LAWS7012 Business Taxation Assignment – Semester 1 2014

LAWS7012 | Business Taxation
Assignment – Semester 1 | 2014
Important Facts to Note
1. The assignment is worth 40% of the assessment in this
course.
2. The assignment has 2 questions.
3. You must submit your assignment before 4.00pm on
Thursday, 17 April 2014.
4. Students must submit their assignment electronically via
the Turnitin link [LAWS7012 |
2014 – Semester 1] in the Assignment Submission folder in
the Assessment area of the
course website in Blackboard. Online assignments do not
require a separate cover
sheet. Refer to documentation in the Assignment Submission
folder on the naming
requirements of the assignment file.
5. There is no prescribed word limit for this assignment and
no penalties will be applied for
students who exceed the suggested word limit. As a guide,
your assignment could be
completed in approximately 3,500 words.
6. Students must retain a hard copy of their submitted work.
7. Students need to be aware of and abide by the
university’s policy on plagiarism. More
detailed information on this issue can be found in:
a. UQ Student Integrity and Misconduct Policy
?
http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct
b. On-line Academic Integrity Tutorial
?
https://www.uq.edu.au/integrity/Login.aspx?ReturnUrl=%25252fintegrity
c. Law School Resource | Avoiding plagiarism
http://www.law.uq.edu.au/?page=103927
8. Also, review Sections 5.3, 5.5 & 6.1 of the Course
Profile for information on assessment
procedures. In particular, note:LAWS7012 Business Taxation |
Assignment | Semester 1 – 2014
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Where a non-examination item of assessment (including
essays, assignments, take-home tests, etc.) is
not submitted by the due date and time, a penalty will be
levied at the rate of 10% of the marks
available for the assessment item per day that the
assessment is overdue.
Example: Where a piece of assessment is due at 4pm on
Monday, assessment submitted after 4pm
Monday but before 4pm on Tuesday will receive a 10% penalty.
Assessment submitted more than 5 days after the due date and
time will receive zero marks.
Example: Where a piece of assessment is due at 4pm on the
10th, any work submitted after 4pm on
the 15th will receive zero marks.
If the 5th day following the due date is a Saturday or a
Sunday, assessment will be accepted until 9am
on the following Monday.
Example: A piece of assessment is due at 4pm on Monday the
9th
. In the normal course of events, to
receive any marks, a student must submit their assessment by
4pm on Saturday the 14th (the 5th day
following the due date) at the latest. As the 5th day is a
Saturday, the student may submit anytime up
to 9am on Monday the 16th
.
No extension granted may exceed 14 days.
The Business Taxation Assignment examines a student’s
ability to conduct research into
taxation issues and to provide advice to a client. The
assignment will also examine an
understanding of statutory income, in particular the capital
gains tax provisions of the
Income Tax Assessment Act 1997.
Question 1 requires students to clearly identify the
relevant tax issues, reference all
applicable sections of the Income Tax Assessment Act 1936
and/or the Income Tax
Assessment Act 1997, related tax cases and/or rulings of the
Australian Taxation Office. A
suggested format to answer Question 1 is the traditional
ILAC approach:-
1. Identify the relevant issue(s)
2. State the relevant law
3. Apply the relevant law to the facts provided
4. Reach a conclusion based on the application of the law to
the facts
Students can review past year examples of Business Taxation
assignments in the Assessment
folder of the course website. These examples demonstrate
some of the better formats used
to present answers, however they do not necessarily contain
the correct answer.LAWS7012 Business Taxation | Assignment | Semester 1 – 2014
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Question 1 | 20 Marks
Your client was born in Sydney on 23 June 1949 but completed
all his schooling and
university studies in Brisbane. Your client graduated from
the University of Queensland with
a Bachelor of Commerce in 1970 and then worked as an
accountant for several major
accounting firms, until he commenced employment as a
lecturer in accounting on 1 January
1992 with the Queensland Institute of Technology, now the
Queensland University of
Technology (QUT). After nearly 22 years employment with the
university your client is
considering a change of career as QUT is currently offering
a generous early retirement
package to academic staff at the university. Your client
would be eligible for a maximum 40
weeks’ pay under QUT’s early retirement scheme and based on
your client’s current salary,
their gross payment under this scheme is approximately
$140,000.
QUT’s Human Resources area has advised your client of the
following information:
1. Year to date gross salary paid as at 1 April 2014 =
$140,000
2. Projected full year gross salary as at 30 June 2014 =
$160,000
3. Unused Annual Leave = $5,000
4. Unused Long Service Leave = $8,000
5. If your client was to resign rather than accept early
retirement, they will only be
entitled to payments relating to any unused annual leave and
long service leave.
6. To be eligible to participate in the early retirement
scheme all relevant staff must
terminate their employment with the university on or before
4 July 2014.
In addition to the above information you have ascertained
your client has been on
university approved study leave and long service leave since
early 2013, travelling around
Europe and the Americas on a working holiday researching
material for a new Accounting
and Finance textbook he is writing. He is currently in
Seville, Spain but will return to
Brisbane if he decides to accept the early retirement offer
from the university.
As part of your client’s research into their new textbook
they have participated in several
financial spread betting activities offered by a company
operating in Australia. This company LAWS7012 Business Taxation | Assignment |
Semester 1 – 2014
4 | P a g e
holds an Australian Financial Service Licence. Since 1 July
2013, as a result of these betting
activities, your client has managed to make a small profit
of $3,000.
You have also ascertained your client received $2,000 in
royalties from Thomson Reuters,
publishers of his current textbook on accounting and $1,000
in interest on a Term Deposit
with the Commonwealth Bank. You do not anticipate your
client receiving any additional
income other than that detailed above, between now and 30
June 2014.
Based on all of the information provided determine which
receipts, if any, are assessable
income for your client. In particular, your client is
seeking your advice as to the taxation
consequences of participating in QUT’s Early Retirement
Scheme. Your answer should
include exact dollar amounts and where applicable any
relevant rates of taxation that will
be applied to this income. Calculations of tax payable are
not required. Your answer should
reference all applicable sections of the Income Tax
Assessment Act 1936 and/or the Income
Tax Assessment Act 1997, related cases and or rulings of the
Australian Taxation Office.LAWS7012 Business Taxation | Assignment | Semester 1
– 2014
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Question 2 | 20 Marks
Your client is a wealthy investor and property owner. Your
client provides you with
information (as detailed below) on various transactions
between 1 July 2013 and 30 June
2014. Many of these transactions were undertaken to raise
funds for the purchase of a large
industrial complex, which is to be finalised in October
2014.
Your client seeks advice as to what amount(s), if any, must
be returned as assessable
income for the year ended 30 June 2014. In particular, you
are required to discuss the
capital gains tax consequences of these transactions and
determine your client’s net capital
gain or net capital loss, if any, for the year ended 30 June
2014.
Your advice should include all calculations and references
to applicable sections of the
Income Tax Assessment Act 1997 and if applicable related
cases and or rulings of the
Australian Taxation Office.
1 | Holiday House in Blue Mountains. On 3 June 2014 your
client signs a contract to sell
their holiday house in the Blue Mountains of New South Wales
for $400,000. Your client
acquired this property on 8 January 1991 for $100,000. The
property is used solely by
your client for holidays and family gatherings. They incur
$120,000 in local council rates
and land taxes during the period of ownership. The contract
of sale stipulates that a
deposit of $40,000 is payable to your client when the
contract of sale is signed and the
balance is payable in three equal instalments on 3 September
2014, 3 December 2014
and 3 March 2015. On 4 June 2014 your client incurs $3,400
in real estate agent fees in
respect of the sale of the house.
2 | Rental Property | Your client purchased an investment
property for $520,000 in
April 2007. The property was rented during the entire period
of ownership through a
local real estate agency. Your client incurs the following
costs since purchasing the
property:-
a) $10,000 in stamp duty when acquiring the property.
b) $3,000 in legal costs and search fees when acquiring the
property.
c) $750 in repairs to lighting and plumbing.LAWS7012
Business Taxation | Assignment | Semester 1 – 2014
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d) $10,000 to the real estate agency to collect rent and
organise regular
maintenance of the property.
e) $3,000 to the local council as a levy to have overhead
mains power converted
to underground power. This was the result of a joint state
government and
local council project to remove power poles and power lines
from certain
suburbs in the local council area.
f) $7,000 to construct a new concrete retaining wall on the
property to prevent
erosion.
g) $1,500 to the local council for a fine for failing to
obtain the required council
approval for construction of the retaining wall on the
property.
In October 2012 your client was advised by the State
Government they intended to
resume his investment property to make way for a new
transport corridor for buses.
Your client incurs $7,000 in legal fees seeking advice about
his legal options to resist
the property resumption. In November 2013, after significant
negotiations between
your client, his legal representatives and the government,
it was agreed the property
would be resumed for a price of $750,000. It was also agreed
that the government
would pay interest at a prescribed rate between the original
notified date of the
resumption in 2012 until the date compensation is finally
paid. On April 2014 your
client receives the $750,000 compensation payment and an
additional $20,000
representing the agreed interest payment.
3 | Land (#1) – Gold Coast Hinterland. In September 1984
your client purchased a 2
hectare block of land in the Gold Coast hinterland at a cost
of $50,000. In July 2013 your
client received approval from the Gold Cost City Council to
subdivide this land into two 1
hectare blocks. The costs associated with obtaining this
approval and subsequent works
to subdivide the land amounted to $50,000. The titles to the
new subdivided blocks
were registered on 15 April 2014. During your client’s
period of ownership of the land
they incurred $30,000 in council rates. Both blocks of land
went to auction in May 2014
with one block selling for $300,000 and the other block for
$400,000. The auction costs
totalled $7,000.LAWS7012 Business Taxation | Assignment |
Semester 1 – 2014
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3 | Land (#2) – Gold Coast Hinterland. Your client also
acquired an adjoining 5 hectare
block of land in November 2001 for $150,000. Your client
constructed a house on this
land during 2002 at a cost of $250,000 and used the house as
his main residence from
January 2003. In July 2013 your client received approval
from the Gold Cost City Council
to subdivide the 5 hectares of land into four separate
blocks, a two hectare block on
which his house and surrounding land were situated and three
1 hectare blocks. The
costs associated with obtaining this approval and subsequent
works to subdivide the
land amounted to $200,000. The titles to the new subdivided
blocks were registered on
15 April 2014. During your client’s period of ownership of
the land they incurred $50,000
in council rates. The three one hectare blocks of land went
to auction in May 2014 with
each block selling for $300,000. The auction costs totalled
$9,000.
4 | Shares ABN Ltd. In June 2007 your client acquired 5,000
shares in ABN Ltd at a cost
of $15.00 each. On 31 May 2014 these shares were sold for
$16.00 each. Your client
incurred $1,500 in stamp duty on the purchase and $500 in
stockbroker’s fees on the
sale. The company has paid no dividend since the shares were
purchased which was the
major reason for selling the shares. Your client borrowed
$50,000 to help fund the
purchase of these shares, incurring $6,000 in interest
between 2007 and 2014. The ATO
has advised that this interest cannot be claimed as a tax
deduction.
5 | Inheritance. In June 2001 your client’s mother passed
away and her will bequeathed
a family heirloom to your client. The item was a painting by
Australia’s prominent
landscape painter Arthur Boyd. Your client’s mother was a
close friend of Boyd and she
told her family Boyd gave her the painting in 1951. Your
client had the painting valued
by a local art gallery for insurance purposes when their
mother died. The valuation
indicated the painting was worth $700,000. In December 2013
your client decided to gift
the painting to the Queensland Art Gallery under the
Cultural Gifts Program. Your client
had the painting expertly examined for valuation purposes by
two approved valuers
recommended by the Gallery and the agreed average value of
the painting was
$1,200,000. During your client’s period of ownership, they
paid $30,000 in insurance on
the painting and $1,000 to have the painting valued in 2001
and $9,000 to have it valued
in 2013.LAWS7012 Business Taxation | Assignment | Semester 1
– 2014
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Additional information relevant to your client:
? Your client also has a significant capital loss carried
forward from the 2011-2012 tax
year. These losses total $180,000 and relate to losses from
the sale of shares during
the 2008 Global Financial Crisis.
? You can assume your client is not an eligible Small
Business Entity. Therefore the
Small Business CGT concessions do not apply to any capital
gains made in the year of
income.
? You can also assume your client is not carrying on a
business in respect of any of
these assets.LAWS7012 Business Taxation | Assignment |
Semester 1 – 2014
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Marking Guide for the Assignment
In marking the assignment answers will be graded on the
criteria listed below.
Submitted assignments must be of a professional standard.
When awarding a mark for each
question, consideration will be given to the standard of
presentation. A professional
presentation contains no spelling, grammatical or formatting
errors.
Assignments will be marked online and made available to
students before the end of the
semester.
Question 1 | The general criteria for Question 1 are as
follows:
0-1 Answer demonstrates a fundamental misunderstanding of
the taxation issues
contained in this assignment and does not answer the
questions asked.
2-8 Answer is partially incomplete; it includes a correct
approach to the taxation
issues and would be acceptable if the answer was completed.
9-15 Answer includes a correct interpretation of some the relevant
taxation issues.
The answer contains insufficient referencing to the relevant
provisions of the
Income Tax Assessment Acts, or the answer contains
insufficient identification of
any relevant cases and/or Australian Taxation Office
rulings.
16-19 Answer includes a correct interpretation of most of
the taxation issues. The
answer contains sufficient referencing to the relevant
provisions of the Income
Tax Assessment Acts and the answer contains some
identification of relevant
taxation cases and/or Australian Taxation Office rulings.
20 Answer includes a correct interpretation of all of the
taxation issues. The answer
contains all pertinent referencing to the relevant
provisions of the Income Tax
Assessment Acts, relevant taxation cases and/or Australian
Taxation Office
rulings.LAWS7012 Business Taxation | Assignment | Semester 1
– 2014
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Question 2 | The general criteria for each part Question 2
are as follows:
0-1 Answer demonstrates a fundamental misunderstanding of
the taxation issues
contained in this assignment and does not answer the
questions asked.
2-8 Answer is partially incomplete or it includes a
partially correct interpretation of the
taxation issues. Issues associated with capital gains tax
contain calculation errors.
For example:
? It fails to correctly calculate most of the relevant
capital gains and or
capital losses.
? It fails to correctly calculate some of the relevant
capital gains and fails to
determine the correct overall net capital gain or capital
loss for the current
tax year.
The answer only references some of the relevant sections of
the Income Tax
Assessment Act. The answer contains insufficient
identification of any relevant
cases and/or Australian Taxation Office rulings
9-15 Answer includes a correct interpretation of some the
taxation issues. Issues
associated with capital gains tax contain calculation
errors. For example:
? It fails to correctly calculate some of the relevant
capital gains and or
capital losses but uses the correct approach to calculate an
overall net
capital gain or capital loss for the current tax year.
The answer also references most of the relevant sections of
the Income Tax
Assessment Act. The answer contains identification of some
relevant cases and/or
Australian Taxation Office rulings
16-19 Answer includes a correct interpretation of most of
the taxation issues. Issues
associated with capital gains tax contain minor calculation
errors. For example:
? It correctly calculates all of the relevant capital gains
and or capital losses
but fails to correctly calculate the overall net capital
gain or capital loss for
the current tax year.
? It fails to correctly calculate one of the relevant
capital gains and or capital
losses, however it uses the correct approach to calculate an
overall net
capital gain or capital loss for the current tax year.
The answer also references all or most of the relevant
sections of the Income Tax
Assessment Act. The answer contains identification of most
of the relevant cases
and/or Australian Taxation Office rulings.
20 Answer includes a correct interpretation of all of the
taxation issues. Issues
associated with capital gains tax correctly calculate all of
the relevant capital gains
and or capital losses. It determines the correct overall net
capital gain or capital
loss for the current tax year.
The answer also references all the relevant sections of the
Income Tax Assessment
Act. The answer contains identification of all of the
relevant cases and/or
Australian Taxation Office rulings.