LAW5230 Assignment Taxation Law Assignment

LAW5230 Assignment
Taxation Law Assignment
Due date: 11 January 2016
Value: 34%
Word 3,000 words (excluding calculations)
Limit:
This assignment consists of three (3) case studies. You must complete all the case studies and all parts of each case study.
Case Study One
John is a 38 year old mining engineer who was born in Queensland. John studied at USQ and spent several years working in mines in central Queensland after graduating. He purchased a house in Mackay in 2010 and lived there with his girlfriend for several years.
In April 2014 he accepted a management role with a global mining company, based in their headquarters in Switzerland. As part of this role he was required to travel to mining construction projects all around the world, as and when directed by his employer. The mining company provided a furnished apartment in Switzerland for it employees, and John shared a two bedroom apartment with a colleague. John stayed in the apartment when he was not travelling to mining projects, and had access to this apartment from April 2014 until August 2015. He estimated that during the year ended 30 June 2015 he had stayed a total of 62 nights in the apartment, as he spent the majority of the year at various mine sites around the world. As John was travelling so much he didn’t have many friends in Switzerland or time to join any sporting or social clubs.

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Initially John had difficulties opening a bank account in Switzerland, so he asked his employer to pay his salary into his Australian bank account. After a few months he was able to open a bank account in Switzerland.
When John left Australia he came to an agreement with his girlfriend that she would rent his house in Mackay, paying a market rental directly into his Australian bank account. He placed items of furniture and a motorbike in storage in Mackay prior to leaving in April 2014. During the year ended 30 June 2015 he visited Australia on two occasions, for a week over Christmas and for his father’s 70th birthday in March 2015.
During the year-ended 30 June 2015 John had the following transactions:
• Salary paid by the mining company AUD$120,000. Of this amount, $20,000 was paid into his Australian bank account and $100,000 was paid into his Swiss bank account.
• The mining company awarded John a bonus for his good service during the year year-ended 30 June 2015. It was paid to John on 15 July 2015.
• Rent of $13,500 paid into his Australian bank account by his girlfriend for the rent of his house in Mackay.
• Interest on his Australian bank account of $250.
• Interest on his Swiss bank account AUD$450, from which $50 withholding tax had been deducted by the Swiss bank prior to crediting his account.
• John was injured on one of his visits to a mine in Africa. John could not work for three (3) weeks and was paid workers’ compensation of $1,000 a week to replace his salary during this time. John also received a one-off amount of $5,000 for the physical injury.
Required:
Discuss with reference to legislation, case law and/or rulings (where relevant) whether John would be considered a resident of Australia for tax purposes for the income year ended 30 June 2015. Based on this conclusion and discussing the source and derivation of income principles, state which amounts would be included in his assessable income for the year. You do not need to consider the consequences of any Double Tax Agreements.

Case Study Two
The following separate scenarios require your advice as indicated:
Part A
Regional Aussie Bank Ltd (RAB) is an Australian resident company that has been making good profits in recent years.
Due to its success it became a target for a takeover by one of the larger banks. During the year ended 30 June 2015, RAB incurred $75,000 in legal, accounting, public relations and printing costs in an attempt to defend itself against the takeover.
One of the services RAB provides is investment advice for high wealth customers. RAB was sued for damages by some of its customers for negligent investment advice that resulted in these customers losing significant amounts of money. The Court awarded the customers $200,000 which RAB paid on 31 May 2015. RAB spent $45,000 on legal fees when the matter went to Court, receiving an invoice from the law firm on 25 June 2015. The legal fees were paid on 10 July 2015.
After successfully defending itself against the takeover attempt, RAB wanted to expand its home lending business. On 1 January 2015 it paid $1,000,000 to a large mining company to be the sole provider of home loans to the company’s employees in regional mining towns for five (5) years.
Required:
Based on this information what amount can RAB claim as an allowable deduction under s 8-1 Income Tax Assessment Act 1997 for the year ended 30 June 2015? Support your discussion with reference to appropriate authority.
Part B
In July 2014 Barry decided to buy a boat for $32,000 to take tourists on fishing trips in Moreton Bay. Barry commences his business on 28 August 2014, charging each passenger $150 per trip. The boat Barry purchased was five years old and had damage to its hull due to the previous owner hitting a submerged rock. Barry had to spend $5,000 to repair the hull in order to make it safe to commence fishing trips. On 1 August 2014 Barry purchased 12 life jackets costing $149 each to comply with safety regulations.
In December 2014 a passenger damaged one of the fishing rod holders on the boat. Barry had to pay $700 to have the rod holder replaced.
A storm in January caused damage to the canvas canopy under which passengers sit while the boat is travelling out to fishing locations. Barry decided to replace the canvas canopy with a fibreglass canopy which would not be damaged as easily in future bad weather. The replacement canopy cost $2,000.
Required:
Discuss with reference to appropriate (and most relevant) legislation, case law and/or rulings whether the expenses described above are deductible for Barry in the year ended 30 June 2015. You should discuss deductibility and timing issues, but DO NOT need to calculate any capital allowances.
Part C
Stella is an accountant employed with an accounting firm in Toowoomba. Stella regularly travels to client’s premises I Toowoomba and the surrounding area during her working day using her own car. On 1 August 2014 Stella purchased a new car for $67,000 which she used both for personal and work-related travel. The effective life of the car is eight (8) years.
The total kilometres travelled to 30 June 2015 was 40,000, with 7,500kms being work-related use.
Stella incurred the following expenses:
Registration $670
Insurance $850 Petrol $2,250
Replacement windscreen $250
The windscreen was badly chipped when Stella was driving to a client along a gravel road, and her insurance did not provide any compensation.
Required:
Advise Stella whether she is entitled to claim an allowable deduction for the use of her car. Calculate the maximum allowable deduction, if any, Stella will be able to claim for the year ended 30 June 2015. Show all workings.
Case Study Three
Billy is a resident of Australia for tax purposes and has informed you of the following transactions which occurred during the income year ended 30 June 2015. Billy also informs you that he has carried forward capital losses from the 2012 year of $11,000. This loss relates to the sale of shares. Additionally he has a $1,200 carried forward capital loss from the 2009 income year in relation to the sale of an oil painting.
House

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During the current income year Billy decided to sell his 4 hectare property near Toowoomba and move to Brisbane. The Toowoomba property had always been used as Billy’s main residence. Billy had never carried on a farming business on the land, only having a few sheep to eat the grass. He first purchased the land on 1 October 2000 for $100,000 plus stamp duty of $2,000. Billy built the house immediately after purchasing the land, and paid $180,000 in construction costs. Billy signed a contract to sell the property for $620,000 on 1 June 2015 and the properly settled on 15 July 2015. The real estate agent’s commission on the sale was $15,000. The real estate agent valued the two (2) hectare yard the house was located on at $420,000 and the remaining two (2) hectare paddock at $200,000.
Coin
Billy acquired a rare Roman coin from his father’s estate. His father had purchased the coin on 1 September 1998 for $1,000. At the time of his father’s death in May 2013 the market value was $6,000. Billy sold the coin for $6,800 on 1 June 2015, incurring $950 in commission fees at the time of sale.
Letter of Advice:
• Provide advice to Billy as to any net capital gain he will have to include in his assessable income for the income year ended 30 June 2015 as a result of the above transactions. Your advice must be in the form of a Client Letter of Advice.
• Your letter of advice should be written in language suitable for the audience (individual taxpayer) and discuss the capital gains tax consequences of each transaction. You should also advise Billy of any record-keeping requirements.
• The calculations of any relevant capital gains should be included in an Appendix to the letter, showing explanation for these calculations. This is where you should make reference to all relevant legislation, case law principles and rulings in approaching this question. Please consult the marking criteria for further information.
100 Marks Total for this Assignment
See Criteria Sheet on next page for mark allocations.
LAW5230 – Taxation Law
Semester 3, 2015
Assignment Marking Criteria Sheet
Case Study 1 – Assessable Income Issues Little
attemp

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t F C B A HD
Identification of legal issues, legislation and case law
Overall the student has identified the
relevant assessable income issues, legislation and where appropriate case law and rulings. 0 0.5 1.5 2 2.5 3
Application
Demonstrated level of understanding of the
specific residency issues in relation to John through the application of the identified law. 1 2 5 6 8 10
Demonstrated level of understanding of the
specific derivation and source of income issues in relation to John through the application of the identified law. 1 2 5 6 7 9
Demonstrated level of understanding of the
specific ordinary and statutory income issues in relation to John through the application of the identified law. 1 2 5 6 7 9
Conclusions
Overall, the student has drawn appropriate and valid conclusions after applying the law. 0 0.5 1.5 2 2.5 3
Total out of 34
Case Study 2 – Deduction Issues Little attem pt F C B A HD
Identification of legal issues, legislation and case law
Overall the student has identified the
deduction issues, legislation and where appropriate case law and rulings. 0 0.5 1.5 2 2.5 3
Application

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Demonstrated level of understanding of the
law relating to allowable deductions for business expenses for RAB. 1 2 5 6 8 10
Demonstrated level of understanding of the
law relating to allowable deductions for repairs for Barry. 1 2 5 6 7 9
Demonstrated level of understanding of the
law relating to allowable deductions for car expenses for Stella. 1 2 5 6 7 9
Conclusions
Overall, the student has drawn appropriate and valid conclusions after applying the law. 0 0.5 1.5 2 2.5 3
Total out of 34
Case Study 3 – Capital Gains Tax Issues Little
attem pt F C B A HD
Identification of legal issues, legislation and case law
Overall the student has identified the
relevant capital gains tax issues, legislation and where appropriate case law and rulings. 0 0.5 1.5 2 2.5 3
Application
Demonstrated level of understanding of
the specific capital gains tax issues in relation to the sale of Billy’s residence. 1 2 4 5 6.5 7.5
Demonstrated level of understanding of
the specific capital gains tax issues in relation to the sale of Billy’s coins. 1 2 4 5 6.5 7.5
Conclusions
Overall, the student has drawn appropriate and valid conclusions after applying the
law (Calculation and explanation of net capital gain, record-keeping).
0 1 2 2.5 3 4
Letter of Advice
Overall clarity of expression, use of grammar and appropriateness of the
language and terminology for a client letter of advice.
0 1 2.5 3.5 5 6
Total out of 28
General Criteria Little attem pt F C B A HD
Ability to use chosen referencing method
appropriately and correctly. Bibliography. 0 0.5 1 2 3 4
Total out of 4
TOTAL (out of 100)
General Comments
Description of Performance Standards;
HD – the student has shown a very high level of demonstrated ability in relation to the stated criteria by covering all valid points in a clear and succinct manner. The student may have also demonstrated an ability to think beyond the facts and recognise the broader implications of the facts, missing facts or alternate arguments.
A – The student has show a high level of demonstrated ability in relation to the stated criteria by either covering all valid points or by covering the majority of valid points in a clear and succinct manner. The student may have very briefly or occasionally shown ability at the HD level.
B - The student has show a good level of demonstrated ability in relation to the stated criteria by covering most of the valid points. The student may have made some minor incorrect statements or missed some minor points.
C - The student has show a satisfactory level of demonstrated ability in relation to the stated criteria by covering the main valid points. The student may have made a number of minor incorrect statements but did make incorrect statements in relation to major points.
F - The student has not shown a satisfactory level of demonstrated ability in relation to the stated criteria by missing some main points or by making incorrect statements in relation to major points.
Little Attempt – The student has not addressed or attempted to address this criterion.

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