Explain How Aragorn Lives And Works In The Two Kingdoms
ASSIGNMENT
Question #1
Aragorn, lives and works in The Two Kingdoms. He is a sole trader in the buying and selling of swords, axes, knives, pikes and other instruments of mayhem throughout the Two Kingdoms. He has also invested in the purchase of metal working shops and forges in The Shire and Landover. The end of the Great War brought with it an economic downturn which negatively impacted his weaponry business leaving him with large debts to creditors as well as an outstanding business loan of which the Elven Bank is now demanding repayment. He has requested your help with regards to his tax position (specifically whether each scenario represents a trade or not) on the following transactions which he hopes will raise enough money to …show more content…
pay off his creditors as well as the bank debt.
(a) His family home, gifted to him by his father, is situated in Minas Tirith and is built on a large plot near the town centre. He has had an offer to sell it for a substantial profit. The developer who will be buying the property has offered to pay for the plot partly in cash and partly by giving him a penthouse in a new building.
Aragon family house was a gifted to him by his father in which the sale of it does not lead to a commencement of trade as this was not the intended purpose of the house. The method of acquisition, however, is evident as the house was given to him by his father. Therefore, it is unlikely for such an asset to be considered for trading as is seen in Taylor V Good (UK, 1974) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later.
(b) Five years ago Aragorn purchased a plot of land in his own name in the coastal village of the Dead Marshes. The land had no agricultural or recreational value. It could only be used for residential purposes. The purchase was financed via a bank loan with the Elven Bank. The offers he has received for the land, even in the current depressed economic climate leave him with a small profit and he is considering selling.
Aragorn purchasing of the land does not amount to a trade. Assets for trading are usually kept for a short period of time before disposal. The land was acquired 5 years ago which makes it unlikely for its disposal to be considered a trade which speaks to Length of period of ownership as is seen in a case of The Wisdom V Chamberlain (1969) which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Method of financing speaks to a loan that was taken out on which interest was charged and can be assumed that the item which was acquired when sold can cover the principal, interest and make a small profit as is seen in the case of Wisdom v Chamberlain.
Motive is also evident as even though his original intention was not to trade, after being offered a considerable amount he had consideration to sell as in the case of Kirkham v Williams which states a demolition contractor purchased a lot of land and used it for storage and office space. Subsequently he got permission to build a large house on the lot which he eventually sold and moved his business elsewhere. With acquiring the land it was viewed as a capital asset thus selling the land was consistent with the land having been purchased also as a trading asset and he was charged tax on the profits from the sale and appealed to the Court of Appeal where the decision was that the lot was acquired and sold as a capital asset.
(c) Two weeks ago Aragorn purchased a commercial plot of land in Minas Tirith with a view to holding on to it for five years and then selling it. The purchase was financed mainly via a bank loan with the Elven Bank. He is now compelled to sell the land to help pay his debts. He is likely to generate a small profit from the sale.
Aragon purchased a commercial plot of land with the view of holding for 5 years before selling, however he was compelled to sell it before to cover his debt to make a small profit, with this it states a clear intention of trade.
Method of Acquisition was also displayed through his recent acquisition of the land with the expectation of holding it for only 5 years which suggest he intention to make a profit but was compelled to sell earlier to offset his debts as seen in case Taylor V Good (UK, 1974) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later. Method of Financing is also represented through the means by which Aragorn acquire the finances to purchase the land and now reselling to cover the principal, interest and enough to gain a small profit to offset his debts Wisdom V Chamberlin which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Motive is clearly stated as Aragorn only wanted to purchase the land to gain a small profit to cover is initial expenses of the loan and his debts as well and this can be seen in the case of Wisdom V Chamberlain as above.
.
(d) Aragorn visited a dwarf blacksmith, Gimli, and bought his entire inventory of mithril armour and enchanted blades. During a minor war between the dwarves and the elves, he was able to dispose of the entire inventory of mithril armour and enchanted blades in a single transaction.
Aragorn bought inventory of mithril amour and enchanted blades with the main motive of trading because of the minor war between the Dwarves and the Elves.
Subject matter of the realisation which speaks to when certain items/commodities are bought and held for trade when they are in demand in accordance to their nature as can be seen in the case of Rutledge v I.R.C. which illustrates that a taxpayer who was a moneylender and had an interest in a cinema company, purchased a million rolls of toilet paper and shortly after was sold the million rolls. The taxpayer claimed that the money made was a capital gain and was fther stated by the UK commissioner that trading was …show more content…
upheld.
Motive to sell was also expressed in the scenario because of the small war stirred up between Dwarves and the Elves which in turn became a means to earn an income due to the demand of weaponry and this can be seen in Kirkhan v Williams (UK 1991) which states a demolition contractor purchased a lot of land and used it for storage and office space.
Subsequently he got permission to build a large house on the lot which he eventually sold and moved his business elsewhere. With acquiring the land it was viewed as a capital asset thus selling the land was consistent with the land having been purchased also as a trading asset and he was charged tax on the profits from the sale and appealed to the Court of Appeal where the decision was that the lot was acquired and sold as a capital asset.
(e) Aragorn is the owner of a painting by artist Sauron, which was given to him by his grandfather many years ago. He has had an offer of 70.000 gold pieces for the painting. Aragorn has never previously sold any works of
art.
Aragorn is the owner of a painting by artist Sauron, which was given to him by his grandfather so this does not infer a trade. Method of acquisition is proven to be a useful badge as the art work was given to him to by his grandfather as a gift this can been seen in the case of Taylor V Good (UK, 1991) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later. Length of period of ownership is also evident as he had the painting for a number of years before he was approach with an offer of 70.000 gold pieces and this can be seen in Wisdom v Chamberlain which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Question #2
Define and distinguish between a contract of service and a contract for services. You are required to outline at least ten differences Contract of Service is an agreement that can be written, verbally expressed or implied by a person who agrees to employ someone as an employee and a person who agrees to give a service as an employee. Legally an employee is under the contract of service and therefore is subjected to the supervision, direction and control of the employer in respect to the work that is to be executed. The matter of control has been emphasized by the court through important deciding factor whether the relationship exist between the employer and the employee in such case as Ashenheim V Commissioner of Income Tax (Jamaica, 1970), which states that tax payer Sir Neville Ashenheim sought to establish that he had a contract for service (that is he was self-employed). This was rejected on the basis of a protracted case which went as far as the Privy Council, which states that “although the duties of the ambassador were not stated in the letter of appointment it was well known that the performance of the duties as an ambassador was subject to the ‘direction and control’ of the government”
Contract for Service is a representation of an independent business in which the individual is therefore responsible for his/her payment of Taxes.
Contract of Service Contract For Service
Individual (employee) is subject to the supervision, direction and control of another person. An individual who is not subject to the supervision, direction and control of another person.
Individual (employee) holds and integral position within the organization. An individual who does not hold an integral position within the organization.
Individual (employee) does not conduct business on his account. The performer’s right to provide services to more than one person at a time with a separate contract between the performer and each payer.
Contract is a legally binding exclusive service agreement between the performer and player. Performer provides his own equipment
.
Tools, material and work place are provided by payer (employer). Payment of a fixed amount or commission for the complete job rather than periodic payments.
Individual receives vacation leave and any other staff related benefit. Performer assumes his/her own financial risk and has responsibilities for his/her investment and management.
Performer is required to file regular, oral or written status reports with payer. The Performer does not earn a Salary.
Individual earns a salary weekly, bi-weekly or months. The performer is liable to file his/her own taxes
Taxes are deducted by the employer The performer is in charge of his/her own level of performance
Incentives are given to boost performance of employee such as bonuses. The performer is in charge of finding his/her own contracts
Question #3
Briefly outline seven facts that would support a finding that a company was resident in Jamaica during a particular year of assessment. You are expected to briefly define what is meant by a Year of Assessment.
Resident in Jamaica can be defined by the Financial Services Commission (FSC 2004) as “an individual is a resident of Jamaica if he/she is in the island for a period of 183 days or periods of six (6) months or more in any tax year of assessment. As a resident, the individual is taxable on all income arising on Jamaica as well income from elsewhere: that is his world income whether it is received in Jamaica or not, subject to any double taxation treaties with country where they are ordinarily resident that is their usual place of abode.” Tax payers are expected to pay all taxes and income in respect to the year of assessment, year of assessment is defined as the period of twelve months beginning on the first day of January each year and ending on the last day of the year December (Mendes and McLean, 2003).
The facts supporting that a company is resident in Jamaica is as follows:
• A company which is incorporated in Jamaica is residence in Jamaica.
• Should the Board of Directors meet in Jamaica, then the company is residence in Jamaica.
• Where some members of the Board of Directors are not physically present in the island (teleconferencing); if control and decision making resides in Jamaica, then the company is resident in Jamaica.
• If the company’s registered office is in Jamaica.
• If the physical structure is in Jamaica, it m may be indicative but not conclusive that the company resides in Jamaica.
• Where the Board of Directors meets physically, is where management is exercised, such a company therefore, is resident in Jamaica.
• If an entity, apart from the Board of Directors, seems to be making decisions and those decisions carry, then if that company is in Jamaica, the company therefore, is resident in Jamaica.
Question #4
(1) What are the different rates of tax which apply to corporate taxpayers in Jamaica? You are required to state the type of industry if relevant to your answer. (5 marks)
According to Essentials of Jamaican Taxation 5th Edition ( Mendes, Mclean & Silvera-Finnikin 2015)
Industry Tax Rate % Effective Dates
Regulated Companies 33 1/3%
Unregulated Companies 25% From 1st January, 2013
Large unregulated Companies 30% From 1st April, 2013
Building Societies Special rate 30% (no change)
Life Assurance Companies 5.5% Premium income from 1st May, 2014
Life Assurance Companies 25% (no change)
(2) What is meant by a principal member of a company? What are the implications of amounts paid to same?
Principal members as stated by the Jamaican income tax legislation are known as major shareholders. These members have considerable power or influence over the policy and decision making of the board of director. Also, the principal member is a person who is in relation to the corporate body and is beneficially entitled to exercise more than five percent of the voting power.
Question #1
Aragorn, lives and works in The Two Kingdoms. He is a sole trader in the buying and selling of swords, axes, knives, pikes and other instruments of mayhem throughout the Two Kingdoms. He has also invested in the purchase of metal working shops and forges in The Shire and Landover. The end of the Great War brought with it an economic downturn which negatively impacted his weaponry business leaving him with large debts to creditors as well as an outstanding business loan of which the Elven Bank is now demanding repayment. He has requested your help with regards to his tax position (specifically whether each scenario represents a trade or not) on the following transactions which he hopes will raise enough money to …show more content…
pay off his creditors as well as the bank debt.
(a) His family home, gifted to him by his father, is situated in Minas Tirith and is built on a large plot near the town centre. He has had an offer to sell it for a substantial profit. The developer who will be buying the property has offered to pay for the plot partly in cash and partly by giving him a penthouse in a new building.
Aragon family house was a gifted to him by his father in which the sale of it does not lead to a commencement of trade as this was not the intended purpose of the house. The method of acquisition, however, is evident as the house was given to him by his father. Therefore, it is unlikely for such an asset to be considered for trading as is seen in Taylor V Good (UK, 1974) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later.
(b) Five years ago Aragorn purchased a plot of land in his own name in the coastal village of the Dead Marshes. The land had no agricultural or recreational value. It could only be used for residential purposes. The purchase was financed via a bank loan with the Elven Bank. The offers he has received for the land, even in the current depressed economic climate leave him with a small profit and he is considering selling.
Aragorn purchasing of the land does not amount to a trade. Assets for trading are usually kept for a short period of time before disposal. The land was acquired 5 years ago which makes it unlikely for its disposal to be considered a trade which speaks to Length of period of ownership as is seen in a case of The Wisdom V Chamberlain (1969) which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Method of financing speaks to a loan that was taken out on which interest was charged and can be assumed that the item which was acquired when sold can cover the principal, interest and make a small profit as is seen in the case of Wisdom v Chamberlain.
Motive is also evident as even though his original intention was not to trade, after being offered a considerable amount he had consideration to sell as in the case of Kirkham v Williams which states a demolition contractor purchased a lot of land and used it for storage and office space. Subsequently he got permission to build a large house on the lot which he eventually sold and moved his business elsewhere. With acquiring the land it was viewed as a capital asset thus selling the land was consistent with the land having been purchased also as a trading asset and he was charged tax on the profits from the sale and appealed to the Court of Appeal where the decision was that the lot was acquired and sold as a capital asset.
(c) Two weeks ago Aragorn purchased a commercial plot of land in Minas Tirith with a view to holding on to it for five years and then selling it. The purchase was financed mainly via a bank loan with the Elven Bank. He is now compelled to sell the land to help pay his debts. He is likely to generate a small profit from the sale.
Aragon purchased a commercial plot of land with the view of holding for 5 years before selling, however he was compelled to sell it before to cover his debt to make a small profit, with this it states a clear intention of trade.
Method of Acquisition was also displayed through his recent acquisition of the land with the expectation of holding it for only 5 years which suggest he intention to make a profit but was compelled to sell earlier to offset his debts as seen in case Taylor V Good (UK, 1974) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later. Method of Financing is also represented through the means by which Aragorn acquire the finances to purchase the land and now reselling to cover the principal, interest and enough to gain a small profit to offset his debts Wisdom V Chamberlin which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Motive is clearly stated as Aragorn only wanted to purchase the land to gain a small profit to cover is initial expenses of the loan and his debts as well and this can be seen in the case of Wisdom V Chamberlain as above.
.
(d) Aragorn visited a dwarf blacksmith, Gimli, and bought his entire inventory of mithril armour and enchanted blades. During a minor war between the dwarves and the elves, he was able to dispose of the entire inventory of mithril armour and enchanted blades in a single transaction.
Aragorn bought inventory of mithril amour and enchanted blades with the main motive of trading because of the minor war between the Dwarves and the Elves.
Subject matter of the realisation which speaks to when certain items/commodities are bought and held for trade when they are in demand in accordance to their nature as can be seen in the case of Rutledge v I.R.C. which illustrates that a taxpayer who was a moneylender and had an interest in a cinema company, purchased a million rolls of toilet paper and shortly after was sold the million rolls. The taxpayer claimed that the money made was a capital gain and was fther stated by the UK commissioner that trading was …show more content…
upheld.
Motive to sell was also expressed in the scenario because of the small war stirred up between Dwarves and the Elves which in turn became a means to earn an income due to the demand of weaponry and this can be seen in Kirkhan v Williams (UK 1991) which states a demolition contractor purchased a lot of land and used it for storage and office space.
Subsequently he got permission to build a large house on the lot which he eventually sold and moved his business elsewhere. With acquiring the land it was viewed as a capital asset thus selling the land was consistent with the land having been purchased also as a trading asset and he was charged tax on the profits from the sale and appealed to the Court of Appeal where the decision was that the lot was acquired and sold as a capital asset.
(e) Aragorn is the owner of a painting by artist Sauron, which was given to him by his grandfather many years ago. He has had an offer of 70.000 gold pieces for the painting. Aragorn has never previously sold any works of
art.
Aragorn is the owner of a painting by artist Sauron, which was given to him by his grandfather so this does not infer a trade. Method of acquisition is proven to be a useful badge as the art work was given to him to by his grandfather as a gift this can been seen in the case of Taylor V Good (UK, 1991) which states that an asset may be purchased or acquired as a legacy with no intention to trade, but the intention could be formed later. Length of period of ownership is also evident as he had the painting for a number of years before he was approach with an offer of 70.000 gold pieces and this can be seen in Wisdom v Chamberlain which states the purchase of the silver ingots was financed by a short-term loan, which Mr. Wisdom could not service from his existing funds. The circumstances were such that he knew he had to sell the ingots in the short term in order to clear his indebtedness, the sale of the sliver ingots brought in enough money to repay the loan and pay interest, and leave a profit which was charged to tax.
Question #2
Define and distinguish between a contract of service and a contract for services. You are required to outline at least ten differences Contract of Service is an agreement that can be written, verbally expressed or implied by a person who agrees to employ someone as an employee and a person who agrees to give a service as an employee. Legally an employee is under the contract of service and therefore is subjected to the supervision, direction and control of the employer in respect to the work that is to be executed. The matter of control has been emphasized by the court through important deciding factor whether the relationship exist between the employer and the employee in such case as Ashenheim V Commissioner of Income Tax (Jamaica, 1970), which states that tax payer Sir Neville Ashenheim sought to establish that he had a contract for service (that is he was self-employed). This was rejected on the basis of a protracted case which went as far as the Privy Council, which states that “although the duties of the ambassador were not stated in the letter of appointment it was well known that the performance of the duties as an ambassador was subject to the ‘direction and control’ of the government”
Contract for Service is a representation of an independent business in which the individual is therefore responsible for his/her payment of Taxes.
Contract of Service Contract For Service
Individual (employee) is subject to the supervision, direction and control of another person. An individual who is not subject to the supervision, direction and control of another person.
Individual (employee) holds and integral position within the organization. An individual who does not hold an integral position within the organization.
Individual (employee) does not conduct business on his account. The performer’s right to provide services to more than one person at a time with a separate contract between the performer and each payer.
Contract is a legally binding exclusive service agreement between the performer and player. Performer provides his own equipment
.
Tools, material and work place are provided by payer (employer). Payment of a fixed amount or commission for the complete job rather than periodic payments.
Individual receives vacation leave and any other staff related benefit. Performer assumes his/her own financial risk and has responsibilities for his/her investment and management.
Performer is required to file regular, oral or written status reports with payer. The Performer does not earn a Salary.
Individual earns a salary weekly, bi-weekly or months. The performer is liable to file his/her own taxes
Taxes are deducted by the employer The performer is in charge of his/her own level of performance
Incentives are given to boost performance of employee such as bonuses. The performer is in charge of finding his/her own contracts
Question #3
Briefly outline seven facts that would support a finding that a company was resident in Jamaica during a particular year of assessment. You are expected to briefly define what is meant by a Year of Assessment.
Resident in Jamaica can be defined by the Financial Services Commission (FSC 2004) as “an individual is a resident of Jamaica if he/she is in the island for a period of 183 days or periods of six (6) months or more in any tax year of assessment. As a resident, the individual is taxable on all income arising on Jamaica as well income from elsewhere: that is his world income whether it is received in Jamaica or not, subject to any double taxation treaties with country where they are ordinarily resident that is their usual place of abode.” Tax payers are expected to pay all taxes and income in respect to the year of assessment, year of assessment is defined as the period of twelve months beginning on the first day of January each year and ending on the last day of the year December (Mendes and McLean, 2003).
The facts supporting that a company is resident in Jamaica is as follows:
• A company which is incorporated in Jamaica is residence in Jamaica.
• Should the Board of Directors meet in Jamaica, then the company is residence in Jamaica.
• Where some members of the Board of Directors are not physically present in the island (teleconferencing); if control and decision making resides in Jamaica, then the company is resident in Jamaica.
• If the company’s registered office is in Jamaica.
• If the physical structure is in Jamaica, it m may be indicative but not conclusive that the company resides in Jamaica.
• Where the Board of Directors meets physically, is where management is exercised, such a company therefore, is resident in Jamaica.
• If an entity, apart from the Board of Directors, seems to be making decisions and those decisions carry, then if that company is in Jamaica, the company therefore, is resident in Jamaica.
Question #4
(1) What are the different rates of tax which apply to corporate taxpayers in Jamaica? You are required to state the type of industry if relevant to your answer. (5 marks)
According to Essentials of Jamaican Taxation 5th Edition ( Mendes, Mclean & Silvera-Finnikin 2015)
Industry Tax Rate % Effective Dates
Regulated Companies 33 1/3%
Unregulated Companies 25% From 1st January, 2013
Large unregulated Companies 30% From 1st April, 2013
Building Societies Special rate 30% (no change)
Life Assurance Companies 5.5% Premium income from 1st May, 2014
Life Assurance Companies 25% (no change)
(2) What is meant by a principal member of a company? What are the implications of amounts paid to same?
Principal members as stated by the Jamaican income tax legislation are known as major shareholders. These members have considerable power or influence over the policy and decision making of the board of director. Also, the principal member is a person who is in relation to the corporate body and is beneficially entitled to exercise more than five percent of the voting power.