HA3042 Taxation Law
HA3042 Taxation Law
T1 2018 Individual Assignment
Holmes Institute
Assignment Question 1
Hilary is a well-known mountain climber. The Daily Terror newspaper offers her $10,000 for her life story, if she will write it. Without the assistance of a ghost writer, she writes a story and assigns all her right, title and interest in the copyright for $10,000 to the Daily Terror. The story is published and she is paid. She has never written a story before. She also sells the manuscript to the Mitchell Library for $5,000 and several photographs that she took while mountain climbing for which she receives $2,000.
Requirement:
Discuss whether or not the three payments are income from personal exertion. Would your answer differ if she wrote the story for her own satisfaction and only decided to sell it later?
Assignment Question 2
Eric provides his employee with the use of a car for 183 days during the FBT year. During this period the car travelled 16,000 km. Eric purchased the car last year for $50,000. The employee contributed $1,000 towards the cost of running the car and has provided Eric with relevant documentation.
Requirement:
Calculate the taxable value of the car fringe benefit using the statutory formula.
Assignment Question 3
Your client is a parent who lent $40,000 to her son to provide a short-term housing loan. The agreement is that the son will repay $50,000 at the end of five years.
The loan was made to the son without any formal agreement and without any security provided for the sum lent. In addition, the client (the mother) has informed you that she told her son that he need not pay interest. However, the son repaid the full amount after two years and included in his payment an additional amount which was equal to 5% pa on the amount borrowed. Only one cheque was presented for the total amount.
Requirement:
Discuss the effect on the assessable income of the parent.
Assignment Question 4
Scott is an accountant who purchased a vacant block of land in Brisbane on 1 October 1980. On 1 September 1986, Scott built a house on the land. At the time, the land was valued at $90,000 and the cost of construction was $60,000. The property has been rented out since construction was completed. On 1 March of the current tax year, Scott sold the property at auction for $800,000.
Requirement:
- Based on the information above, determine Scott’s net capital gain or net capital loss for the year ended 30 June of the current tax year.
- How would your answer to (a) differ if Scott sold the property to his daughter for $200,000?
- How would your answer to (a) differ if the owner of the property was a company instead of an individual?
Individual Assignment
Question 1 (5 Marks)
The Lotteries Commission conducts an instant lottery called’ Set for Life’ under which a winner who scratches three ‘set for life’ panels wins $50, 000 each year for 20 years. The first $50,000 is payable as soon as the winner is notified, and later amounts are payable on the first anniversary of the first payment. In the event of the death of the winner, the Commission may pay any outstanding amounts to the deceased’s estate.
Requirement:
Is the annual payment income? Give reasons for your decision
Question 2 ( 0 6 marks)
Corner Pharmacy is a chemist shop. It provides no credit sales but accepts major credit cards. It sells item s off the shelf and the proprietor fills prescriptions for cash and for payments made under the Pharmaceutical Benefits Scheme (PBS].
Three ( 03) assistants are employed. The following financial data is provided:
Cash sales --------------------------------------------$300,000
Credit card sales--------- --- ---- ---- ------------- $150,000
Credit card reimbursements ------------- -- ---- ----- $160,000
PBS:
- Opening balance ----------------- ---- ---- ---- --- $25,000
- Closing balance ------------------------- ---- -- $30,000
- Billings ------------------------------------------- $200,000
- Receipts-------------------------------------------- $195,000
Stock
- Opening stock ------- ---- ---- ---- --------------- $150,000
- Purchases--- ---- -----------------------------------$500,000
- Closing stock - ------------------------------------ $200, 000
Salaries ---------- -- ------------------------------- $60,000
Rent ------------ -- ---- ---- ---- -------------------$50,000
Requirement:
On the assumptions that an accrual basis applies and the cost of sales and other outlays are allowable deductions for tax purposes, calculate the pharmacy’s taxable income.
Question 3 (04 marks)
What principle was established in IRC v Duke of Westminster [ 1936 ] AC 1? How relevant is that principle today in Australia?
Question 4 (05 mark s)
Joseph (an accountant) and his wife Jane (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Joseph is entitled to 20% of the profits from the property and Jane is entitled to 80% of the profits from the property. The agreement also provided that if the property generates a loss, Joseph is entitled to 100% of the loss. Last year a loss of $40,000 arose.
Requirement:
How is this loss allocated for tax purposes? If Joseph and Jane decide to sell the property, how would they be required to account for any capital gain or capital loss?
