Advise the Parties, Ignoring any Capital Gains Tax Consequences - Management Assignment Help

Assignment Task:

Task:

Case 1:

Clothco Ltd sells imported clothing by wholesale and holds 12 valuable import quotas which permit it to import stock. Clothco wishes to restructure its business and for that purpose, sells two of its quotas at a profit. To obtain additional funding for its restructuring, Clothco enters into an arrangement under which shares in Clothco’s subsidiaries are sold to an associate for $50 million, that amount is lent to another subsidiary (Stooge Pty Ltd), and later the right to receive the unpaid interest instalments from Stooge is assigned by Clothco to a finance company (Moneybags Ltd) in return for a lump sum payment of $30 million.

Clothco and Moneybags are not related, the transactions outlined above were not interlocked or interrelated and, in particular, Moneybags’ agreement to take the assignment of the unpaid interest instalments is on purely commercial grounds.

The Commissioner has assessed Clothco under s 6-5 of Income Tax Assessment Act 1997 (Cth) (ITAA 1997) on the basis that the lump sum payment of $30 million is income  according to ordinary concepts.

 Requirement: Advise the parties, ignoring any capital gains tax consequences.

 You should support your answers by referring to the following Taxation Law Sections and Cases:

 FCT v Merv Brown Pty Ltd (1985) Kosciusko Thredbo Pty Ltd v FCT (1983) FCT v Whitfords Beach Pty Ltd (1982)

 FCT v Whitfords Beach, FCT v Myer and Bowden Investments Pty Ltd v FCT (1987) Scottish Australian Mining Co Ltd v FCT (1950)

 Income Tax Assessment ACT 1936 - SECT 102CA

Case 2:

Ted Witt, a top Western Australian State Australian Rules footballer, is approached by a Victorian club to play for them in the coming season. Ted did not accept the offer, but agreed not to play for any other national club for two years. For this he received the sum of $50,000. Later that year, Ted had several disagreements with his Western Australian club and as a result he decided to leave and play in Victoria for the club that had approached him earlier. The Victorian club paid $20,000 to release Ted from his present contract and paid him an additional $10,000 to cover the cost of moving.

 Requirement: Discuss the income tax implications for Witt.

 You should support your answers by referring to the following Taxation Law Sections and Cases:

 Section 104-5 and Section 104-35 Summary of the CGT events Income Tax Assessment ACT 1997 - SECT 6.5 and SECT 15-2

 Fringe Benefits Tax Assessment ACT 1986 - SECT 136 (definitions of “fringe benefit” and “salary or wages”)

 FCT v Woite (1982) Jarrold v Boustead (1964)

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