Property Law and Income Taxation

 Income Tax

Taxpayer (TP) and Income to tax

1. Person to tax

2. That person's ownership over the property used to earn (labor and windfall gain??)

3. Difference in ownership over such properties at the year end and the year beginning (incremental ownership)

4. Assign the value over such properties owned 

Realization of incremental ownership over property :

1. By sale and disposal of inventories

2. Disposal of Non-Business chargeable assets (NBCA)/ Business Assets (BA)/ Business Liabilities (BL)

3. Pool disposal of Depreciable assets

Interaction of complex property law and income taxation:

- only those rights which entails economic benefits 

- complexity arises when those economic benefits are separable like in case of lease, taxpayer transfer only the right to use such properties

    -TP's initial ownership and final ownership is same (in case of operating lease) with different values of the leased assets

    - but the rent income grant ownership over rent property (hopefully +ve gain)

- another interesting case is that of option(put) over common stocks

    - option only gives right to sell those common stock at future date at the specified amounts

    - this right does not increase the ownership of the TP by sale of common stock as sell option is yet to exercise, he incurred loss of ownership over certain amount to buy such rights 

    - this right is acquired over option and not over common stock hence the taxation goes like that over the ownership of the option

 

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