Reference no: EM132375349 , Length: word count:1500

QUESTION 1 - Principles and Concepts

Faced with financial difficulties, Ardmono (Aust) Pty Ltd (AAPL), an Australian company that manufactures the highly reputable Sunrace brand of bicycle accessories, decided to sell its business to a related company, Ardmono (Japan) Pty Ltd (AJPL). However, AJPL did not have sufficient funds to purchase the business outright and instead entered into a licence agreement on 1 July 2018 with AJPL that allowed AJPL to use AAPL's Sunrace trademark for 10 years in consideration for payment of an annual royalty.

AAPL, however, still wanted to realise a lump sum. On 1 September 2018 it sold the rights under its licence agreement with AJPL for $4 million to Common Bank, an unrelated Australian financial institution.

With reference to legislation and case law, advise AAPL whether the $4 million constitutes assessable income. Ignore any capital gains tax implications.

QUESTION 2 - CGT Calculation

On 12 December 1998, Jack purchased 1000 shares in ABC Ltd for $1,400 and 1000 shares in XYZ Ltd for $20,000 with the intention to hold them as an investment for long-term growth. At the same time Jack also purchased an investment property for $250,000 and a boat for $12,000.

On 15 August 2017, Jack sold the shares in ABC Ltd for $400 to a friend. The market value of the shares at the time was $500. At the same time, Jack sold the boat for $9,000 and the investment property for $420,000. The legal costs in relation to the sale of the investment property were $2,000. Total depreciation and insurance costs incurred in relation to the investment property were $50,000. The water and sewerage rates were $12,000 and land tax was $30,000.

As at 30 June 2018, the shares in XYZ Ltd had risen to $65,000. Jack's only other income in the year ended 30 June 2018 was his salary of $120,000 and rent of $10,000 from the investment property.

On 20 December 2018, Jack sold the XYZ shares for $68,000. Jack's income for year ended 30 June 2019 was a salary of $130,000.

In July 2017, Jack sold the house in which he and his wife lived in for $540,000. He had originally bought the house in December 2013 for $590,000.

What is Jack's tax liability for each of the tax periods in which the above transactions occur?

Your answer must be supported by references to relevant legislation, case law and/or tax rulings (if any).

Note - Word Count: 1500 and want to make sure that the references is also based on the textbook principle of taxation law 2019.