Law
question are indicative of the amount of
information required to comprehensively answer
the question.
While the assignment is largely based on material covered, you are free to research
and seek advice as widely as you find necessary – there are no limitations as to
sources. However, sources should be appropriately referenced.
Note that as the assignment is for assessment purposes, more is expected than just
the calculations in a tax return. If there are any issues that require clarification, you
should provide a brief discussion of the matter and justify any conclusions you may
reach. Where there are figures provided without adequate justification, marks will not
be awarded.
The assignment is to be submitted online in Moodle. Submission must consist of
one (1) document only. This document must be in Word format only ie .doc or
.docx. Required file name: student surname_student number_LAWS20023_ASSESS
QUESTION 1 (12 marks)
Fast Ed is the owner of a new and second hand car business. He is really good at
wheeling and dealing in the car selling business but is not very good at
understanding the tax effect of some of his deals. Explain the tax effect of the
following activities. (Each subsection is worth 3 marks.)
a) Fast Ed has several different cars in stock at year-end and is not sure how to
value them or if he has different valuation options available. Explain in your
own words the options Fast Ed has available to value his stock.
b) Fast Ed gave Slick Sam, a creditor, a car, which was in stock. The car was
given in exchange for a debt of $18,000 Fast Ed owed to Slick Sam. The car
cost Fast Ed $17,000 and was on the showroom floor for sale for $19,000.
c) Fast Ed really liked one of the cars that were traded in. He took it home for
his daughter who now uses it everyday. He decides he is not going to sell this
car and keep it for use in the family. He purchased the car for $19,000 and it
could have been sold for $21,000
d) Fast Ed decided to put some of the Ford hatchbacks on sale for only $18,000.
Ford had just announced a new model hatchback and it has great reviews.
He was really concerned that customers would not consider buying the older
models if he did not drastically reduce the selling price. Other dealers have
told him they were ‘not moving’. The Ford hatchback had cost $22,000 and
was originally selling for $28,000. At the 30 June Fast Ed had 3 in stock.
QUESTION 2 (21 marks)
Various taxpayers receive the following amounts during the 2014/15 income tax year:
a) Salary income of $50,000 and a bonus of $10,000 from an employer.
b) A prize of $2,000 for the best TV advertisement of the year.
c) $500 received by an employee from an employer for costs incurred to travel
to Sydney for work. The employee bought a return ticket on sale for only $120
and stayed with a friend while in Sydney. One of the conditions of the work
related trip was that the employee could keep whatever remained of the $500
as long as the work required to be performed in Sydney was completed.
d) An iphone worth $1,000 from a client.
e) $10,000 awarded as damages for personal injuries incurred by an individual
in a car accident.
f) A taxpayer buys a share during the year for $5. On the 30 June, the taxpayer
still owns the share but it is now trading at $7.50
g) A taxpayer manages to ‘acquire’ some stolen televisions. He sells 15 of them
and makes $10,000 during the tax year.
REQUIRED:
Discuss the assessability or not of the above amounts. Each amount discussed is
worth 3 marks.
QUESTION 3 (6 marks)
Briefly explain in your own words (max 300 words) what a progressive tax rate
structure is.
QUESTION 4 (6 marks)
Charles is an accountant and is keen to become a partner in one of the big
international accounting firms. In order to do so he knows that he needs to gain some
international experience. He secures a position with another large accounting firm in
the US with a contract for 18 months. He sells his apartment in August 2014 in
Sydney and buys a similar apartment a few weeks later in New York. He joins the
local gym and rugby team. He volunteers at the Lyons Club on weekends. He has
one brother that lives in the UK and his parents have already passed away. Charles
is not married and has no children. At the end of the 18-month contract, Charles
decides he would like to gain a little more experience and extends his contract
another 12 months.
REQUIRED:
With regards to the Domicile test, would Charles be considered a resident or not of
Australia for the 2014/15 income tax year? Discuss the factors the ATO would
consider in making their decision.
QUESTION 5 (15 marks)
a) Josh owns a boat that his neighbor, Ben, is interested in buying but Ben
wants to try out the boat first. On the 1 January 2015 Jim agrees to hire the
boat to Ben and the agreement provides that Ben will buy the boat at the end
of three years unless Ben decides to buy the boat sooner. Josh agrees that, if
Ben does buy it, Josh will apply the hire fees against the agreed purchase
price. Some months later, Ben inherits some money and advises Josh he
would like to buy the boat. The sale is concluded on the 1 June 2015.
b) Mark acquired an asset on 1 June 2008 for $50,000 and on the 29th June
2015 the asset is destroyed by fire. The asset was not insured.
c) On the 1st of June 2015 Joe grants Ashleigh the option to purchase his beach
house in Byron Bay. Ashleigh pays $2,000 for the option.
d) John purchased a property on 1 July 2009 for $250,000. The property was
rented out between 1 July 2009 and 30 June 2010. From 1 July 2010, he
used the property for his main residence until it was sold on the 30 June 2015
for $400,000. (Calculations to be performed in years and not days.)
e) Steve acquires a home in July 2005 for $375,00. In March 2008 he converts
the separate garage into an office for his financial planning business and
commences business. The garage comprises 20% of the floor space of the
home. He sells the property in December 2014 for $700,000. The market
value of the house in March 2008, when the garage was converted for
income producing use was $500,000.
REQUIRED:
With reference to each of the above situations, outline the Capital Gains Tax
consequences of the transactions. Each subsection is worth 3 marks.