Tax Law 200187 : Taxation Law - Law Assignment

Internal Code : MAS1419

Law Assignment

Question 1 : Gilbert, Holtzmann, Tolan and Yates (GHTY) are partners in a successful paranormal business enterprise. The business, located on the third floor in Downtown, NSW, has a workshop, a laboratory, a secured munitions room as well as a reception area and private offices for all the staff. As part of their business expansion GHTY have recently decided to employ a junior chemist, Lani as a lab assistant. As part of Lani’s employment package Lani will receive the following (in addition to her salary): a) $1,000 paid on the last day of every month for “communication costs”. (see note 1 below) b) $3,000 paid quarterly to Happy Kidz – a childcare provider (see note 2below). c) A pair of $250 steel capped boots, a $150 lead lined apron and a pair of $350 prescription safety goggles. Purchased from Safety and Uniforms R Us. d) On the 1 September 2015 Lani borrowed $19,000 at 3.5% from GHTY. Lani used the money to purchase a car that she used to drive to and from work and on the weekends for private purposes. Answer the following questions with reference to relevant cases, legislation and/or rulings. Show any relevant calculations. 1. Advise GHTY as to whether any of the remuneration package items a-d are fringe benefits? (items a-d are worth ) 2. Calculate forGHTY their total FBT liability, consistent with your advice and include relevant legislation. 3. Calculate for Lani her total tax payable assuming she has a salary of $65,000 per annum. Your answer must include any relevant items from a-d. Question 2: Michel, a successful government advisor, is getting close to retirement. Michel in 2008 purchased for $3,000,000 a very large, rural property inGoogong (near Queanbeyan). For the past decade he has dreamt of retiring and making wine. On advice from a winemaker friend Helene, Michel arranged for two varieties of grapes (one red varietal and one white) to be planted. His brother in law, Stefan, who had just lost his job as a city banker moved onto the property with his young family and looked after the property including overseeing the grape growing in exchange for no rent. This suited Michel, who continued to live and work in Sydney, to have his extended family living on this property. The vines started to produce grapes of an appropriate standard for winemaking in 2011. In the autumn of 2011, Michel brought over Helene (the winemaker) and together with Stefan and their respective children they made their first batch of wine with some old equipment that Helene said Michel could use. The results of this were quite good and after reserving some of the wine for family use, some for later sales, the remainder was sold locally for $23,000 to passers-by and in local markets in the last half of 2011. A slightly larger amount of wine was made and sold in 2012 for $56,000, and again some was kept aside for private consumption and also for later sales. A similar story for 2013 – however sales were up to $122,750. Michel thought sales were good because the winery had been mentioned in a national newspaper weekend magazine article about new Canberra region boutique wineries. Helene declined to assist in 2014 and so Michel employed Giorgi, Helene’s oldest child (also a newly qualified winemaker) on a part time basis to make wines –paying a salary of $52,000. Michel approved Giorgi’s decision to upgrade the wine-making equipmentinstead of using Helene’s old equipment. The cost of the new equipment was $325,000. The 2014 batch sold for $234,200 and during school holidays Michel employed his oldest niece Chari at the cellar door at $15 per hour. Required:Answer the following questions below. Your answer must refer to relevant legislation, cases and rulings. 1. Explain to Michel whether he has been carrying on business as a winemaker. Your answer must cover when the business commenced and the income tax consequences of the sales of wine. 2. Discuss whether the $4.2m from the large Australian winemaker could be ordinary income for Michel. His wife wants him to take the offer so that they can purchase a house in France for their retirement. 3. Assuming that the $4.2m is not ordinary income; calculate for Michel the capital gains consequences of accepting the $4.2m.