ACC30005 Final Assessment

Question One (15 marks)  

In 1980, Meg Ryan, a doctor who lived and worked in Sydney, purchased a 25 -acre parcel of rural land on the outskirts of the city for $200,000. Over the years Meg used the property as a ‘hobby farm’ for growing fruit trees and as a ‘weekend retreat’ for relaxation. In recent years the surrounding area has become more developed and the property has increased in value.

Unfortunately, Meg has recently run into financial difficulties because of a malpractice legal suit and she is considering selling the property as a result.  

 

Required:

• Advise Meg as to whether she would be required to include any amount in her assessable income as a result of the sale.
• Would your answer be different if she had originally purchased the property with the intention of selling it at a profit when land prices had risen sufficiently?
• Would your answer be different again, if she decided to develop the property 3 years ago and had subdivided the land into 25 one-acre allotments and proceeded to construct roads and buildings on the land and sold the allotments separately over a period of one year?

Cite relevant case law and legislation to support your answer.

                                                                                                                                (15 marks)

 

Question Two (15 marks)  

Tony Richardson operates a hotel in Perth catering for overseas travellers. The hotel offers free bus pick-up from the airport for guests staying at the hotel. Mr Boscelli arrives from Italy and catches the bus to the hotel for an overnight stay. During his stay, Mr Boscelli purchases breakfast and asks that some food be prepared for his lunch, which he intends to eat down by the river. Mr Boscelli asks that it contain gourmet sandwiches and a bottle of wine.

When Mr Boscelli comes to check out, he only has Euros, and asks Tony if he could arrange to exchange these for Australian dollars, with which he then pays the bill. Mr Boscelli is so pleased with the service he has received that he gives Tony a tip.

 

Required:

Identify which of the above transactions are taxable, GST-free or input-taxed, and why. Is GST payable on the full amount of each supply? Refer to relevant legislation to support your answer.

                                                                                                                              (15 marks)       

Question Three (25 marks)  

Part A

Paul Smith Lives in suburban Melbourne and borrowed $1 million from State Bank in July 2020, at an interest rate of 10% per annum, to purchase a large parcel of vacant land near a proposed airport site. Paul planned on operating a motel business on the site. In August 2020 Paul engaged an architect to draw up plans for the construction of the motel. Paul approached his bank to raise the additional finance of $10 million to build the motel.

However, given the size of loan requested and his other financial obligations, the bank rejected his application. Paul then continued to approach other financial institutions but was unsuccessful in raising the funds required.

Paul subsequently incurred various advertising costs to find prospective partners who would invest in his business. Unfortunately for Paul, no prospective partners were found as it subsequently transpired that the construction of the airport would be delayed for several years. Eventually after 5 years Paul decided to abandon his plans and he sold the land.   

 

 Required:

Applying the IRAC principle and citing relevant case law and legislation to support your answer, advise Paul as to the deductibility, if any, of the loan interest for the purposes of s 8-1 of the Income Tax Assessment Act 1997.

                                                                                                     

                                                                                                                                (13 marks)   

Part B

Consider each of the following independent transactions in the case of Oz Furniture Ltd, a retailer of furniture. The company's annual turnover is $632 million for the year ended 30 June 2021 making it a large business taxpayer.

During the 2020-21 income tax year, the company purchased the following assets for exclusive use in the business:

Item	Date of acquisition	Accounting useful life	Cost
(a) Desktop computer	13 July 2020	4 years	$3000
(b) Motor vehicle	9 September 2020	6 years	$82 000
(c) Copyright	1 December 2020	20 years *	$100 000
(d) Trademark	9 February 2021	20 years	$60 000
(e) Accounting software acquired	5 April 2021	4 years	$1440
(f) Commercial building	1 June 2021	30 years	$8 million

*The period that the copyright ends.

The company would like to use the same useful life values for taxation purposes for the depreciable assets as they are using for accounting purposes as shown in the table above.

 

Required:

 Calculate Oz Furniture Ltd.’s decline in value (i.e. depreciation) claim in respect of the abovementioned assets for the year ended 30 June 2021, bearing in mind that it wishes to use the depreciation method that will maximise the deduction that can be claimed. Please show and round all calculations to the nearest whole dollar and refer to relevant legislation to support your answer.                                                                                                              

                                                                                                                                      (12 marks)

                                                            

          Total (13 +12= 25 marks)

Question Four (20 marks) 

 Part A  

RTS Pty Ltd, a resident private company, was incorporated on 1 July 2018. From 1 July 2018 until 30 June 2020, it conducted a newsagency business. The company incurred the following trading losses for tax purposes:

• $30,000—year ended 30 June 2019, and
• $40,000—year ended 30 June 2020.

In July 2020, the company discontinued its newsagency business, restructured and acquired a family restaurant business. The company’s shareholdings of ordinary shares at the close of each financial year were as follows:

 

Shareholders	2019	2020		2021
	$		$                           $
A	200	200		200
B	200	200		200
C	—	600		600
D	—	—		800
	400		1000                     1800

For the tax year ended 30 June 2021, the company reported taxable income of $70,000.

Required:

Discuss the tax implications of the above events for RTS Pty Ltd. for the year ended 30 June 2021, citing relevant legislation and showing all calculations.

                                                                                                                                 (12 marks)

Part B

The Short (living) trust derived $60,000 of interest income and $27,000 in fully franked dividends during the income tax year 2020/21.

 

The net trust income was distributed accordingly to the following beneficiaries:

(a) $40,000, including the franked distribution, to Sally, who is aged 62 and a resident and has no other income, with

 (b) the remaining amount distributed to Jack, a 42 year- old non-resident.

Required:

Calculate the s. 95 net income of the trust and the tax implications for Sally and Jack citing relevant legislation to support your answer.                                                                    

                                                                                                                                   (8 marks)                                                                                               

Total (12 +8= 20 marks)

Question Five (10 marks) 

Bob Briggs is 43 years old and a self-employed builder and 2021 was a good year for his business. He tells you he has $300 000 in excess funds which he decides to put into his self-managed super fund (SMSF) before 30 June 2021. Bob also tells you that he has not contributed anything to this SMSF in the previous three years.

Bob has been told by a friend that he could claim $100,000 in a tax deduction (without any further taxes) for superannuation contributions and he wants to do this in his 2021 tax return. Bobs taxable income for 2021 (before his superannuation contribution) was $180,000

 

Required:

Advise Bob of the tax consequences of putting $300,000 into his SMSF for the year ended 30 June 2021. Show calculations and cite relevant legislation to support your answer.

 

                                                                                                                                (10 marks)                                                       

Question Six (15 marks)

• On 13 May 2021 XYZ Pty Ltd purchased a disused warehouse for $1,500,000. Due to the need to install heavy manufacturing equipment on the floor, XYZ spent $400,000 in resurfacing and strengthening part of the floor. XYZ is unsure as to whether the amount may be claimed as a deduction.

 

Required:

Advise XYZ of what course of action it should take. Discuss the relevant legislation and case law to support your answer

                                                                                                                                (8 marks)

 

(2)    Suppose XYZ claimed the cost of $400,000 as a deduction for the tax year 2020/21 and, upon a subsequent audit, the Commissioner disallowed the deduction and issued an amended assessment.

 

Required:

What penalties may be imposed on XYZ? Discuss the relevant legislation and case law to support your answer

                                                                                                                                (7 marks)

 

Total (8 +7= 15 marks