Australian Taxation Law Assignment Help

Australian Taxation Law Assignment Help

Australian Taxation Law Assignment Help

Issue 1

Issue

Andrew purchased a warehouse on 2014 wherein he paid $1000000 for the land, $800000 for construction and $30000 for repairs. The issue is the price the asset should be recognized in the books for.

Consideration

The purchase of the warehouse by Andrew constitutes a capital asset. A capital gain or loss only arises when the capital asset is sold or transferred. The cost base of the capital asset includes five elements which have been mentioned below(s110-25):

  • Property given or money paid for the asset: The amount paid or the value of the asset given to acquire the asset(sec110-25(2)).
  • Incidental costs of acquiring the CGT asset or that relate to the CGT event: Associated costs expended during the acquisition of the asset such as stamp duty, costs of transfer etc(sec110-25(3)).
  • Costs of owning the CGT asset: The same incudes rates, taxes, cost of repairs etc. However if a deduction has been claimed in a previous year the same have to be excluded(sec110-25(4)).
  • Capital costs to increase or preserve the value of your asset or to install or move it:The same relates to the installing or moving costs associated with the assets(sec110-25(5)).
  • Capital costs of preserving or defending your title or rights to your CGT asset: The same includes legal fees etc(sec110-25(6)).

Conclusion

Hence the price paid to purchase the asset and to repair it would form a part of the cost base of CGT asset.

Issue 2

Issue

Andrew spent $15,000 transferring trading stock from his Sydney premises to his Melbourne premises. The issue in the case is the price at which the stock should be recognized in the books.

Consideration

For the purpose of valuation of stock any one out of the three specified methods can be followed. The section 70-45(1) of the Income Tax Assessment Act 1997 specifies three methods for valuing stock which have been mentioned below:

  • Cost: This method takes into account all the costs that have been incurred to bring the stock to its current state and location. This includes freight, customs, delivery charges etc.
  • Market Selling Value: The market price of the stock in the ordinary course of business management.
  • Replacement Value: The price that needs to be paid for procuring an identical product on the final day of the income year (Philip Morris Limited v FCT (1979) 10 ATR 44; 79 ATC 4352).

Conclusion

Hence, going by the first method the amount paid for transferring the stock will be added to the cost of the stock as the same brings it to its current location of sale.

Issue 3

Part A

Issue

Andrew purchased a knitting machine for his clothing business ad spent money on purchasing it, delivery, installation and AMC. The main concern of this question is to analyze the various elements that should form a part of the cost base.

Consideration

In this case the various costs to be added to the value of the asset have to be determined. For the purpose of deciding the cost base of the CGT asset the below mentioned principles have to be taken into account

  • Property given or money paid for the asset: The amount paid or the value of the asset given to acquire the asset (sec110-25(2)).
  • Incidental costs of acquiring the CGT asset or that relate to the CGT event: Associated costs expended during the acquisition of the asset such as stamp duty, costs of transfer etc(sec110-25(3)).
  • Costs of owning the CGT asset:The same incudes rates, taxes, cost of repairs etc. However if a deduction has been claimed in a previous year the same have to be excluded (sec110-25(4)).
  • Capital costs to increase or preserve the value of your asset or to install or move it: The same relates to the installing or moving costs associated with the assets (sec110-25(5)).
  • Capital costs of preserving or defending your title or rights to your CGT asset: The same includes legal fees etc.(sec110-25(6)).

On top of it section 40-220of the Income Tax Act 1997 specifies the fact that expenditures of non-capital nature are excluded from the cost of the asset.

Conclusion

Hence, going by the above provisions the value of the asset would be $152000 (150000+1000+1000). The annual maintenance fees of $2000 is an expense which is not of capital nature and hence would not be added to the value of the asset.

Part B

Issue

The issue in this case is the rate and the method that should be chosen for depreciating the asset so that maximum depreciation can be claimed

Consideration

In this question the concern is the choice of the method of depreciation. According to the section 40-65(1) of the Income Tax Act 1997 an organization can free to choose either the prime cost method or the diminishing value method. The prime cost method assumes that the value of the machinery is depreciated equally over the life of the asset whereas the diminishing balance method reduces the balance as per the base value of the asset. Hence the depreciation is more during the initial years and keeps on reducing thereon.

Prime Cost= Asset’s cost × (days held/365) × (100%/asset’s effective life)- Sec40-75

Diminishing Balance Method: Base value × (days held/365) × (200%/asset’s effective life)- Sec40-70

Income year

Prime cost    

Diminishing value    

ending 30 June

deductible amount ($)    

deductible amount ($)    

2015

16,490    

32,981    

2016

30,483    

47,738    

2017

30,400    

28,512    

2018

30,400    

17,107    

2019

30,400    

10,264    

2020

13,827    

6,176    

2021

0    

3,688    

2022

0    

2,213    

2023

0    

1,328    

2024

0    

799    

2025

0    

477    

2026

0    

286 *    

2027

0    

172 *    

2028

0    

103 *    

2029

0    

62 *    

2030

0    

37 *    

2031

0    

22 *    

2032

0    

14 *    

2033

0    

8 *    

2034

0    

5 *    

Conclusion

Hence the diminishing balance method should be adopted.

Part C

Issue

Andrew sold an old computer for $3,000 that he used in his business activities. The adjusted value at the time of sale was $1,000. The cost price of the computer was $6,000. The objective of this case is to analyze the CGT consequences.

Consideration

According to the sec 100-45 of the Income Tax Act 1997 the capital gain has to be calculated in the below mentioned way:

  1. From the CGT event the capital proceeds have to be worked out
  2. The cost base of the CGT asset has to be worked out
  3. The cost base needs to be deducted from capital proceeds
  4. The result if positive is capital gain
  5. If not the asset’s reduced capital needs to be determined
  6. If the reduced cost base is more than capital base the same is capital loss
  7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss.

Conclusion

The computer sold for $3000 attracts the provisions of capital gains tax. Since the computer was a capital asset the excess of sales value over the adjusted value (Value after depreciation) is the capital gains/ (capital loss). Hence in this case the capital gains is $2000 ($3000-$1000).

Issue 4

Part A

Issue

Andrew borrowed $100,000 from the CBA Bank to finance the purchase of his warehouse in Melbourne. He was charged interest at the rate of 10% per annum. The objective of the case is to analyze if the interest cost would form a part of the cost base of the asset.

Consideration

For the purpose of deciding the cost base of the CGT asset the below mentioned principles have to be taken into account

  • Property given or money paid for the asset:The amount paid or the value of the asset given to acquire the asset (sec110-25(2)).
  • Incidental costs of acquiring the CGT asset or that relate to the CGT event: Associated costs expended during the acquisition of the asset such as stamp duty, interest cost on loan for acquiring the asset, costs of transfer etc(sec110-25(3)).
  • Costs of owning the CGT asset:The same incudes rates, taxes, cost of repairs etc. However if a deduction has been claimed in a previous year the same have to be excluded (sec110-25(4)).
  • Capital costs to increase or preserve the value of your asset or to install or move it:The same relates to the installing or moving costs associated with the assets (sec110-25(5)).
  • Capital costs of preserving or defending your title or rights to your CGT asset: The same includes legal fees etc. (sec110-25(6)).

Conclusion

The interest cost would be a part of the value of the asset and would not be charged against the revenue of the organization. However if the same has been claimed as a deduction it would be reduced from the value of the asset.

Part B

Issue

Andrew borrowed $100,000 from the CBA Bank to finance the purchase of his warehouse in Melbourne and cost of establishing the loan was $4,000. The objective of the case is to analyze if the application/processing fee would form a part of the cost base of the asset.

Consideration

According to the second element of the cost base any fees paid to procure a loan or discharge a loan forms a part of the asset as incidental costs of acquiring the asset(sec110-25(3)).

Conclusion

Hence the same would form a part of the value of the asset.

Issue 5

Part A

Issue

Andrew paid a $30,000 non-concessional contribution to the Clothing Manufacturers Complying Superannuation fund. The question in this case is to analyze the eligible contribution

Consideration

The cap for this fund is $540000 over a three year’s period. Anything above the ceiling limit is taxed at a rate of 47%.

Conclusion

Hence the same would be an allowable deduction

Part B

Issue

Andrew paid a $3,000 spouse superannuation contribution on behalf of his spouse to a complying superannuation fund. During the financial year his spouse’s assessable income was $20,000. The question in this case is to analyze the eligible contribution.

Consideration

The contribution made on the behalf of one’s spouse to a complying superannuation fund can be claimed as a deduction if the sum of the spouse’s assessable income, total reportable FBT and total employer super annulation is less than $13800. In that case the contributor would be able to claim a tax offset amount of $540. The maximum permissible contribution is $3000.

Conclusion

However in this case Andrew would not be able to claim the offset.

Part C

Issue

Andrew paid a $40,000 concessional contribution to the Clothing Manufacturers Complying Superannuation fund. The question in this case is to analyze the eligible contribution.

Consideration

The contributions paid to concessional super annulations funds are taxed at a concessional rate of 15%. However there is a limit of $30000 and for members over the age of 40 years the limit is $35000.

Conclusion

Andrew’s contribution over the ceiling limit of $30000 would be included in his income and would be subjected to tax at the marginal rate.

Issue 6

Part A

Issue

Andrew paid $1,000 subscription to the Clothing Golf Club association to entertain his business clients at ‘business lunches’ where various business issues were discussed and negotiated. The objective in this case is to analyze the deductibility of the expense.

Consideration

According to the Tax Ruling TR 97/17social club fees or entertainment fees can’t be claimed as an expense. According to this ruling entertainment constitutes social settings or enjoyment. For instance refreshment drinks served during the office hours at the office premises would not be regarded as entertainment.

Conclusion

Since in this case the meetings took place at a club which is outside the office premises and has a social setting the same would be classified as entertainment expenses and hence would not be allowed as a business deduction.

Part B

Issue

Andrew incurred a $300 parking fine during business hours while delivering goods to one of his clients. The objective in this case is to analyze the deductibility of the expense.

Consideration

According to the section 26-5(1) of the Income Tax Act 1997 fines or penalties under the Australian Lawor Foreign Law cannot be claimed as an expense.

Conclusion

Hence the expense of $300 on account of being fined for parking misconduct can’t be claimed as a business deduction. The decision was supported byCase Y43 91 ATC 412; AAT Case 7273 (1991) 22 ATR 3402.

Part C

Issue

Andrew incurred $6,000 entertainment expenses to help promote and advertise his own brand name ‘Smart Designs’ at a major clothing exhibition in Melbourne which was open to the general public. The objective in this case is to analyze the deductibility of the expense.

Consideration

Generally entertainment expenses by the virtue of section 32-5 of the Income Tax Act 1997 are not allowed as a deduction. However it depends on the FBT (ATO, 2015).

Conclusion

Hence the expense of $6000 would not be allowed as a taxable deduction

Part D

Issue

Andrew was informed that one of his clients who owed him $4,000 was declared bankrupt and will receive no payment. On 30 June 2015 he made a $4,000 accounting provision for bad debts in his accounts and notified his accountant that the debt was bad. The objective in this case is to analyze the deductibility of the expense.

Consideration

According to TR 92/18 Deductions are only allowed where as bad debt has occurred and no deductions are allowed for bad debt provisions. The Income Tax Act does not take into account provisions and actual bad debt should take place in order to claim the deduction.

Conclusion

As a consequence the same can not be claimed as a deduction till the time actual bad debt happens

Part E

Issue

Andrew incurred $150 meal expenses while travelling overnight on business. The objective in this case is to analyze the deductibility of the expense.

Consideration

According to the provision of the Income Tax such expenses can be claimed as a deduction

Conclusion

The same can be claimed as an expense provided proper receipts and records are there to support the same.

More information Taxation Law Assignment

Issue 7

Part A

Issue

Andrew sold an extremely rare 1920 Rolls Royce to the Petrol Head Vintage Car Museum for $87,000. He purchased the car on 9 August 2011 for $17,000 and spent $21,000 to restore it back to its original condition. He also paid $1,500 in advertising costs to sell it. The objective in this case is to analyze the CGT implications.

Consideration

The question here is the taxability of the proceeds arising from the sale of a vintage car. According to the ruling in TD 2000/35 Proceeds arising from the sale of vintage cars would not be taxed as CGT. According to this ruling vintage cars fall in the ambit of cars as defined by the sections of Capital Gains and hence since cars are personal assets the same would not be taxed.

Conclusion

As a consequence the capital gains arising out of the sales of the 1920 Rolls Royce would not be taxable under the provisions of the Income Tax Act.

Part B

Issue

Andrew sold 1000 NAB shares for $35,000. Andrew purchased the shares on 17 May 2010 at a cost of $10,000. The objective in this case is to analyze the CGT implications.

Consideration

The same would be taxed normally as in the case of shares since the retail entitlement offer only applies to individuals.

Conclusion

The same would be normally taxable.

Part C

Issue

At the end of the 2013-14 financial year Andrew had a $10,000 prior year capital loss on sale of a rare manuscript

Consideration

According to the provisions of section 108-15 of the Income Tax Act 1997 manuscripts fall within the definition of collectibles. According to the section 118-10(2) any capital gains or losses from the sale of collectibles is disregarded.

Conclusion

Hence the loss from the sale of manuscripts would be disregarded for this purpose.

Issue 8

Issue

Andrew purchased a new Ford. The purchase price was $75,000. During the financial year he travelled 24,000 km, of which 12,000 were for private use. The rate of depreciation is 22.5 per cent. The objective of the question is o determine the amount of depreciation Andrew can claim.

Consideration

The cost of the car for the purpose of depreciation would be taken to be as $57466 (TD 2014/17). According to the section 40-230 of the ITAA 1997 the limit of car for the ear 2014-15 would be the same as the year 2013-14. This section is useful for the valuation of a car owned by the business. Based on the value arrived the depreciation is calculated.

Conclusion

In the current scenario Andrew has purchased a car worth $75000, however considering the provisions of the above mentioned section the value of the car would be $57466. The depreciation in this case would be $6464.92 ($57466*22.5%*1/2) as the same has been partially used for private purposes.

Issue 9

Issue

For the past five years Andrew and his wife resided in a property that is owned by Andrew’s family company. Andrew used 50% of the premises for income producing purposes. The company sold the property on 1 August 2014 for $475,000. The company purchased the property on 1 August 2009 at a cost of $275,000. The objective of the question is to analyze the CGT implications.

Consideration

For the purpose of CGT the below mentioned points have to be considered:

  • The dwelling was acquired on or after 20th September 1985
  • The first income from the dwelling was produced after 20th August 1996
  • A part of the CGT would be exempt as the same was used to generate income
  • However a full exemption could have been claimed of the CGT event took place immediately after the income was produced

Exception: The home first used to produce income rule does not apply where the assesse choses to treat the dwelling as a main residence before the same ceases to be the main residence.

Conclusion

As the home has been used by Andrew partially for generating income partial CGT would be exempted.

Issue 10

Part A

Issue

Due to his heavy workload Andrew maintains a home office where he finds it convenient to complete some business reports at home. During the financial year he incurred $400 ‘running expenses’ such as cleaning costs, depreciation and repairs of his computer and office furniture, heating/cooling, lighting and telephone calls. The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

For running the expenses from home, running expenses can be claimed.  For instance the floor area used can be used as a factor for apportioning the expenses. For instance heating costs, electricity expenses can be claimed on this basis. Where the floor area is missing the ground for arriving at the expenses should be justified. Instead of recording the actual expenses one can claim deduction at 34 cents per hour used or an established pattern of use. However only additional expenses in case of utilities can be claimed as expense for instance using the same room where the family watches TV will not result in additional electricity expenses. Installation cost of the phone cannot be claimed as an expense however the expenses on calls made can be proportionately claimed (Number of business calls/Total Calls*100). Depreciation can be claimed on the basis of uniform capital allowance system however the simplified depreciation rule can be applied where the turnover of the business is below $2 million.

Conclusion

Hence the expenses can be claimed in the above mentioned manner

Part B

Issue

$3,000 ‘occupancy expenses’ such as mortgage interest, council rates, house insurance, rent and repairs. The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

A business can claim expenses on account of occupancy. However dairy records need to be there wherein the use of the premises for at least 4 weeks in the year is documented (TR 93/30). The expenses can be apportioned for business used based on the floor area used.

Conclusion

Hence the expenses can be claimed by Andrew in the above mentioned manner

Issue 11

Part A

Issue

Andrew paid $5,000 management fees to a professional management agent to negotiate contracts, sponsorship, media contracts, endorsements, advertising and promotional work. The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

Any fees paid by the sports person to negotiate new contract is tax deductible (Spriggs v Commissioner of Taxation and Riddell v Commissioner of Taxation [2009] HCA 22).

Conclusion

The management fees of $5000 can be claimed by Andrew based on the above ruling.

Part B

Issue

Being a little underweight Andrew was instructed by his coach to consume specified quantities of steak potatoes bread beer and sustagen to help keep up his weight during the football season. He spent $700 on additional food to meet his coach’s instructions.The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

The cost incurred on additional training activities advised by the medical instructor or the coach is not deductible. Cost of ordinary meal (Not taken while travelling) is not tax deductible even though the same is taken on the advice of the coach(FCR at 200; ATC at 4414; ATR at 1636). It was affirmed in the ruling that foods and drinks are expenses of private nature that its characteristic would be of private nature.

Conclusion

Hence, going by the above ruling Andrew would not be able to claim these expenses.

Part C

Issue

During a home-and-away football match the field referee reported Andrew for an illegal tackle against an opposing player, and as a consequence the NRL tribunal fined him $1,500.The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

Fines or penalties in relation to on-field activities are tax deductible.

Conclusion

Hence the penalties incurred due to his on-field activities would be claimed as an expense.

Part D

Issue

As Andrew could earn five times more money playing Twenty20 cricket in India, he spent $10,000 on private coaching lessons to improve his skills as a cricketer, in the hope of getting a contract to play professional cricket in India, when his three year contract to play ruby for the Melbourne Storm Rugby Club ends.The objective of the question is to analyze the deductibility of the expenses and the extent.

Consideration

As per the ruling in Spriggs v Commissioner of Taxation and Riddell v Commissioner of Taxation [2009] HCA 22 any fees paid to help the player negotiate a new contract is deductible however the fees paid on account of self-grooming are not tax deductible. Also there needs to be a nexus between rugby and cricket and the same needs to be recommended by the coach as a part of the training program.

Conclusion

The same can’t be claimed as an expense by Andrew.

References

Apps, Patricia and Ray Rees, "Australian Family Tax Reform And The Targeting Fallacy" (2010) 43 Australian Economic Review
Freebairn, John, "Who Pays The Australian Corporate Income Tax?" (2015) 48 Australian Economic Review
ATO, SECTION 70-45 - Value Of Trading Stock At End Of Income Year (2015) Law.ato.gov.au <http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/70-45>
ATO, SECTION 110-25 - General Rules About Cost Base (2015) Law.ato.gov.au <http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/110-25>
ATO, SECTION 40-220 - Cost Reduced By Amounts Not Of A Capital Nature (2015) Law.ato.gov.au <http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/40-220>
ATO, SECTION 32-5 - No Deduction For Entertainment Expenses (2015) Law.ato.gov.au <http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/32-5>