Reference no: EM131481721

Length: Approximately 2800 words (excluding any calculations)

This assignment consists of two (2) case studies. You must complete all the case studies and all parts of each case study.

Case Study One

Peter is an engineer who was born in Australia. Peter works in Brisbane for large multinatio nal firm. He was recently offered a position in Bangkok with another firm which is a major promotion for him. The position is a 2 year contract with possibility for extension.

Excited by the opportunity to experience a new culture and learn the language, he resigned from his position in Brisbane, and travelled to Bangkok on 05 September 2016.

Peter's partner, Alex planned to join him in Bangkok in December. Whilst in Bangkok, Peter has been living in hotel, however plans to find an apartment to rent once Alex arrives. During the income tax year ended 30 June 2017, Peter earned $8,500 in net rental income from a property he owns in Ipswich and interest income of $420 from money in an Australian bank account.

He also earned $123,000 from his employment in Bangkok. Provide advice to Peter as to whether he is a resident of Australia for tax purposes for the income year ended 30 June 2017 and based on this conclusion, also provide advice as to any amounts of income that would be included in his assessable income in Australia for the year ended 30 June 2017.

Marzena is a property developer and operates her business as a sole trader. As at 1 July 2016, Marzena owned 7 blocks of land with a value of $72,000 each. Marzena had purchased these blocks on 1 July 2012 at a cost of $53,000 each. During the income year ended 30 June 2017, Marzena acquired a further 10 blocks of land in Brisbane with the intention of preparing these blocks for sale at a profit.

The 10 blocks of land cost $81,000 each. Marzena also incurred $3,700 for each new block in relation to land clearing costs and preparation costs. During the year, Marzena sold 11 blocks of land for $100,000 each. Further, she also sold on of these blocks of land to her brother for $60,000.

This was a similar block to one of those sold throughout the year. Additionally, on 1 September 2016 Marzena entered into a contract to sell an entirely separate block of land for $79,000. She had originally purchased this smaller block in Springfield in March 2015 for $81,000.

She had intended building an office block on the land to be used as a ‘shop front' for her business where she could meet with potential clients and conduct her daily activit ies. However, after submitting plans to council (at a cost of $1,800), Marzena was advised that due to

planning restrictions in the area, the building would need underground parking and would therefore cost substantially more. Marzena then decided to sell the land and look for a block in a more suitable area.

Advise Marzena as to whether she will have any ‘assessable income' for the year ended 30 June 2017 as a result of the above transactions regarding her business and also advise whether the sale of the separate block of land would be ‘ordinary income' for the year ended 30 June 2017.

Toowoomba Drilling

Toowoomba Drilling is a medium sized business which specialises in large scale surface and underground drilling. The business operates through a private company, Toowoomba Drilling Pty Ltd. The company has a turnover of approximately $1.5 million and employs around 12 tradespersons and 5 administrative staff.

The value of the large machinery used in drilling has a market value of approximately $20 million. The business enters into contracts with property developers, private land holders and the QLD State Government. It specialises in large infrastructure projects where drilling for pipework is required.

As part of a major new rail infrastructure project the QLD State Government offered large grants to local businesses for the purchase of new machinery that could be used in building the new railway. Toowoomba Drilling Pty Ltd entered into a contract with the State Government to accept $550,000 in funding for the purchase of new machinery.

Toowoomba Drilling received a lump sum of the full amount in June 2017. Part of the terms of the contract were that Toowoomba Drilling would work exclusively on the rail project for a period of three years, otherwise a pro-rata of the financial assistance would have to be repaid.

Required:

(1) Briefly discuss with reference to appropriate legislation, case law and/or rulings whether Toowoomba Drilling Pty Ltd should account for income on a cash or accruals basis.

(2) Discuss with reference to appropriate legislation, case law and/or rulings whether the State Government funding would be either ordinary or statutory income and whether it would be derived in the 2017 income year?

Case Study Two

Benjamin operates a business in Toowoomba selling harnesses and other equipment related to Greyhound Racing. Benjamin estimates that at least 80% of his sales are made to customers in the Greyhound Racing industry and the remaining 20% to those with domestic pets. In September 2016, the state government introduced draft legislation which would ban all forms of competitive Greyhound Racing. The legislation was very controversial and various lobby groups were formed to attempt to stop this legislation from passing.

Benjamin engaged a solicitor to advocate and communicate with other lobby groups on his behalf. Benjamin was very concerned for the viabilit y of his business should the legislation proceed. The legal fees associated with this campaign amounted to $60,000 in the 2017 income year.

Additionally, as Benjamin did not have the money to finance this, he incurred $5,000 in interest payments on a loan used to fund the campaign. Advise Benjamin as to the potential deductibility of either of the above amounts in the year ended 30 June 2017 and additionally any further information you would require.

Kathy owns a number of rental properties in North Queensland. As a result of a severe tropical cyclone in January 2016, a number of Kathy's properties sustained damage. All rental properties were tenanted at the time of the cyclone, however they have been vacant since that time while repairs are carried out. Kathy has had the following expenses up until 30 June 2017 in relation to her properties;

- Replacement of all kitchen cupboards and bench tops at a cost of $11,500. The old kitchen cupboards were water damaged from stormwater run-off and the old bench tops were not able to be used on the new cupboards, however all other aspects of the replacement were of a similar design and with similar materials to the old kitchen. Kathy made two payments in relation to the installation of the kitchen.

The first payment was $3,000 on 1 March 2017 and the second final payment of $9,000 was made on 20 July 2017. The kitchen was fully installed and invoiced on 1 June 2017.

- Replacement of the downstairs windows. Due to wind and trees falling, a number of windows were shattered. The cost of the new windows was $2,000 including installation and was paid on 1 April 2016.

The old windows were plain glass however the current building requireme nts are that safety glass be used in all accessible glass which is slightly more expensive. Kathy also took the opportunity to add a security screens to the windows at an additional cost of
$1,800.

- Replacement of the whole roof on one of the rental properties. Many of the existing sheets of corrugated iron were lifted in the storm and unable to be repaired. In this instance the whole roof was replaced with new corrugated iron at a cost of $9,500. This amount was paid in the 2017 income year.

Required:

Discuss with reference to appropriate (and most relevant) legislation, case law and/or rulings whether the rental property expenses are deductible in the 2017 income year. For the purpose of this discussion you can assume Kathy is not covered by insurance for this type of event.