Taxation Law Questions - Assignment Help

INDIVIDUAL ASSESSEMENT

Word limit: 2000 words

Referencing: Students must use a consistent style of referencing and cite the relevant research source when appropriate. Students may use the in-text referencing style used in their business degree or the Australian Guide to Legal Citation (4th edition).  Footnoting is required for correct citations of cases and legislation. 

Marks: 40% of the overall assessment

QUESTION 1                                                                                                                  (20 marks)

Carol is your accounting client and has come to you to prepare her tax return. During the 2021-22 financial year, Carol disposed of the following assets:

(a)           A holiday house. The house was purchased on 1 October 2008 for $350,000 and sold for $650,000. The contract of sale was entered into on 5 May 2022 and settlement is to take place on 5 July 2022. The stamp duty and legal fees at the time of acquisition were $20,000. The advertising and estate agent’s fees at the time of disposal were $8,000. On 1 April 2015, Carol spent $35,000 adding a second bathroom to the house. Carol rented the house out for 6 months, from 1 October 2010 to 1 April 2012. During this period, she derived rent of $15,000. At all other times she kept it for private use by her family. During the period that she owned the holiday house she had paid a total of $75,000 in interest, local council rates and insurance. She had claimed $10,000 of the $75,000 as a tax deduction during the relevant financial years.

(b)           Vacant Land. Carol sold vacant residential land originally purchased on 16 June 1984 for $100,000. She initially intended to build a house on the land but lacked the finance to do so. The land was sold for $500,000. The contract of sale was entered into on 28 May 2022 and settlement is to take place on 30 August 2022.

(c)           A Harley Davidson motorcycle.  The motorcycle was purchased by Carol for $130,000 on 1 July 2012. It was a special and rare motorcycle with only 4 made in 1956 and based on the ‘Easy Rider’ film. It was sold for $220,000 on 12 December 2021.

(d)           A painting. The painting was purchased by Carol for $20,000 on 1 May 2009 and sold for $30,000 on 30 April 2022.

(e)           A horse. Carol used the horse for recreational purposes. Carol had bought the horse on 1 May 2014 for $6,000. She sold the horse to a horse trainer for $16,000 on 26 March 2022.

(f)            On 1 July 2006, Carol purchased a house for $300,000, which she used as her main place of residence. On 1 July 2018 she left Australia to take up a job in London. During her stay in London, she did not buy a house, but instead lived in rented accommodation. She returned to Australia and began living in the house again on 30 June 2021. During her absence from Australia, a friend lived in the house and paid Carol rent of $12,000 per year. Her friend also paid all the outgoings on the house such as the rates, insurance, and electricity. The house was sold for $800,000 on 26 May 2022.

(g)          Shares. Carol bought BHP shares on 2 June 2021 for $45,000. She sold those shares on 2 May 2022 for $90,000.

Carol has capital losses she is carrying forward from previous years of $65,000 from the sale of an antique and $130,000 from the sale of some shares.

Carol also received a salary of $89,746 from her position as the manager of a small engineering consulting practice. She received a travel allowance of $1,400 for the year and claimed a total of $2,365 as the actual expenses. She has no other deductions. Her employer withheld $22,000 as PAYG W. Carol does not have private hospital insurance and she lives by herself.

In addition, Carol received $500,000 from her grandmother as a gift, and she won a motor car valued at $35,500 from a winning raffle ticket. 

REQUIRED:

Calculate Carol’s tax payable for the year ending 30 June 2022.

QUESTION 2                                                                                                                                  (20 marks)

Sam Ryan is a self-employed accountant and registered for GST. His receipts and payments (not including GST) for the year ended 30 June 2022 are as follows:

Receipts

               $

                340,000                 Professional accounting fees

                8,000                      Income from part-time military service (note 1)   

                30,000                   Salary received from part-time lecturing at the University

($6,000 in PAYG W) (note 2)

                2,000                      Refunds from Government Medicare System for medical expenses 

                5,000                      Interest on Bank Deposits

                28,000                   Rental income from an investment property 

                 2,000                     Profit on sale of office equipment (note 3)               

                100,000                 Inheritance from his father’s estate under the will

                37,500                   Winnings from a Lottery ticket that was given to him

Payments

                24,000                  Office rent

                 150,000                Salary paid to employees   

                 290                       Purchase of a new calculator

1,400                      Cost of meals and entertainment for himself and clients

                1,200                      Train fares for travel to and from work

               2,200                      Rates on family home

               900                        Electricity for family home

               3,000                     Tax agent’s fees for preparing tax returns for Sam and his wife

                5,000                      Gross medical expenses for Sam and his wife.            

                2,000                      Rates paid on abovementioned investment property 

                15,000                   Interest paid on loan to acquire the investment property 

5,000                      Cost of painting the investment property immediately after purchasing the property  

1,000                      Cost of replacing roof tiles on the investment property after the roof was damaged in a severe storm in February 2022 

                15,000                   Cost of extending the bathroom in the investment property 

Notes

(1)           The part-time military income is exempt. 

(2)           Sam received the sum of $30,000 as gross income and the University had deducted $6,000 as income tax under the PAYG Withholding system.

(3)           Profit on sale of office equipment. The office equipment was purchased on 1 July 2017 for $10,000. Sam estimated its effective life for taxation purposes at the time of purchase at 10 years. He used the prime cost method.

                                Sale proceeds – sale date 30 June 2022                     $5,000

                                Net book value based on accounting depreciation   3,000    

                                                                Profit                                                     2,000

(4)           Sam has a carry forward past year tax loss of $42,000.

(5)           Sam is married. His wife, Le Chien, works full-time and earns assessable income of $92,282 per year. They have 2 children. Neither Sam nor Le Chien are eligible for Family Tax Benefit Part B.

(6)           Neither Sam nor Le Chien have private hospital insurance. 

REQUIRED

Calculate Sam’s tax liability for the year ended 30 June 2022 and his tax payable.