LAWS20023 Australian Taxation Law
Term 2 2015
Due date: Monday 7th September 2015 11:45PM AEST
Weighting: 30% - This assignment is worth 60 marks in total. Marks will be divided by 2 to give the total out of 30 marks for the weighting of 30%.
Length: There is no word limit. Marks awarded to each
question are indicative of the amount of information required to comprehensively answer the question.
While the assignment is largely based on material covered, you are free to research and seek advice as widely as you find necessary - there are no limitations as to sources. However, sources should be appropriately referenced.
Note that as the assignment is for assessment purposes, more is expected than just the calculations in a tax return. If there are any issues that require clarification, you should provide a brief discussion of the matter and justify any conclusions you may reach. Where there are figures provided without adequate justification, marks will not be awarded.
The assignment is to be submitted online in Moodle. Submission must consist of one (1) document only. This document must be in Word format only ie .doc or .docx. Required file name: student surname_student number_LAWS20023_ASSESS QUESTION 1 (12 marks)
Fast Ed is the owner of a new and second hand car business. He is really good at wheeling and dealing in the car selling business but is not very good at understanding the tax effect of some of his deals. Explain the tax effect of the following activities. (Each subsection is worth 3 marks.)
a) Fast Ed has several different cars in stock at year-end and is not sure how to value them or if he has different valuation options available. Explain in your own words the options Fast Ed has available to value his stock.
b) Fast Ed gave Slick Sam, a creditor, a car, which was in stock. The car was given in exchange for a debt of $18,000 Fast Ed owed to Slick Sam. The car cost Fast Ed $17,000 and was on the showroom floor for sale for $19,000.
c) Fast Ed really liked one of the cars that were traded in. He took it home for his daughter who now uses it everyday. He decides he is not going to sell this car and keep it for use in the family. He purchased the car for $19,000 and it could have been sold for $21,000
d) Fast Ed decided to put some of the Ford hatchbacks on sale for only $18,000. Ford had just announced a new model hatchback and it has great reviews. He was really concerned that customers would not consider buying the older models if he did not drastically reduce the selling price. Other dealers have told him they were ‘not moving’. The Ford hatchback had cost $22,000 and was originally selling for $28,000. At the 30 June Fast Ed had 3 in stock.
QUESTION 2 (21 marks)
Various taxpayers receive the following amounts during the 2014/15 income tax year:
a) Salary income of $50,000 and a bonus of $10,000 from an employer.
b) A prize of $2,000 for the best TV advertisement of the year.
c) $500 received by an employee from an employer for costs incurred to travel to Sydney for work. The employee bought a return ticket on sale for only $120 and stayed with a friend while in Sydney. One of the conditions of the work related trip was that the employee could keep whatever remained of the $500 as long as the work required to be performed in Sydney was completed.
d) An iphone worth $1,000 from a client.
e) $10,000 awarded as damages for personal injuries incurred by an individual in a car accident.
f) A taxpayer buys a share during the year for $5. On the 30 June, the taxpayer still owns the share but it is now trading at $7.50
g) A taxpayer manages to ‘acquire’ some stolen televisions. He sells 15 of them and makes $10,000 during the tax year.
Discuss the assessability or not of the above amounts. Each amount discussed is worth 3 marks.
QUESTION 3 (6 marks)
Briefly explain in your own words (max 300 words) what a progressive tax rate structure is.
QUESTION 4 (6 marks)
Charles is an accountant and is keen to become a partner in one of the big international accounting firms. In order to do so he knows that he needs to gain some international experience. He secures a position with another large accounting firm in the US with a contract for 18 months. He sells his apartment in August 2014 in Sydney and buys a similar apartment a few weeks later in New York. He joins the local gym and rugby team. He volunteers at the Lyons Club on weekends. He has one brother that lives in the UK and his parents have already passed away. Charles is not married and has no children. At the end of the 18-month contract, Charles decides he would like to gain a little more experience and extends his contract another 12 months.
With regards to the Domicile test, would Charles be considered a resident or not of Australia for the 2014/15 income tax year? Discuss the factors the ATO would consider in making their decision.
QUESTION 5 (15 marks)
a) Josh owns a boat that his neighbor, Ben, is interested in buying but Ben wants to try out the boat first. On the 1 January 2015 Jim agrees to hire the boat to Ben and the agreement provides that Ben will buy the boat at the end of three years unless Ben decides to buy the boat sooner. Josh agrees that, if Ben does buy it, Josh will apply the hire fees against the agreed purchase price. Some months later, Ben inherits some money and advises Josh he would like to buy the boat. The sale is concluded on the 1 June 2015.
b) Mark acquired an asset on 1 June 2008 for $50,000 and on the 29th June 2015 the asset is destroyed by fire. The asset was not insured.
c) On the 1st of June 2015 Joe grants Ashleigh the option to purchase his beach house in Byron Bay. Ashleigh pays $2,000 for the option.
d) John purchased a property on 1 July 2009 for $250,000. The property was rented out between 1 July 2009 and 30 June 2010. From 1 July 2010, he used the property for his main residence until it was sold on the 30 June 2015 for $400,000. (Calculations to be performed in years and not days.)
e) Steve acquires a home in July 2005 for $375,00. In March 2008 he converts the separate garage into an office for his financial planning business and commences business. The garage comprises 20% of the floor space of the home. He sells the property in December 2014 for $700,000. The market value of the house in March 2008, when the garage was converted for income producing use was $500,000.
With reference to each of the above situations, outline the Capital Gains Tax consequences of the transactions. Each subsection is worth 3 marks.