LAW 2002 - Introduction to income tax law - Case Study Assessment Answer

LAW 2002 - Introduction to income tax law - Case Study Assessment Answer

Task:

This case study must be presented as an individual effort. The case study requires individual research. The course manual and set texts are intended to be the starting point of the research. It is expected the student will survey the relevant literature, including decided cases, and select appropriate additional resources.
The case study is designed to incorporate uncertainty. The student is expected to develop a piece of work which is written advice for their client. It must therefore identify the facts and issues presented by each aspect of the case study, identify and apply the relevant legislation and/or case law, come to a conclusion and make a recommendation to the client.

Learning Outcomes
c)Interpret and apply selected sections of the ITAA 36 and ITAA97 covering ordinary and statutory income, general and specific deductions and the taxation of entities and their associates.
d) Formulate a piece of written advice for a client about the tax implications of their residency status and business activities with reference to applicable case law and legislation
e) Compare and contrast the tax outcomes for the sole trader, partnership, trust and company structures, including the tax outcomes for associated entities.
f) Analyse and apply tax legislation to authentic scenarios.

Question 1 – Residency
Taite arrived in Australia on 1 August 2017 from Europe to follow a boyhood dream. He has always dreamed of a gap year visiting Australia and experiencing the sun, sand and surf. He has saved some money to finance his travels and plans to follow the various fruit picking and other casual non government labour type employment opportunities.
Taite does not stay in any one place for long before moving on to the next work opportunity. He stays at a variety of places including backpacker hotels and accommodation offered by employers. Taite leaves Australia on 30 June 2018 and makes his way back home to Europe by following the “hippie trail” from Bangkok to Istanbul and then back home to recommence his University studies.
Required
Determine whether Taite is a resident of Australia for tax purposes and provide written advice in the form of a letter to Taite. Construct your answer with reference to the four (4) residency tests, relevant case and relevant legislation

Question 2 – Deductions 
Derek is a resident individual who has decided to start a business as a tax advisor trading as a sole trader business. He decided to purchase an existing business for $450 000. During the relevant income year the following transactions took place:
1) Paid a rental bond 1 July 2017 $3 600
2) Installed new internal walls on 1 August 2017 $8 000
3) Repainting existing walls 1 February 2018 $3 500
4) Repairs to fittings throughout the year $2 000
5) New carpet laid throughout on 1 March 2018 $5 000
6) Repaired computer system on 1 April 2018 $950
7) Installed computer upgrade on 1 January 2018 $12 500
8) Replaced unbroken front glass window with safety glass on 1 July 2017 $4 700
Derek has decided to use the diminishing value method and has established the effective life of the relevant assets to be:

•  new internal walls to be 10 years,
•  the carpet to be 8 years
•  the computer upgrade to be 3 years.
•  The window to be 2 years

Derek also incurred the following costs:
1) Stamp duty on the transfer of the business name $2 750
2) Legal costs for preparing a new 5 lease of the business premises $2 000
3) Borrowing fees for the 10 year loan financing the purchase $1 250
Required
Identify and calculate all general and specific deductions Derek can claim with reference to relevant legislation and case law.

Question 3 - Capital Gains 
Sherlock is a resident individual and has sold some of his share portfolio in the 2017/18 income year. The relevant details are:
a) Shares in LSD Ltd were sold on 6 September 2017 for $150 000. These had been purchased on 12 April 2017 for $110 000
b) Shares in Mirage Pharmaceuticals Pty Ltd were sold on 8 November 2017 for $80 000. These had been purchased on 1 April 1988 for $140 000
c) Shares in Wondersoft Instruments were sold on 15 May 2018 for $120 000. These had been purchased on 10 October 1984 for $10 000

Sherlock also has a trading loss from his sweet shop sole trader business of $15 000 for the 2017/18 year.

Question 4 - Assessable income
Frankie is a resident individual and he received the following amounts in the 2017/18 year.
Gross wages $150 000
Lottery win $1 200 000
Prize from amateur baseball team $500
Army Reserve payments $10 000
Personal Loan from bank $15 000
Business loan
75% Franked dividends from shares held. The dividends were reinvested in the paying company under a dividend reinvestment plan $10 000
Capital gain from shares held more than 12 months $10 000
Required
With reference to relevant legislation and case law determine which of the receipts listed are classified as ordinary income or statutory income and if necessary calculate the amount to be included in Frankie’s assessable income.

Question 5 – Research
Source two articles from the Australian Financial Review or similar resource. For each article provide:
a) a precis of the relevant facts in the article
b) a concise explanation of the taxation concept(s) discussed
c) an explanation of the connection between the concepts discussed in the article and the indicators of good tax policy.

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