Case Study One – 35 Marks
Part A – 14 Marks
All Black Pty Ltd (All Black) carries on a retail fashion clothing business in Brisbane, Australia and a similar retail fashion clothing business in Auckland, New Zealand. The annual general meetings and overall strategy meetings of the company are held in Noumea, New Caledonia because the company has a part ownership interest in the Le Median Hotel in Noumea. All Black was incorporated in New Zealand.
Daniel Pty Ltd (Daniel) a resident Australian company owns 49% of the shares in All Black and another 49% of the shares in All Black are owned directly by individual investors who are resident in New Zealand. The remaining 2% of the shares in All Black are owned by Nicholas. Nicholas was born in Australia in 1982 and qualified as a civil engineer from the University of Queensland in 2005 and immediately commenced working with a coal mining company in Central Queensland where he gained substantial experience in open cut coal mining. In March 2012 Nicholas was offered a position with Brazil’s leading coal producer, Copelmi Mineraçao. Copelmi has been extracting coal for more than a century from the State of Rio Grande do Sul and now accounts for more than 80% of the coal for industrial use in Brazil. Copelmi offered Nicholas a two year contract as supervising engineer over a new coal deposit it was developing and Nicholas took up the contract on 1 April 2012. Nicholas is married and his wife and two children (2 and 3 years) live in Brisbane while Nicholas is overseas. Nicholas is provided with accommodation and food by Copelmi at the mining campsite and is provided with four return trips of three weeks each to Australia each year. It is highly likely that Nicholas will extend his contract with Copelmi at the end of the initial two year period.
Required:
1. Nicholas: Provide advice on whether Nicholas is a resident of Australia for the year ended 30 June 2013. Support your discussion and analysis with reference to relevant authority.
(7 Marks)
2. All Black: Provide advice on whether All Black is a resident of Australia for the year ended 30 June 2013. You should make any necessary assumptions you consider appropriate in answering this part of the assignment. Support your discussion and analysis with reference to relevant authority.
(7 Marks)
Part B – 7 Marks
Kate, carries on a business selling home furnishings and she provides you with the following information which relates to her trading stock for the year ended 30th June 2013:
Opening Stock (1 July 2012):
$46,000
Purchases:
$260,000
Freight and Insurance on Stock:
$13,500
Sales of Stock:
$543,000
Closing Stock (30 June 2013)
– Valued at Cost:
$52,000
– Valued at Replacement Price:
$56,000
– Valued at Market Selling Value:
$105,000
You can assume that Kate wishes to make appropriate elections to minimise her assessable income for the year ended 30 June 2013.
Required:
Calculate Kate’s assessable income for the year ended 30th June 2013 on the basis of the above information. Support your discussion and analysis with reference to relevant authority.
(7 Marks)
Part C – 7 Marks
Daniela, a non-resident is a professional tennis player and played in the Australian Open Tennis in Melbourne in January 2013. She is ranked number 4 in the world in women’s tennis and had a really successful tournament and got through to the semi-finals. She received the following in consideration of her playing tennis in Australia from Tennis Australia:
Prize-money of $125,000 paid to her for being a semi-finalist.
Accommodation for the period of the tournament (two weeks) with a market value of $2,800.
Provision of training facilities to practice her tennis for the tournament which would have cost Daniela $5,000 if she paid for these facilities.
Provision of transport from the airport to her accommodation and the tournament venue which would have cost Daniela $2,600 if she paid for those expenses herself.
Assume that Daniela was in Australia for only three weeks in the year ended 30 June 2013 and that she was in Australia solely to play tennis.
Required:
Based on this information what amount will Daniela be assessable on in Australia in the year ended 30 June 2013. Support your discussion and analysis with reference to relevant authority.
(7 Marks)
Part D – 7 Marks
Agnieszka, a resident is a civil engineer who received the following amounts in the year ended 30th June 2013:
Her employer paid the costs of her children’s school fees of $12,000 during the year.
Her former spouse paid her $16,000 during the year to assist towards the maintenance of their 14 year old child.
She received family tax benefit of $7,000 in total during the year.
She changed employer during the year and her new employer paid her $10,000 as a sign-on payment to induce her to commence employment with the new employer.
She was injured during the year while working and received a lump sum compensation amount of $32,000 to compensate her for permanent damage to her wrist and $12,000 to compensate her for lost income.
Required:
Based on these receipts what amount should Agnieszka include in her assessable income for the year ended 30th June 2013? Support your discussion and analysis with reference to relevant authority.
(7 Marks)
Case Study Two – 35 Marks
Part A – 16 Marks
Freightliner Pty Ltd, a resident, operates an interstate freight haulage business and the transport business is very competitive, margins are very slender and deadlines very tight. Freightliner generates around $25m in income each year from its freight haulage business. Freightliner undertook the following transactions to maintain its overall profitability in the 2013 year and future years:
1. Sydney to Canberra (return) route: Freightliner operates a freight route from Sydney to Canberra (return) and there were many transport operators on this route so much so that it was really difficult for Freightliner to make a profit. Freightliner had three trucks on this route but it had significant over-capacity and on some return trips from Canberra to Sydney its trucks travelled empty. To maximize efficiency on this route Freightliner paid another freight firm Yass Express Pty Ltd $60,000 (this amount was calculated by the internal accountant at Freightliner as the net present value of future profits expected from the operational efficiencies) on 28th June 2013 to take over contracts for freight deliveries from Canberra to Sydney. As a result of this transaction Freightliner’s three trucks were operating at full efficiency and the route became quite profitable. The contracts purchased were 3 year contracts expiring in June 2016. It is noted that this is one of a number of similar contracts entered into by Freightliner in the year ended 30 June 2013.
Required:
Provide advice as to whether Freightliner can claim a tax deduction for the $60,000 paid to Yass Express for taking over the freight contracts from Canberra to Sydney from Yass Express. Support your discussion and analysis with reference to relevant authority.
(9 Marks)
2. Late Penalties and Fines: Freightliner’s contracts with Fresh Food Markets Pty Ltd provide strict deadlines for delivery due to the perishable nature of the goods being transported. Where Freightliner’s trucks arrive late Freightliner is penalized $100 for each hour (or part thereof) that each truck is late. For example if a truck is 3 hours late a penalty of $300 is levied and Fresh Food Markets reduces the amount paid for the freight services accordingly. To encourage drivers to make the tight deadlines Freightliner pays its employees a bonus of $50 if they achieve the deadline. To earn the bonus drivers sometimes exceed the road speed limit, do not take appropriate rest breaks and in some cases tamper with the truck’s log book. Where a driver is fined for speeding, not taking sufficient rest breaks or tampering with the log book Freightliner pays the fines on behalf of the employees.
Required:
Provide advice as to whether Freightliner can claim a tax deduction for the late penalties imposed by Fresh Food Markets, the bonus paid to its drivers, and the fines paid on behalf of its drivers. Support your discussion and analysis with reference to relevant authority.
(8 Marks)
Part B – 6 Marks
Petra, 35 years old, a resident, is a cosmetic surgeon who carries on a very successful business providing her services to the rich and famous in Melbourne. Petra’s assessable income from her business is $800,000 per annum. In the year ended 30th June 2013 she had the following outgoings/expenses:
She paid $78,000 into her complying superannuation fund to provide for her retirement and she indicated to the trustee of the superannuation fund that she would be claiming a deduction for this amount.
She paid $3,000 to Fergie’s Weight Loss Centre to undergo a program to reduce weight as Petra considered it critical for her business that she look trim and fit. Petra lost 10 kilos (from 79 kilos to 69 kilos) during the year and she felt so energetic that she was able to work an additional two hours each day and so increase her earnings.
She paid legal expenses of $5,000 to her solicitor to provide advice to her in relation to a complaint a client had in relation to the services they received from Petra. The case is expected to come before the Court in August 2013 but Petra is not confident of success and it is likely she will have to pay compensation to the client if Petra is unsuccessful in Court.
Required:
Based on these expenses what amount can Petra claim as tax deductions in the year ended 30th June 2012? Support your discussion and analysis with reference to relevant authority.
(6 Marks)
Part C – 6 Marks
Victoria, a resident, purchased a new car for $70,000 on 1st July 2011 and used the car 70% of the time for her work with a large accounting firm. The effective life of the car was 8 years when it was purchased. Victoria sold the car on 30th April 2013 for $47,000.
Required:
What amount of depreciation/decline in value can Victoria claim for the year ended 30 June 2013 assuming that she used the diminishing value method (nearest $1)? What will be the balancing adjustment arising on the sale of the car? Support your discussion and analysis with reference to relevant authority.
(6 Marks)
Part D – 6 Marks
Serena, a resident, carries on a business servicing motor vehicles in her workshop and due to the quantity of small tools she has in her business she uses a low-value pool to calculate the decline in value of her depreciating assets. The following information relates to calculating Serena’s deduction for the decline in value of her low-value pool for the year ended 30th June 2013:
Closing balance of her low-value pool as at 30th June 2012: $5,600.
Opening adjustable value of low-value assets added to the pool on 1st July 2012 (100% business): $3,200.
Air compressor purchased on 23rd August 2012 (100% business): $4,000.
Tool set purchased on 15th June 2013 (100% business): $890
Sound system (stereo) purchased on 20th June 2013 (50% business): $670.
Required:
Based on this information what is the decline in value/depreciation on Serena’s low-value pool for the year ended 30th June 2013 (nearest $1)? Support your discussion and analysis with reference to relevant authority.
(6 Marks)
Case Study Three – 30 Marks
Part A – 18 Marks
Murray Pty Ltd (Murray) is a resident company which carries on a number of business and commercial activities and requires your advice in relation to the application of capital gains tax to the following transactions:
1. Motel: Murray purchased a motel complex on 1st July 2006 for $890,000. The motel was in poor state of repair and Murray incurred $430,000 in repairing the motel building on 1st September 2006 to make it suitable to rent out and commenced renting the property to paying customers on 1st December 2006. On 3rd May 2007 Murray upgraded the gravel driveway to the motel with a concrete driveway which had many more advantages over the gravel driveway at a cost of $120,000. On 20th May 2013 Murray entered into a contract to sell the motel for $2.6 million and the contract for the sale settled on 20th August 2013. Murray had claimed deductions of $160,000 under Division 43 ITAA 97 (capital works deductions) for the period that it held the motel.
Required:
Provide advice to Murray as to which capital gains tax event applies to this transaction, the date of the CGT event and calculate any capital gain/(loss) that arises as a result of the transaction. Support your discussion and analysis with reference to relevant authority.
(8 Marks)
2. Commercial Office Building: Murray purchased a commercial office building in 1984 for $750,000 and had used the building as its head office since its acquisition up to 1st October 2012 when it ceased using the property itself and leased it to tenants under a five year lease. The new tenant Andy paid Murray a lease premium of $50,000 upon the granting of the lease and Andy will pay monthly rental amounts of $11,000 to Murray over the next five years. Murray incurred legal expenses of $2,800 in relation to the grant of the lease.
Required:
Provide advice to Murray as to which capital gains tax event applies to this transaction, the date of the CGT event and calculate any capital gain/(loss) that arises as a result of the transaction. Support your discussion and analysis with reference to relevant authority.
(5 Marks)
3. Painting: Murray purchased a water colour painting on 3rd August 2008 for $56,000. The painting was of an Australian landscape painted in 1946 by the famous Australian artist Albert Namatjira. On 4th September 2012 the painting was stolen by thieves and sold by the thieves to a bona fide purchaser for $80,000. Murray had insured the painting for $75,000 at the time of the sale and Murray received the insurance proceeds of $75,000 on 13th April 2013. Murray is aware that the insurance company is pursuing the thieves to recoup its losses. Murray paid $15,600 to insure the painting in the period from 3rd August 2008 and the date it was stolen. However Murray never claimed tax deductions for these premiums because the company considered that the painting was not held for the purpose of earning assessable income.
Required:
Provide advice to Murray as to which capital gains tax event applies to this transaction, the date of the CGT event and calculate any capital gain/(loss) that arises as a result of the transaction. Support your discussion and analysis with reference to relevant authority.
(5 Marks)
Part B – 6 Marks
On 23rd April 2013 Stanislas (64 years old) ceased being a resident of Australia and commenced living in Switzerland. He had been a resident of Australia at all times up to 23rd April 2013. At the time of leaving Australia he owned the following assets:
Asset
Date Acquired
Cost Base
Market value on 23rd April 2013
Farmland in Switzerland
20th June 1982
$230,000.00
$980,000.00
Rental Property in Canberra, Australia
21st September 2006
$870,000.00
$820,000.00
Rental Property in Zurich, Switzerland
14th October 2006
$560,000.00
$720,000.00
You can assume that Stanislas does not wish to make any elections under s 104-165 ITAA 97.
Required:
Provide advice to Stanislas as to the capital gains tax consequences of him ceasing to be a resident and calculate any net capital gain/loss that may arise. Support your discussion and analysis with reference to any relevant authority.
(6 Marks)
Part C – 6 Marks
Novak (62 years old), a resident, sold his retail business on 12th February 2013 and as a result of the sale he will retire. Novak is a small business entity because his annual turnover in the 2013 year was less than $2m. The following information is relevant to determining his net capital gain from the sale of his business:
Asset
Date Acquired
Cost Price
Sale Price
Trading Stock
12th January 2013
$30,000.00
$32,000.00
Depreciating Assets used 100% for a taxable purpose
1st June 2012 (Effective life of 5 years)
$70,000.00
$50,000.00
Business premises
12th September 2001
$200,000.00
$2.5million
You can assume that the business premises are an active asset, Novak has not used any of his CGT retirement exemption limit and that Novak wishes to take advantage of all of the small business CGT concessions available.
Required:
Provide advice to Novak as to the application of capital gains tax to his disposal of the above business assets. Prepare any necessary calculations to determine the net capital gain/(loss) that will arise as a result of the disposal of the business? Support your discussion and analysis with reference to relevant authority.
Call Us: USA +1 862 207 3288