Problem solving question
Task
Gary Riverhouse graduated with a Bachelor in Information Technology majoring in probability statistics from Charles Sturt University. He is now working for himself as an IT consultant and in the year ended 30 June 2015 he earned $100,000 from this work. He is an Australian tax resident, holds no private health insurance and has no dependents. He decided to apply his knowledge by developing a computer program, Horsemate, to accurately predict the winning horse. Gary developed Horsemate over a period of one year by attending horse races, testing the program and subscribing to several horse racing magazines. He used historical data and information from magazines to input the necessary information into Horsemate to predict the winning odds. By placing hypothetical bets Gary was able to establish that the Horsemate program was reliable and achieved a winning ratio of 4:1. In the year ended 30 June 2015 Gary spent $100,000 developing the program.
Gary decided to allocate 20% of fees earned from his consultancy work to place bets on horse racing informed by Horsemate’s predictions. He set a $500 limit per race and no more than five bets per day. He maintained separate records of all bets placed and the outcomes of those races as well as a separate bank account where he banked these winnings. In the year ended 30 June 2015 his records showed that he had made gross earnings from gambling of $85,000.
Cool Runnings Ltd approached Gary and offered to buy the exclusive rights over Horsemate. Under the terms of the proposed deal, Gary is to provide Cool Runnings Ltd with training for one year in performing an accurate prediction along with all the necessary documentation to ensure that Cool Runnings Ltd can operate Horsemate in the same manner as it was operated by Gary. Any additional training required by Cool Runnings Ltd on Horsemate after the initial one year period will attract a fee of $2,000 per visit. Gary is also required to cease using Horsemate in his future horse bets.
Cool Runnings Ltd offered Gary $50,000 plus 20% of winnings over 10 years or a lump sum payment of $300,000 for the sale of Horsemate.
Required:
1. Explain the income tax status of Gary’s income earned from gambling for the year ended 30 June 2015.Hint: Its business income or hobby or capital gain tax. “Reasonably arguable position”. Compare gambling business and not a business.
2. Analyse the relevant tax treatment of both options for sale offered by Cool Runnings Ltd to Gary.Hint: its income or capital.
3. Assuming Gary accepts a lump sum payment for the sale of Horsemate; calculate his taxable income for the year ended 30 June 2015. Hint: assessable income = ordinary income + statutory income.
Writing:
+You must write following an essay structure
1.Introduction
2. Body includes 3 questions (3 parts). Question 1 and 2 has to answer use ILAC model (issue,law,application and conclusion). Question 3 just needs to calculate and explain why you can find this result.
3. Conclusion.
+You must cite the relevant case law and statute law in your answer. Hint: using book (principles of taxation law 2014 or 2015)
+You must use ILAC model to answer the question.
+The following criteria will form the basis of assignment of marks for the problem solving question:
1.Identification of relevant legal issues: Comprehensive coverage and identification of all legal issues, which are discussed with consideration and evidence of all contextual factors and analysis of the relevant law.
2. Explanation of law and citation of relevant legal authority:Provides a complete explanation of the law, justified by relevant taxation law, with no errors. Discussion identifies key statute and case law stating relevant principles and shows insight in identification and discussion of potentially hidden issues. Research of relevant legal authority shows a breadth of investigation through detailed analysis, discussion and tax computation.
3. Application of legal principles to the facts and tax computation:Applies the law to the facts so as to reach a correct conclusion on all issues, with no errors. Argument discusses linkages between facts and the law and considers counter-arguments, completes tax computation correctly if required and evaluates the impacts of applying the law to the situation considering a broad range of factors that may affect the application. Conclusion draws together advice for client.
4. Compliance with the Style Guide, tax computation format and overall structure: Uses Style Guide comprehensively, accurately and consistently. Uses ILAC mode and tax computation format. Extremely well structured and organised, with one main argument introduced per paragraph, supported by well-written supporting sentences.
5. Written expression, calculation and editing:Uses appropriate academic writing which is formal, impersonal and which contains no spelling, grammar,punctuation and calculation errors. Paper demonstrates careful proofreading.
Presentation
Your answer should not exceed the 3,000 word limit, excluding the bibliography. The assignment must be typed in Times New Roman, 12 point font, 1.5 spaced and with at least a 2.5cm margin on each side. You must use APA referencing system. Case and statute names should be italicised.
Please refer to the presentation guidelines in the subject outline. Please comply with the following rules:
1. Do not re-state the question.
2. Use in-text referencing. Do not use footnotes.
3. Names of statutes should be italicised, and followed by the jurisdiction not in italics, for example: Acts Interpretation Act 1901 (Cth). Note the abbreviation for ‘Commonwealth’ is ‘Cth’ not ‘Cwlth’.
4. The names of the parties must be italicised, but the citation must not, for example: Smith v Jones (1967) 345 CLR 34.
5. An in-text reference to a book should be structured as follows: (Latimer, 2010, p. 75). There is no need to put the author’s initial. Note the positioning of brackets, stops and commas. You use ‘pp.’ only if referring to more than one page. If you are referring to a book with more than one author, the in-text reference would be as follows: (Smith et al, 2002, p. 78).
6. An in-text reference to the subject’s Modules should be structured in brackets as per the following example – obviously you will alter the reference depending on the subject, year of study and Module number : (CSU LAW301 Modules, 2015, Topic 7).
7. Do not start a new line simply because you are starting a new sentence.
8. Be careful of apostrophes: director’s = of a director, directors’ = of many directors, directors = many directors. Also particularly prevalent is confusion between its (it possessive) and it’s (contraction of “it is”).
9. The following words always start with a capital letter: Commonwealth, State, Act, Bill, Regulation, Constitution, Parliament. Do not unnecessarily capitalise other words.10. One should not use terms such as can’t, won’t, don’t and shouldn’t, neither should one use “i.e.” and
“e.g.” in formal writing.
11. A sentence must always begin with a full word and a capital letter – so a sentence would start
‘Section 55 says…’, not ‘S 55 says…’ or ‘s 55 says…’
12. Start each paragraph on a new line, and leave a clear line gap after the preceding paragraph.
13. You must put page numbers on your assignment.
14. Quotations, and excerpts from legislation should be indented from the rest of the text in a separate paragraph. The text in quotations should not be in italics.
15. You must end your assignment with a bibliography that is divided into three separate parts, listing statutes, cases and books / articles / on-line Modules.
16. A listing of a book in a bibliography should appear in accordance with the following format: Barkoczy, S (2015). Foundation of Taxation Law 2015, (7th edition), North Ryde: CCH. If listing a book with multiple authors, do so as follows:
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2015), Principles of Taxation Law 2015, (8th edition), Pymont: Thomson Reuters
17. When listing statutes at the end of your assignment you should conform to the format: Income Tax Assessment Act 1997 (Cth). List the statute only once – you do NOT list individual section numbers relied on. You should not list textbooks as the source of Acts – the Act itself is its own source.
18. When listing cases conform to the format: Allied Mills Industries Pty Ltd v FC of T 89 ATC 4365.
19. When listing article conform to the format: Jones, J ‘The new analysis of law’ (2010) 4 Journal of Recent Law 34.
20. When listing CSU Modules conform to the following format: CSU LAW301 Modules.
21. Make sure that your sentences are grammatical – it may be useful to read your assignment out loud if you have any doubts about this.