation, case law and/or rulings whether Luke and Linda are carrying on a business for taxation law purposes in either the 2015 or 2016 income years. b). Discuss with reference to appropriate legislation, case law and/or rulings whether any amounts received in relation to the sale of the design are ordinary income in the 2016 income year c). Briefly discuss with reference to appropriate legislation, case law and/or rulings whether the cash or accruals basis of accounting would apply to Luke and Linda.| Answer: So the business may adopt the basis of accounting of Cash Basis as the accounting for a particular period is to be accounted for, or it may adopt the accrual basis when long term period of accounting considering the outstanding or arrear payments and receipts. Introduction: This is a family business of Luke and Linda Lucky couples of their for selling their belongings through ebay account. As per the Australian law they are doing the online auction and acquiring the stock to sale in the online auction. They are having the profit margin of 210% on the cost of purchase and probably shows a progress that will make 30% increase in sales for the coming month of July 2016 as compared to the same month in the previous year. Luke and Linda Lucky Legislations: It is necessary to read the terms and conditions, before the participation in an online auction, and all the procedures and costs require being understood and evaluated. Following are the types of auction which are available: Marketplace Online Auctions: An online buying and selling of the market takes place like e-bay. Rules and guidelines are provided in these virtual markets where the business establishes a website. Individual buyers and sellers deal with each other directly. (Hultmark, 2002). Traditional Auctions: Instead of gathering the buyers in person, the auctioneer acts on the behalf of the seller. A website is used to create a virtual auction by an auction house. (Catalogue of collectors sale, 2007). Auctions Conducted by the Businesses: In a marketplace, the own products for the sale by an auction process is offered by the business. (Tran, 2009). The following case laws as related to the above are In order to pay a monthly fee to rent cattle for the breeding, he carries out the business which he later intends to use these cattle for carrying out a business at this stage. It is not an offer for requests of an auctioneer for bids. It is just an invitation to treat. The auctioneer accepts the offers of the bidders. If a bidder makes the highest bid, but changed his mind and withdrew the bid as he desires to change his mind before the hammer was brought down by the auctioneer. The goods bought were not held by the defendant. Judgment: Before the acceptance of the auctioneer, the bidder has the right to withdraw his offer as held by the court. The request of the auctioneer was an invitation to treat. Until its acceptance, each bid had a withdrawn offer to the auctioneer. The highest bid was accepted by the fall of the hammer of an auctioneer. At the first year(2015) they sold the items of their own household items and they selected the items from the garages or giveaways. So there is no question of tax purpose. But in the second year (2016) they are purchasing the stocks and sold through e-bay. So here they are carrying on a business which should be according to the law of taxation basis. Conclusion: So Luke and Linda carrying on business as per the taxation Law Rules. In the given scenario, Luke and Linda sold their rights to a retail company after paying at the same time a lump sum amount of $200000 in exchange for transferring the original design, existing stock and materials to the company. For that, they will entitled a $1.20per additional item sold and all rights to manufacture the items relates with the retail company. Legislations: There exist legal compulsions to attribute the creators and see that the work is treated with respect. The creators so called rights are Moral Rights. The obligations related to it are attributing towards the creator, therefore it is not that a person is the creator regarding that work as he is not, also nothing to be done with that work that will have a harmful effect to the creators overall image. But the obligations would not apply when there is a creators consent or as per the legislation. Creators enjoy the moral rights despite not possessing copyright towards their work. They would not be able to sell neither totally waive the rights, however consent may be provided for specific things which otherwise breach the moral rights. Roadshow Films Pty Ltd v iiNet Limited As per AFACT, while acting on the behalf of applicants collected evidence regarding copyright infringement done by the iiNet users arising through use of Bit Torrent protocol, considered effective means of distributing and sharing large amount of data over the net. The Evidence that was presented to court which it accepted clearly showed infringements were being related to several applicants mainly films and the TV Shows. It found iiNET users were engaged with primary infringement. The real issue concerning was copyright authorization, especially ISP like iiNET really can authorize the so users, without having license, store films and also TV shows in the present where copyright is claimed. Though Court held iiNET having known infringements were continuously happening it did nothing to stop them, iiNET not having authorized copyright related infringements done by users. As per the Australian Law, Royalty means amount whether paid or credited, either described or computed, whether the payment or the credit is periodical or not, to the very extent to which it has been paid or credited, as case is likely to be as considerations as for followings: the usage or the right of usage the copyright, the patent design or the model plan The usage or right of usage pertaining, any industrial, or the commercial or any scientific equipment The supplying of the scientific, the technical or industrial or the commercial knowledge or the information On the other hand, the Ordinary income includes income according to ordinary concept (INCOME TAX ASSESSMENT ACT 1997 - SECT 6.5). Conclusion: So, as the Luke and Linda are getting $1.20 against the sale of copyright, it should be considered as Royalty Income. Two methods of the accounting exists that is cash basis and the accrual basis. Cash Basis: The accounting on cash basis means the business activity statement that covers the period in which sales and purchases can be made (Jovanovic and Szentes, 2007). The advantage of Cash Basis is that, here money flowing from the business is relatively better aligned with the activity statement of liabilities, hence it is easy to manage Cash Flow. Accrual Basis: Using the accrual basis means, the business related activity statement whicht covers the period during which the business issues tax invoice or either received any payment for a sale or received the invoice from your supplier or made any payment for a purchase (Transition to the accrual basis of accounting, 2002). Larger business concerns must use the Accrual Basis where the Small Business concerns should use the Cash basis of accounting method. Conclusion From the above studies of Luke and Linda, it is seen that, Up to June, 2016 they have made the total sales of $38000 in relation of stock sales and the work-in-progress showing 30% increase in the volume of sales for the upcoming month of July 2016 in comparison with the same month of the previous year. Again, in June 2016, 20000 items had been sold by the retail company, with payment due to be received in July 2016. References Hultmark, C. (2002). Internet marketplaces. Oxford: Oxford University Press. Catalogue of collectors sale. (2007). London: Bloomsbury House. Tran, N. (2009). Corruption, ranking and competition. Jovanovic, B. and Szentes, B. (2007). On the return to venture capital. Cambridge, Mass.: National Bureau of Economic Research. Transition to the accrual basis of accounting. (2002). New York: International Federation of Accountants.