LAW202 - Taxation Law & Mortgage Finance - Sophia & RR Pty Ltd Case Study - Taxation Law Assignment Help-

Assignment Task -                 
 

Part 1: 

1. RR Pty Ltd borrows money to buy land and build a motel. 

Is the company entitled to a deduction for interest if it: 

(a) continues to own and operate the motel; 

(b) sells the land and buildings on a sale/leaseback arrangement and then operates the motel; and 

(c) sells the land and buildings and severs its relationship with the venture? 

2. JN Pty Ltd is the trustee of a medical practitioner’s family trust. After obtaining mortgage finance the trustee purchased the doctor’s home and leased it back to her for commercial rent.

• Is the trust entitled to a deduction for interest on the mortgage?

3. Betty and Jim are husband and wife. They sell their home for $120,000 and, together with loan funds of $180,000, purchase a two-story property. They use the upstairs for their home and downstairs for their retail business. 

• What deductions, if any, are Betty and Jim entitled to for interest on the loan?

4. Sue is a solicitor who borrows $100,000 and lends it, interest-free, to ABC Pty Ltd. ABC lends the money, interest-free, to DEF Pty Ltd. DEF invests the money in a business. Profits are distributed to  shareholders, one of whom is Sue. 

• Is Sue entitled to a deduction for interest on the loan?

5. UVW Pty Ltd borrows $1 million and lends it interest-free to its wholly owned subsidiary. No dividends have ever been received although similar loans have been made between the companies for the last 10 years. 

• Is UVW entitled to a deduction for the interest on the loan? 

Part 2: 

On 1 July 1986, Sophia acquires an office block under a contract of purchase for $750,000. She also incurred stamp duty associated with the purchase of $25,000 as well as conveyancing and legal costs incidental to the purchase of $15,800. These costs were incurred on the date of settlement, which was 1 September 1986. 

Sophia was immediately sued and incurred $50,000 in legal costs defending her right to the office block against a person challenging the legal validity of her title. These costs were paid on 15 February 1987. Ongoing expenses during the ownership period were interest totalling $120,000, deductible repairs to the property of $50,000 and rates and taxes totalling $85,000. On 7 April 1991, Sophia made capital improvements to the building totalling  $75,000. 

On 1 September 2019, Sophia sold the office block under a contract of sale for $1,200,000. In doing so, she spent  $7,500 in advertising costs in relation to the sale and paid sales commission to the real estate agent of $48,000. 

The four offices in the block had been rented out to tenants for the period of ownership. 

Sophia wants to know whether she is better off using the indexation method for calculating her capital gain or  the discount method. Based on your calculations, advise her.

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