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The Business Taxation Assignment

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Question 1 requires students to clearly identify the relevant tax issues, reference all;applicable sections of the Income Tax Assessment Act 1936 and/or the Income Tax;Assessment Act 1997, related tax cases and/or rulings of the Australian Taxation Office. A;suggested format to answer Question 1 is the traditional ILAC approach:1. Identify the relevant issue(s);2. State the relevant law;3. Apply the relevant law to the facts provided;4. Reach a conclusion based on the application of the law to the facts;Students can review past year examples of Business Taxation assignments in the Assessment;folder of the course website. These examples demonstrate some of the better formats used;to present answers, however they do not necessarily contain the correct answer.;2|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;Question 1 | 20 Marks;Your client was born in Sydney on 23 June 1949 but completed all his schooling and;university studies in Brisbane. Your client graduated from the University of Queensland with;a Bachelor of Commerce in 1970 and then worked as an accountant for several major;accounting firms, until he commenced employment as a lecturer in accounting on 1 January;1992 with the Queensland Institute of Technology, now the Queensland University of;Technology (QUT). After nearly 22 years employment with the university your client is;considering a change of career as QUT is currently offering a generous early retirement;package to academic staff at the university. Your client would be eligible for a maximum 40;weeks pay under QUTs early retirement scheme and based on your clients current salary;their gross payment under this scheme is approximately $140,000.;QUTs Human Resources area has advised your client of the following information;1. Year to date gross salary paid as at 1 April 2014 = $140,000;2. Projected full year gross salary as at 30 June 2014 = $160,000;3. Unused Annual Leave = $5,000;4. Unused Long Service Leave = $8,000;5. If your client was to resign rather than accept early retirement, they will only be;entitled to payments relating to any unused annual leave and long service leave.;6. To be eligible to participate in the early retirement scheme all relevant staff must;terminate their employment with the university on or before 4 July 2014.;In addition to the above information you have ascertained your client h as been on;university approved study leave and long service leave since early 2013, travelling around;Europe and the Americas on a working holiday researching material for a new Accounting;and Finance textbook he is writing. He is currently in Seville, Spa in but will return to;Brisbane if he decides to accept the early retirement offer from the university.;As part of your clients research into their new textbook they have participated in several;financial spread betting activities offered by a company operating in Australia. This company;3|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;holds an Australian Financial Service Licence. Since 1 July 2013, as a result of these betting;activities, your client has managed to make a small profit of $3,000.;You have also ascertained your client received $2,000 in royalties from Thomson Reuters;publishers of his current textbook on accounting and $1,000 in interest on a Term Deposit;with the Commonwealth Bank. You do not anticipate your client receiving any additional;income other than that detailed above, between now and 30 June 2014.;Based on all of the information provided determine which receipts, if any, are assessable;income for your client. In particular, your client is seeking your advice as to the taxation;consequences of participating in QUTs Early Retirement Scheme. Your answer should;include exact dollar amounts and where applicable any relevant rates of taxation that will;be applied to this income. Calculations of tax payable are not required. Your answer should;reference all applicable sections of the Income Tax Assessment Act 1936 and/or the Income;Tax Assessment Act 1997, related cases and or rulings of the Australian Taxation Office.;4|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;Question 2 | 20 Marks;Your client is a wealthy investor and property owner. Your client provides you with;information (as detailed below) on various transactions between 1 July 2013 and 30 June;2014. Many of these transactions were undertaken to raise funds for the purchase of a large;industrial complex, which is to be finalised in October 2014.;Your client seeks advice as to what amount(s), if any, must be returned as assessable;income for the year ended 30 June 2014. In particular, you are required to discuss the;capital gains tax consequences of these transactions and determine your clients net capital;gain or net capital loss, if any, for the year ended 30 June 2014.;Your advice should include all calculations and references to applicable sections of the;Income Tax Assessment Act 1997 and if applicable related cases and or rulings of the;Australian Taxation Office.;1 | Holiday House in Blue Mountains. On 3 June 2014 your client signs a contract to sell;their holiday house in the Blue Mountains of New South Wales for $400,000. Your client;acquired this property on 8 January 1991 for $100,000. The property is used solely by;your client for holidays and family gatherings. They incur $120,000 in local council rates;and land taxes during the period of ownership. The contract of sale stipulates that a;deposit of $40,000 is payable to your client when the contract of sale is signed and the;balance is payable in three equal instalments on 3 September 2014, 3 December 2014;and 3 March 2015. On 4 June 2014 your client incurs $3,400 in real estate agent fees in;respect of the sale of the house.;2 | Rental Property | Your client purchased an investment property for $520,000 in;April 2007. The property was rented during the entire period of ownership through a;local real estate agency. Your client incurs the following costs since purchasing the;property:a) $10,000 in stamp duty when acquiring the property.;b) $3,000 in legal costs and search fees when acquiring the property.;c) $750 in repairs to lighting and plumbing.;5|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;d) $10,000 to the real estate agency to collect rent and organise regular;maintenance of the property.;e) $3,000 to the local council as a levy to have overhead mains power converted;to underground power. This was the result of a joint state government and;local council project to remove power poles and power lines from certain;suburbs in the local council area.;f) $7,000 to construct a new concrete retaining wall on the property to prevent;erosion.;g) $1,500 to the local council for a fine for failing to obtain the required council;approval for construction of the retaining wall on the property.;In October 2012 your client was advised by the State Government they intended to;resume his investment property to make way for a new transport corridor for buses.;Your client incurs $7,000 in legal fees seeking advice about his legal options to resist;the property resumption. In November 2013, after significant negotiations between;your client, his legal representatives and the government, it was agreed the property;would be resumed for a price of $750,000. It was also agreed that the government;would pay interest at a prescribed rate between the original notified date of the;resumption in 2012 until the date compensation is finally paid. On April 2014 your;client receives the $750,000 compensation payment and an additional $20,000;representing the agreed interest payment.;3 | Land (#1) Gold Coast Hinterland. In September 1984 your client purchased a 2;hectare block of land in the Gold Coast hinterland at a cost of $50,000. In July 2013 you r;client received approval from the Gold Cost City Council to subdivide this land into two 1;hectare blocks. The costs associated with obtaining this approval and subsequent works;to subdivide the land amounted to $50,000. The titles to the new subdivided blocks;were registered on 15 April 2014. During your clients period of ownership of the land;they incurred $30,000 in council rates. Both blocks of land went to auction in May 2014;with one block selling for $300,000 and the other block for $400,000. The auction costs;totalled $7,000.;6|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;3 | Land (#2) Gold Coast Hinterland. Your client also acquired an adjoining 5 hectare;block of land in November 2001 for $150,000. Your client constructed a house on this;land during 2002 at a cost of $250,000 and used the house as his main residence from;January 2003. In July 2013 your client received approval from the Gold Cost City Council;to subdivide the 5 hectares of land into four separate blocks, a two hectare block on;which his house and surrounding land were situated and three 1 hectare blocks. The;costs associated with obtaining this approval and subsequent works to subdivide the;land amounted to $200,000. The titles to the new subdivided blocks were registered on;15 April 2014. During your clients period of ownership of the land they incurred $50,000;in council rates. The three one hectare blocks of land went to auction in May 2014 with;each block selling for $300,000. The auction costs totalled $9,000.;4 | Shares ABN Ltd. In June 2007 your client acquired 5,000 shares in ABN Ltd at a cost;of $15.00 each. On 31 May 2014 these shares were sold for $16.00 each. Your client;incurred $1,500 in stamp duty on the purchase and $500 in stockbrokers fees on the;sale. The company has paid no dividend since the shares were purchased which was the;major reason for selling the shares. Your client borrowed $50,000 to help fund the;purchase of these shares, incurring $6,000 in interest between 2007 and 2014. The ATO;has advised that this interest cannot be claimed as a tax deduction.;5 | Inheritance. In June 2001 your clients mother passed away and her will bequeathed;a family heirloom to your client. The item was a painting by Australias prominent;landscape painter Arthur Boyd. Your clients mother was a close friend of Boyd and she;told her family Boyd gave her the painting in 1951. Your client had the painting valued;by a local art gallery for insurance purposes when their mother died. The valuation;indicated the painting was worth $700,000. In December 2013 your client decided to gift;the painting to the Queensland Art Gallery under the Cultural Gifts Program. Your client;had the painting expertly examined for valuation purposes by two approved valuers;recommended by the Gallery and the agreed average value of the painting was;$1,200,000. During your clients period of ownership, they paid $30,000 in insurance on;the painting and $1,000 to have the painting valued in 2001 and $9,000 to have it valued;in 2013.;7|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;Additional information relevant to your client;Your client also has a significant capital loss carried forward from the 2011-2012 tax;year. These losses total $180,000 and relate to losses from the sale of shares during;the 2008 Global Financial Crisis.;You can assume your client is not an eligible Small Business Entity. Therefore the;Small Business CGT concessions do not apply to any capital gains made in the year of;income.;You can also assume your client is not carrying on a business in respect of any of;these assets.;8|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;Marking Guide for the Assignment;In marking the assignment answers will be graded on the criteria listed below.;Submitted assignments must be of a professional standard. When awarding a mark for each;question, consideration will be given to the standard of presentation. A professional;presentation contains no spelling, grammatical or formatting errors.;Assignments will be marked online and made available to students before the end of the;semester.;Question 1 | The general criteria for Question 1 are as follows;0-1;Answer demonstrates a fundamental misunderstanding of the taxation issues;contained in this assignment and does not answer the questions asked.;2-8;Answer is partially incomplete, it includes a correct approach to the taxation;issues and would be acceptable if the answer was completed.;9-15;Answer includes a correct interpretation of some the relevant taxation issues.;The answer contains insufficient referencing to the relevant provisions of the;Income Tax Assessment Acts, or the answer contains insufficient identification of;any relevant cases and/or Australian Taxation Office rulings.;16-19;Answer includes a correct interpretation of most of the taxation issues. The;answer contains sufficient referencing to the relevant provisions of the Income;Tax Assessment Acts and the answer contains some identification of relevant;taxation cases and/or Australian Taxation Office rulings.;20;Answer includes a correct interpretation of all of the taxation issues. The answer;contains all pertinent referencing to the relevant provisions of the Income Tax;Assessment Acts, relevant taxation cases and/or Australian Taxation Office;rulings.;9|Page;LAWS7012 Business Taxation | Assignment | Semester 1 - 2014;Question 2 | The general criteria for each part Question 2 are as follows;0-1;Answer demonstrates a fundamental misunderstanding of the taxation issues;contained in this assignment and does not answer the questions asked.;2-8;Answer is partially incomplete or it includes a partially correct interpretation of the;taxation issues. Issues associated with capital gains tax contain calculation errors.;For example;It fails to correctly calculate most of the relevant capital gains and or;capital losses.;It fails to correctly calculate some of the relevant capital gains and fails to;determine the correct overall net capital gain or capital loss for the current;tax year.;The answer only references some of the relevant sections of the Income Tax;Assessment Act. The answer contains insufficient identification of any relevant;cases and/or Australian Taxation Office rulings;9-15;Answer includes a correct interpretation of some the taxation issues. Issues;associated with capital gains tax contain calculation errors. For example;It fails to correctly calculate some of the relevant capital gains and or;capital losses but uses the correct approach to calculate an overall net;capital gain or capital loss for the current tax year.;The answer also references most of the relevant sections of the Income Tax;Assessment Act. The answer contains identification of some relevant cases and/or;Australian Taxation Office rulings;16-19;Answer includes a correct interpretation of most of the taxation issues. Issues;associated with capital gains tax contain minor calculation errors. For example;It correctly calculates all of the relevant capital gains and or capital losses;but fails to correctly calculate the overall net capital gain or capital loss for;the current tax year.;It fails to correctly calculate one of the relevant capital gains and or capital;losses, however it uses the correct approach to calculate an overall net;capital gain or capital loss for the current tax year.;The answer also references all or most of the relevant sections of the Income Tax;Assessment Act. The answer contains identification of most of the relevant cases;and/or Australian Taxation Office rulings.;20;Answer includes a correct interpretation of all of the taxation issues. Issues;associated with capital gains tax correctly calculate all of the relevant capital gains;and or capital losses. It determines the correct overall net capital gain or capital;loss for the current tax year.;The answer also references all the relevant sections of the Income Tax Assessment;Act. The answer contains identification of all of the relevant cases and/or;Australian Taxation Office rulings.;10 | P a g e;Additional Requirements;Level of Detail: Show all work

 

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