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HA3042 Taxation Law - Holmes Institute

Learning outcome 1: Practical skills and knowledge of tax law concepts

Learning outcome 2: Ability to analyse tax law issues.

Learning outcome 3: Ability to apply legal tax principles.

Problem 1
Francis is an experienced businessman working in the hospitality industry for many years. He has recently purchased an old restaurant. The commercial kitchen in the restaurant was in poor condition. Replacing the whole commercial kitchen will cost Francis $23,000. The cost of repairing the kitchen appliances will be $4,900, however some parts may not be available in the market anymore as these appliances are too old and obsolete. Francis decided to replace the commercial kitchen with brand new modern appliances because new modern appliances in the market have better features and durability.

Advise Francis on the deductibility of the above transactions. Your advice must be supported by reference to relevant legislation and principles of tax law.

Problem 2

Tom owns a business called Tom's Band in Westfield Sydney selling musical instruments. Tom also teaches guitar on a casual basis at the Sydney Guitar School a local musical college. The following are Tom's receipts during the 2019-20 financial year:

Particulars	$
Tom's Band sales include $2,500 from sales of musical instruments made last year. In addition, there is a sale of $3,200 made in April of the current year but not yet paid.	220,000
Salary from the Sydney Guitar School. This includes Long Service Leave of $4,200 which Tom is going to take in July of the following year.	53,000
Tom has withdrawal from bank. This was made up of the original capital deposited of $20,000 plus interest of $1,000 which was paid last year and re- invested. Interest of 5% was paid on the invested money.	22,050
Fully franked dividends includes franking credits of $5,143 were attached.	12,000
Unfranked dividend	4,000

Required:

Assuming Tom does not have allowable deductions, you are required to calculate Tom's taxable income and net tax payable.

Assignment Structure should be as the following (students' responses involves calculations, and students must refer to the relevant legislation and cases whenever required according to the questions).

For Problem 1, address the following elements:

Identification and analysis of legal issues / legal Problem and relevant taxation law in regards to
Francis's deductibility of the commercial kitchen expenditures (e.g. ITAA 1936 and ITAA 1997).
Thorough yet succinct application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in
Francis's deductibility of the commercial kitchen scenario.
Correct information and taxation law regarding the deductibility rules have been used and properly
cited. A detailed analysis has been performed.
Detailed and accurate conclusions regarding Francis's deductibility of the commercial kitchen
expenditures are reached from the discussions.

For Problem 2, address the following parts:

Calculation of Tom's business income
Calculation of Tom's taxable income
Calculation of Tom's tax on taxable income
Calculation of Tom's net tax payable

Tutorial Questions Assignment

Learning Outcome 1: Gain a broad understanding of tax law
Learning Outcome 2: Demonstrate ability to analyse and synthesise complex tax law issues
Learning Outcome 3: Demonstrate ability to apply principles of tax law to complex legal problems

Problem 1:

Alex is resident of the UK for tax purposes. He lives in Australia and had $90,000 assessable income from Australian sources in 2019/2020. He does not have any allowable deductions.
Required:
a- What is Alex's taxable income? b- Calculate Alex's tax payable.

Problem 2:

Anna is a fitness consultant operating as a sole trader. Anna recently completed two fitness contracts for two of her clients.

In her first contract, Anna provided a 10-hour fitness training course to her client, Sam. Anna charged $1,000 for her fitness training course. This included fitness training materials that cost Anna $100.

In her second contract, Anna provided fitness video tutorials for a client, Lilly. Anna charged $1,000 in total. This included $200 to cover the cost of the video recording materials.

With reference to the relevant legislation and/or case law, discuss whether or not these receipts are Anna's income from personal services.

Problem 3:

Alex is a musician who is also interested in collecting old golden gramophones. He is not collecting these old golden gramophones for business purposes. On 20 February 2020, Alex sold one of these old golden gramophones for $3,000. The gramophone cost him $500 when he acquired it on 1 June 2000. With reference to the relevant legislation, discuss Alex's net capital gain or net capital loss for the year ended 30 June.

Problem 4:

Sam is a property investor. He purchased a small commercial building in Sydney for $2,000,000. Sam had to take out a loan from the ANZ Bank to purchase this property and Sam is charged interest on that loan. In order to rent the property, he met William, who is an experienced real estate agent. Sam and William agreed that an upfront lump-sum payment of $8,100 as a management fee is to be paid to William. With reference to the relevant legislation and case law, discuss the issue as to the deductibility of the management fee to William and the bank interest charges.

Problem 5:

John purchased new machinery for his small business factory on 1st June 2018 for $8,000. The effective life of the machinery is determined to be five years. John sold his old business machinery for $4,000 on 31 August 2019. John used this machinery 90% for business purposes. With reference to the relevant legislation and case law, discuss the tax consequences arising from the disposal of the old machinery under the prime cost method.