Reference no: EM132278277

Perspectives On Taxation Law Assignment -

QUESTION 1 - The Labor Party, in opposition, currently has a policy, as a major part of its election strategy, to deny a refund of any excess franking credits (the tax credits attached to franked dividends) as it claims this tax concession favours wealthy investors. The Liberal government rejects this approach and has said, if it wins the next election, that it will retain the current refund of excess franking credit policy as it is mainly retirees and superannuation funds that would be affected by the Labor party's proposed rules.

Required: What is the justification for the Labor Party approach? Which policy do you prefer? Please provide a reason to support your view.

QUESTION 2- Required: Discuss the meaning of the term 'charity' in the context of tax law? Why is it relevant for the purposes of the Income Tax Assessment Act 1997?

QUESTION 3 - In 1982, Fred, a lawyer who lived and worked in Adelaide, purchased a 30-acre parcel of rural land on the outskirts of the city for $150,000. From that time until recently Fred used the property as a 'hobby farm' for growing fruit trees and as a 'weekend retreat' for relaxation.

Recently, the surrounding area to the land has become more developed and so Fred's property has increased in value. Fred has run into financial problems of late as a result of a malpractice lawsuit against him and as such Fred is desperate for some money and so is considering selling the property.

Required:

(1) Advise Fred if he would have to include any amount in to his assessable income if he sold this property for $2 million?

(2) Would your answer be different if Fred had decided to subdivide the property three years ago into 30 one-acre allotments and if he had also arranged for the construction of roads and buildings and arranged to sell these allotments gradually over a period of one year?

QUESTION 4 - Required: Can interest expenses be claimed as a deduction before income has been derived from an income producing activity such as an investment or business? Explain.

QUESTION 5 - Fungo Pty Ltd manufactures golf balls. On 1 January 2014, Fungo Pty Ltd purchased a new machine for $1m which it uses to produce golf balls. The effective life of this machine is estimated to be 10 years. Subsequently, on 1 January 2019, as a result of new technology, a better machine became available and Fungo Pty Ltd decided to sell the original machine for $300,000 and purchase this new better machine for $1.4m. The effective life of the new machine is estimated to be 6 years. All amounts shown are exclusive of GST. Assume that Fungo Pty Ltd is not eligible to use the Small Business Entity system.

Required: What are the tax consequences of these arrangements under Division 40 ITAA97? How would your answer change if Fungo Pty Ltd was entitled to use the Small Business Entity system from 1 January 2014 to the present time and these two machines were the only depreciable assets held by Fungo Pty Ltd?

QUESTION 6 - A dance hall has been used for the last 15 years but the owner recognises that the ceiling condition is in poor shape and so he contemplates whether he should 'fix up' the ceiling so that the dance hall can be used fully again or whether he should replace the whole ceiling with a different but better material.

The new ceiling, in addition to enhancing the appearance of the hall, also improves the acoustics.

The owner decides to replace the old ceiling with a new one and the builders, at the conclusion of the work, hand an invoice over to the owner for full payment for the work for the amount of $240,000.

Required: Discuss the amount, if any, is allowable as a tax deduction for income tax purposes. Your answer must be supported by legislative and case law authority.

QUESTION 7 - A car is purchased for $48,400 (including GST) on 1 April 2018. The car was available for private use for all of FBT year ending 31 March 2019, except for the month of February 2019 when the car was garaged at work whilst the employee was overseas on holidays. For the FBT year ending 31 March 2019 the car travelled 25,000 kilometres and the employee paid the employer $4,000 (including GST) as his contribution to meet the running costs for the car.

The total operating costs for the car (including the deemed depreciation and interest) for the year ending 31 March 2019 were $15,000. This figure is before any employee reimbursement for the running costs.

The business use percentage has been calculated to be 60%.

Required: Which method should this employer use to calculate the fringe benefits tax liability for this car for the FBT year ended 31 March 2019? Calculate the fringe benefits tax liability for this employer for this car fringe benefit for the FBT year ended 31 March 2019.

QUESTION 8 - Andrew Rogers purchased a cleaning business in 2006 for $2,000,000 and he has run it continuously until his business was sold for $6,100,000 on 30 June 2019.

• Of the $6,100,000 capital proceeds, $400,000 was in relation to the plant and equipment.
• When Andrew purchased his business for $2,000,000 in 2006 $400,000 of the purchase price was allocated for the plant and equipment.
• Andrew is aged 54 and intends on continuing to work for a few more years.
• The sales turnover of the cleaning business in the 12 months ending 30 June 2019 was $1.8 million and this was almost exactly the same as the previous year.

Required: Advise Andrew in respect of any capital gains tax consequences arising from the sale of his business.

Note - Need to do first 2 questions only.