The paper "Rule on Taxation of Lawsuit Settlements and Awards" is a great example of a finance and accounting coursework. Jones, who is an employee of Super Automobiles that deals with automobiles, enters into a futures contract with a broker. The broker is a member of a well-known futures exchange. However, he closes the contract after two months, having made substantial gains of $500,000. He did not make any more contact with the broker. Five months after the transaction, Ruth knocks him down in a road accident. The accident immobilizes and incapacitates him, meaning that he is not able to work again.
In addition, he has to undergo intensive medical care and expensive physiotherapy. He sues Ruth for the losses, including the earning capacity loss, medical and other costs emanating from the accident and non-pecuniary losses. Ruth has insurance coverage with ABC insurance, which pays a lump sum payment of$1 million. Does Jones have any tax obligations? Rule Rule on Taxation of Futures Contracts Taxation of Financial Arrangements (TOFA) is the law that governs how financial products are taxed in Australia. This law is contained in the Income Tax Assessment Act 1997 and applies to certain types of taxpayers (Anderson, 2012).
The following taxpayers are not covered by TOFA unless the elect irrevocably to apply to every financial arrangement they are involved in. These are individuals, investment schemes and superannuation entities which have assets worth less than $100 million, entities that are register by the Financial Sectors Act 2001 and have an aggregate turnover of fewer than 20 million dollars, and any other scheme or entity whose financial assets are worth less than $100 million (Noble & Neill, 2010).
However, the aforementioned taxpayers may still fall within the TOFA law if the financial arrangements end more than a year after it was entered into, and can be described as qualifying security. Qualifying security is financial security where there is a reasonable likelihood that at the time of its issuance, the payments under that particular security, without the interest accrued, exceeds the price at which the security was issued (Keith, 1997). This is something that is unlikely to affect futures contracts. Income tax effects of one’ s entry into a futures contract are determined on whether or not the taxpayer is merely speculating is trading in the futures or is hedging them against a certain exposure (Noble & Neill, 2010).
Abramowitz, K (1997). Tax law changes for damages received on account of
personal injury or sickness. Retrieved from http://www.nysscpa.org/cpajournal/1997/0797/depts/ft.htm
Anderson, N (2012). Income tax treatment of awards and settlements. Retrieved from http://www.komisarbrady.com/pdf/Awards-and-Settlement-Issues-072010.pdf
Keith, R (1997). Financial derivatives: An introduction to futures, forwards, options and swaps. London: Prentice-Hall
Noble, A., & Neil, C. (2010). Taxation treatment of exchange traded futures. Sydney: Deloitte