Posted: September 17th, 2025

CGT Collectables, Personal Exertion Income, and Interest Deductions

HI6028 Taxation Theory, Practice & Law — Individual Assignment: Case Studies of Specific Deductions and Tax Liability

This Holmes Institute assessment requires you to analyse real-world taxation scenarios involving collectables, personal exertion income, and interest deductions on vacant land. You must apply the Income Tax Assessment Act 1936 (Cth) and 1997 (Cth), relevant case law, and ATO rulings to each scenario, providing structured calculations and a formal written report. The assignment is worth 20% of the total unit mark, has a 2,000-word limit, and is due in Week 10 of the trimester. Harvard referencing is required throughout.

Context and Purpose of the Assessment

This individual assignment forms a core component of HI6028 Taxation Theory, Practice & Law at Holmes Institute, Faculty of Higher Education. The task assesses your ability to interpret Australian taxation legislation, apply case law, and resolve practical tax problems in a structured written format. The assignment carries 20% of the total unit mark and is due in Week 10 of the trimester. Because the scenarios mirror the kinds of issues tax consultants and accountants handle daily, the work you do here directly prepares you for professional practice in Australian taxation.

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The assignment assesses four unit learning outcomes: demonstrating understanding of the Australian income tax system, concepts of income and deductions, CGT, FBT, GST and income tax administration; identifying and critically analysing taxation issues; interpreting relevant legislation and case law; and applying taxation principles to real-life problems. Each question is designed around material covered in tutorials and lectures, so you are not expected to research beyond the unit’s content, but you are expected to explore it in depth.

Task Description and Instructions

You are required to answer all questions in the assignment. Each question presents a scenario involving a taxpayer or business entity. For each scenario, you must identify the relevant taxation issues, cite the applicable legislation and case law, apply the law to the facts, and reach a reasoned conclusion. Where calculations are required, you must show all workings clearly.

Your responses should follow a structured approach: state the issue, explain the relevant law, apply the law to the facts, and provide a conclusion. This method mirrors how tax professionals structure advice and how markers expect you to present your analysis.

Question 1 — Capital Gains Tax on Collectables (10 Marks)

Your client Helen wants to fund her business as a fashion designer, therefore she has sold some of the assets as follows:

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1. An antique impressionism painting Helen’s father bought in February 1985 for $4,000. Helen sold the painting on 1 December 2018 for $12,000. (2.5 marks)
2. Helen sold her historical sculpture on 1 January 2018 for $6,000. She had purchased the piece in December 1993 for $5,500. (2.5 marks)
3. An antique jewellery piece purchased in October 1987 for $14,000. Helen sold the antique jewellery piece on 20 March 2018 for $13,000. (2.5 marks)
4. Helen sold a picture for $5,000 on 1 July 2018. Her mother purchased the picture in March 1987 for $470. (2.5 marks)

Advise the Capital Gain Tax consequences of the above transactions. Your answer must identify whether each asset is a collectable or a personal use asset, apply the $500 threshold under s 108-10(2) of the ITAA 1997 where relevant, and calculate the net capital gain or loss for each item.

Question 2 — Income from Personal Exertion (5 Marks)

Barbara is an economist researcher and commentator. The Eco Books Ltd offers her $13,000 for writing a book about economics principles. Barbara has never written a book about economics principles, but accepts the offer and writes the economics book called ‘Principles of Economics’. She assigns the book’s copyright for $13,400 to The Eco Books Ltd. The book is published and she is paid. She also sells the book’s manuscript to the Eco Books Ltd’s library for $4,350 plus several interview manuscripts she has collected while writing the economics book for which she receives $3,200.

Discuss each of the above payments to Barbara separately and state whether these are income from Barbara’s personal exertion. (2.5 marks) Would your answer differ if Barbara wrote the ‘Principles of Economics’ book before signing a contract with The Eco Books Ltd in her spare time and only decided to sell it later? (2.5 marks) Support your answer by referring to relevant statutory and case law.

Question 3 — Interest Deduction on Vacant Land (5 Marks)

Patrick paid $52,000 to his son David to provide some assistance in his newly started business. They agreed that David repay his father $58,000 at the end of five years. Patrick provided this loan to David without any formal agreement or security deposit for the sum lent. Patrick told his son that he need not pay interest. However, David repaid the full amount after two years through a cheque, which included an additional amount equal to 5% on the amount borrowed.

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By referring to relevant statutory and case law, you need to discuss the effect of these arrangements on the assessable income of Patrick. (5 marks) Consider whether the additional amount constitutes interest income under s 6-5 of the ITAA 1997, whether the arrangement constitutes a business of money lending, and whether the lack of a formal agreement affects the characterisation of the receipt.

Submission Requirements and Formatting

• Format: MS Word, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
• Length: Not more than 2,000 words (acceptable to be 10% above or below this word limit).
• Referencing: Harvard style. In-text citations and a reference list are required.
• Cover page: Completed Assignment Cover Page must be attached.
• Submission: Via SafeAssign on Blackboard in soft copy only. Plagiarism checking applies.
• Proper referencing in accordance with school regulations.

Marking Rubric and Grading Criteria

Criteria	Excellent	Very Good	Good	Satisfactory	Unsatisfactory
Q1: CGT on antique impressionism painting (2.5%)	Advised CGT consequences correctly. Supported by accurate referencing.	Very good knowledge; exempt capital gain figure given accurately.	Good knowledge; response needs more elaboration.	Sound knowledge; missed proper referencing.	Failed to identify CGT consequences.
Q1: CGT on historical sculpture (2.5%)	Correct CGT calculation method chosen. Correct figures and clear final comments.	Correct method chosen. Minor calculation errors. Final comments clear.	Correct method chosen. Minor calculation errors. Final comments need elaboration.	Missed right calculation method. Incorrect figures. Final comments not relevant.	Failed to identify CGT consequences.
Q1: CGT on antique jewellery piece (2.5%)	Capital gain or loss identified correctly. Clear final comments.	Very good knowledge; clear final comments. Minor error evidenced.	Gain or loss identified correctly. Fails to present clear final comments.	Sound knowledge but not all parts of the question.	Failed to identify gain or loss.
Q1: CGT on picture (2.5%)	Excellent response. Identified CGT consequences correctly. Accurate referencing.	Very good response. Identified CGT consequences correctly. Accurate referencing.	Good knowledge; response needs more elaboration.	Sound knowledge; missed proper referencing.	Failed to identify CGT consequences.
Q2: Barbara’s income — case scenario (2.5%)	Excellent response. Proper reference to relevant tax law throughout. Correct and clear conclusions.	Very good knowledge; minor error evidenced.	Good knowledge; fails to elaborate.	Sound knowledge; most but not all parts answered.	No discussion. No reference given.
Q2: Barbara’s income — alternative scenario (2.5%)	All scenarios responded accurately. Relevant sections of taxation law referenced.	Very good discussion. Most relevant sections identified.	Well organised but illogical at points. Referencing good but incomplete.	Some detailed conclusions reached from evidence offered.	No discussion. No reference given.
Q3: Effect on assessable income of Patrick (5%)	Answered and referenced (cases and statutes) accurately.	Very good demonstration. Minor error in referencing.	Good demonstration. Some references given but not all accurate.	Sound knowledge but incomplete.	No discussion. No reference given.

Sample Answer: CGT Consequences of Collectables Under the $500 Threshold

Helen’s antique impressionism painting was purchased by her father in February 1985 for $4,000 and sold on 1 December 2018 for $12,000. The painting is a collectable under s 108-10(2) of the Income Tax Assessment Act 1997 (Cth) because it is artwork used or kept mainly for personal use or enjoyment. The acquisition date of February 1985 falls before 20 September 1985, which means the painting is a pre-CGT asset and any capital gain is disregarded under s 104-10(5). The historical sculpture purchased in December 1993 for $5,500 and sold for $6,000 produces a capital gain of $500. Because the sculpture is also a collectable and was acquired for more than $500, the gain is not exempt under the threshold rule. The ATO’s capital gains tax guide confirms that collectables acquired for $500 or less are exempt from CGT. The antique jewellery piece purchased in October 1987 for $14,000 and sold for $13,000 produces a capital loss of $1,000. Under s 108-10(1), capital losses from collectables can only be offset against capital gains from other collectables, not against ordinary income or gains from other asset types. The picture purchased by Helen’s mother in March 1987 for $470 and sold for $5,000 is a collectable acquired for less than $500, so the $4,530 gain is disregarded entirely. Helen’s net capital gain from collectables is $500 (the sculpture gain), with a $1,000 collectable loss carried forward that can only be applied against future collectable gains.

 Income from Personal Exertion and the Myer Emporium Principle

Barbara’s payments raise the question of whether each receipt is ordinary income from personal exertion under s 6-5 of the ITAA 1997. The $13,000 payment for writing the book is income from personal exertion because Barbara applied her labour and skill to produce a written work, and the payment compensates her for that effort. The $13,400 assignment of copyright requires separate analysis. Under the principles established in FCT v Myer Emporium Ltd (1987) 163 CLR 199, a lump sum received in exchange for the assignment of future income is ordinary income because it is a substitute for income. The copyright assignment represents the proceeds from exploiting her intellectual property, and it may be characterised as income from personal exertion given that Barbara created the work. The ATO’s guidance on income you must declare confirms that royalties and copyright payments are assessable. The $4,350 for the manuscript and $3,200 for interview manuscripts are also income from personal exertion because they arise from Barbara’s work as a writer and commentator. Students should note that the distinction between income and capital depends on whether the receipt is a product of labour or the realisation of a capital asset. The $500 capital gain on the sculpture illustrates a collectable gain, while Barbara’s payments illustrate income from personal exertion; the two concepts operate under different statutory frameworks.

 When Is Interest on a Loan Assessable Income?

A question students frequently search for is whether an informal loan between family members can generate assessable income for the lender. Patrick lent $52,000 to his son David without a formal agreement or security deposit. David repaid $58,000 after two years, including an additional 5% on the borrowed amount. The additional $6,000 represents interest income under s 6-5 of the ITAA 1997 because it is a payment for the use of money. The absence of a formal written agreement does not affect the characterisation of the receipt; what matters is the substance of the arrangement. Under the principles in FCT v Myer Emporium Ltd (1987) 163 CLR 199, a receipt can be ordinary income even if it arises from an isolated transaction, provided the transaction has a commercial character. Patrick’s loan may not constitute a business of money lending because it was a one-off arrangement with a family member, but the interest component is still assessable as ordinary income. The ATO’s interest deductions guidance explains that the deductibility of interest depends on the purpose of the borrowing, but this is a separate question from the assessability of interest received. Students should also consider whether the $6,000 could be characterised as a gift or a capital receipt; the fact that David voluntarily repaid an additional amount equal to 5% suggests a commercial arrangement rather than a gift. The timing of the receipt is also relevant; the interest is derived when David repaid the loan after two years, not when the loan was originally made.

 Common Misconceptions About CGT and Collectables

A common misconception among students is that all assets acquired before 20 September 1985 are automatically exempt from CGT. While the pre-CGT exemption generally applies, there are exceptions for assets that have been substantially improved after that date, and the exemption does not apply to collectables acquired by the taxpayer rather than inherited. The antique painting was acquired by Helen’s father before the cut-off date, but if Helen inherited it, the acquisition date for CGT purposes may be the date of the father’s death rather than the original purchase date. Another misconception concerns the $500 threshold for collectables. Students sometimes assume the threshold applies to the sale price rather than the acquisition cost. Under s 108-10(2), the exemption depends on the first element of the cost base, which is what the taxpayer paid to acquire the asset. The picture purchased for $470 falls below the threshold, so the $5,000 sale proceeds are disregarded entirely. A third misconception is that capital losses from collectables can be offset against gains from other assets. Under s 108-10(1), collectable losses are quarantined and can only be applied against collectable gains. The antique jewellery loss of $1,000 cannot reduce the sculpture gain of $500 or any other capital gain. The ATO’s collectables page explains these restrictions in detail. Understanding these distinctions is what separates a pass from a high distinction.

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Frequently Asked Question

Can I claim a deduction for interest on a loan used to purchase a vacant block of land?

No, unless the land is used to produce assessable income. Interest on a loan is deductible under s 8-1 of the ITAA 1997 only if the borrowed funds are used to produce assessable income or to carry on a business for that purpose. A vacant block of land that is not rented out or used in a business does not generate assessable income, so the interest is not deductible. Section 26-102 of the ITAA 1997 denies a deduction for losses or outgoings relating to holding land on which there is no substantial and permanent structure in use or available for use. The ATO’s Taxation Ruling TR 2023/3 explains that this restriction applies regardless of whether the land was first held before 1 July 2019. If the land is later used to produce income, such as by building a rental property, the interest may become deductible from that point. Students should also consider whether the interest can be included in the cost base of the land for CGT purposes under s 110-25.

Why This Matters in Practice

The issues in this assignment mirror the questions tax accountants and consultants answer for clients across Australia. A client selling collectables needs to know whether the $500 threshold applies and how collectable losses are quarantined. A writer receiving multiple payments for a book needs to understand which receipts are income from personal exertion and which may be capital. A parent lending money to a child needs to know whether the interest component is assessable. Getting these questions wrong has financial consequences for clients and professional consequences for advisers. The skills you develop in this assignment, reading legislation, applying case law, and reaching reasoned conclusions with clear calculations, are the same skills you will use in practice.

References and Learning Materials

Australian Taxation Office. (2026). Does capital gains tax apply to you? https://www.ato.gov.au/forms-and-instructions/capital-gains-tax-guide-2026/about-capital-gains-tax/does-capital-gains-tax-apply-to-you

Australian Taxation Office. (2026). Collectables. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/collectables

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Australian Taxation Office. (2026). Interest deductions. https://www.ato.gov.au/individuals-and-families/investments-and-assets/investment-property/interest-deductions

Australian Taxation Office. (2023). Taxation Ruling TR 2023/3: Income tax: expenses associated with holding vacant land. https://www.ato.gov.au/law/view/document?LocID=%22TXR%2FTR20233%2FNAT%2FATO%2Fft32%22

Barkoczy, S. (2023). Foundations of taxation law (15th ed.). Oxford University Press.

FCT v Myer Emporium Ltd (1987) 163 CLR 199. https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1987/18.html

FCT v Whitfords Beach Pty Ltd (1982) 150 CLR 355. https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1982/8.html

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Income Tax Assessment Act 1936 (Cth).

Income Tax Assessment Act 1997 (Cth).

Sadiq, K., Black, C., Clements, J., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Walpola, S. (2025). Principles of taxation law 2025 (18th ed.). Thomson Reuters.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2023). Australian taxation law (33rd ed.). Oxford University Press.

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Next Assignment: Week 11 Discussion Post

Week 11 Discussion Post — HI6028 Taxation Theory, Practice & Law

For this week’s discussion, you will analyse a recent Australian Taxation Office ruling or case that deals with the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (Cth). Your initial post should be 300–500 words and must identify the key facts of the ruling or case, explain the ATO’s position, and discuss how the decision affects taxpayers or tax advisers.

In your response posts, engage with at least two classmates by comparing the outcomes of their chosen rulings with yours. Consider whether the anti-avoidance provisions are being applied consistently, and identify any gaps or ambiguities in the law. Support your arguments with references to legislation and case law using Harvard style. This discussion contributes to your participation mark and prepares you for the final exam’s essay section on tax avoidance and administration.

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