Reference no: EM132525679

ACC301 Tax Law - Kings Own Institute

Facts:
Michael operates his own business selling pool equipment and materials as well as servicing swimming pools. During the year ended 30 June 2019 Michael received $915,000 in cash for sales of equipment and materials and for pool services. Wages of $275,000 were paid to his staff. This included an amount of $50,000 paid to his brother. The work of the brother could have been done by an unrelated person for $10,000. On 1 June 2019, Michael paid $4,530 to his lawyer to complete the winding up of a business he had operated at a loss in earlier years. One of Michael's customers bought some pool materials for $600 on credit on 21 June 2018 but could not pay the account which was issued on the same day because he went bankrupt in November 2018. Michael wrote off the debt on 1 July 2019. During the year ended 30 June 2019 Michael paid rates and taxes of $5,270 on a vacant block of land. Michael was thinking of putting a holiday house on the block of land.

Michael made an interest free loan of $500,000 on 1 January 2019 to one of his employees. The employee used the loan for two purposes: 30% for the purchase of an investment property and 70% to pay off his home mortgage. On 1 March 2019 Michael paid the life Insurance premium for one of his employees in the amount of $25,000.

Michael bought a rental property on 4 July 2018 for $1,000,000. He borrowed $750,000 of this money on the same day from the bank to buy the property. The term of the loan was 4 years. The property was leased on 4 July 2018. He received rent in cash from his tenants during the year ended 30 June 2019 in the amount of $95,000. On 1 July 2018 Michael paid the bank a loan application fee of $1,570.

During the year ended 30 June 2019 Michael sold the following assets which were purchased on 1 December 1999 and sold on 30 June 2019.

In addition to the above assets, Michael sold another investment property in NSW on 1 July 2018 for $986,500. The investment property was purchased on 30 September 2010 at a cost of $345,000. He paid stamp duty on the purchase of $2,750 in October 2010. Michael incurred the following expenses in relation to this investment property:
• Interest of $18,800 on the loan to buy the investment property,
• Fine of $5,450 imposed by the local council for breaching council's building regulations,
• Commission of $9,750 paid on 1 July 2018 to the real estate agent who sold the investment property.
Michael had an overall loss for the year ended 30 June 2018 from all his activities of $66,000 (not including capital losses). Included in this loss of $66,000 was a donation to a charity of $3,000. During the year ended 30 June 2018 Michael earned exempt income of $16,000. Michael also had a carried forward Collectable Capital Loss of $3,500 for the year ended 30 June 2018.
The taxpayer wants to minimise his taxable income for this year. Assume all depreciating assets, if any, have an effective life of 6 years. He does not wish to use the SBE election.

Required:

Part 1 What is Michael's assessable income for the year ended 30 June 2019?

Part 2 What fringe benefits tax (FBT) must Michael pay for the year ended 31 March 2019? Assume that Michael cannot claim GST input tax credits for the provision of fringe benefits, if any.

Part 3  What is Michael' net capital gain or net capital loss for the year ended 30 June 2019?

Part 4 What income tax deductions can Michael claim for the year ended 30 June 2019?

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law. If relevant, you must show your calculation. You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question.

Attachment:- Tax Law.rar