Australian Taxation Law - Assignment Example

AUSTRALIAN TAXATION LAW ASSIGNMENT Name: Course: Instructor: Institution: City: Date: QUESTION ONE a) For the Year 2014/2015, Expenses on Phoebe’s Cairns Beach House Expense Amount Verandah repair $2,400 Interest on loan $12,000 Land Tax $300 Gardening Maintenance Fees $800 4 Identical Fans $980 Expenses on Phoebe’s Airlie Beach Property Expense Amount Interest on Loans $18,000.00 Advertising Costs $900 Photography Fees $600 Flight to Airlie $800 Hotel Accommodation $500 Ronpibon Tin No Liability v FCT (1949) b) Negative Bearing is a situation that occurs in which an investor borrows money in order to purchase an investment asset, yet the eventual income from that asset does not amount to or exceed the total interest expenses as well as other expenses essential in maintaining the asset. In the case of Phoebe’s Airlie Beach Property, the total income is, in fact, negative; meaning a loss. This income is not commensurate with the total expenses involved. In negative bearing, profitability is only achieved when the property is eventually sold since then its value shall have appreciated. In a similar way, the value of the Airlie Beach Property had appreciated from the buying price of $67,000.00 in 1986 to $450,000.00 in 2014. This means that selling it in the current year will mean profitability for Phoebe. QUESTION TWO Ideally, a partnership does not pay tax despite the fact that they must always lodge a tax return: s 91. In order to calculate the total tax for a partnership, usually, it is the tax returns of the individual partners that is established. First, the net income for the partnership is calculated, secondly, each partner’s share of the net income or loss is determined, and then the partner’s assessment income or loss is adjusted accordingly. In the case of this partnership, first, the net income or loss is calculated as follows: Second, the share of the net income or loss for each partner is then calculated as follows: The total tax is calculated from the sum of the individual partners’ tax i.e. Sam, Matt, and Ben. Since the bonus given to Ben is not deductible, his transactions do not have any tax implications on the partnership (). According to Australian Legislation on Tax Rates and, Ben’s Total Tax Payable is calculated based on the Taxable Income of Sam and Matt as follows: The same applies to the other two partners i.e. Sam and Matt. QUESTION THREE a) The rare painting from Fiona’s mother is a “True Gift,” which according to FCT v McPhail (1968) refers to one that is made with no expectation of material advantage in return. This being the case, it is, therefore, deductible, and hence it should it reduces the CGT on Fiona (Scott v FCT (1966)). b) Eddie’s three-bedroom house in Darwin is exempted from CGT up to July 2004 since it is the taxpayer’s main residence: s 118-110 (1), and then included in CGT from then henceforth when Eddie rented it out. On selling the property in January 2007, the proceeds are also exempted from CGT since his intention for selling the property is not to make profit (no business): s 116-20(5). c) While under John’s ownership, the 100-acre farm is exempted from CGT. However, if Farm Limited buys it at $800,000, it is highly likely that the company will use it for capital gains. In that case, they will be required to pay CGT. d) The shares in Qantas shall have yielded profits and will be included in the CGT when Chris sells them: s 110-55. On the contrary, since Chris’ chares in Westco shall have yielded a loss, he’ll be exempted from paying CGT from the sale of these shares: s 110-55. QUESTION FOUR a) Three exempt entities are: Registered Charity Agricultural Society Music Society b) Three assets that are exempt are: Royalties Work in progress amounts Certain amounts paid under scholarship plan c) Three situations in which a gain or loss is reduced are: Currency exchange rate effect   Constructive receipts and payments   Economic set-off to be treated as legal set-off d) One exempt transaction is: Superannuation contributions surcharge QUESTION FIVE Certainly not. Jerry is not conducting a business of fishing. For an activity to be identified as a business activity there has to be the intent of making a profit (Ferguson v FCT (1979)). In the case of he cares less about whether he sells his extra fish at a profit or not. Even though he owns a commercial fishing licence (Ferguson v FCT (1979)), Jerry does not engage in fishing as a commercial venture. He does fishing purely as a recreational activity (Thomas v FCT (1972)). Another indicator that Jerry is not conducting a business of fishing is the fact that not so much of planning is done for this activity. In fact, the information provided indicates that Jerry does not have a business plan for fishing, and also is not bothered about whether the costs he incurs are fully met by the sale of the extra fish. Even though the output of Jerry’s fishing activity is slightly higher than the expected for normal consumption (Thomas v FCT (1972)), this activity is not sufficiently able to satisfy the requirements of a business, and, therefore, not a business activity (London Australia Investment Co Ltd v FCT (1977)). END.. Read More