LAW5230 Assignment Semester 3, 2015

This assignment consists of three (3) case studies. You must
complete all the case studies and all parts of each case study.
Case Study One
John is a 38 year old mining engineer who was born in Queensland. John
studied at USQ and spent several years working in mines in central
Queensland after graduating. He purchased a house in Mackay in 2010
and lived there with his girlfriend for several years.
In April 2014 he accepted a management role with a global mining
company, based in their headquarters in Switzerland. As part of this role
he was required to travel to mining construction projects all around the
world, as and when directed by his employer. The mining company
provided a furnished apartment in Switzerland for it employees, and John
shared a two bedroom apartment with a colleague. John stayed in the
apartment when he was not travelling to mining projects, and had access
to this apartment from April 2014 until August 2015. He estimated that
during the year ended 30 June 2015 he had stayed a total of 62 nights in
the apartment, as he spent the majority of the year at various mine sites
around the world. As John was travelling so much he didn’t have many
friends in Switzerland or time to join any sporting or social clubs.
Initially John had difficulties opening a bank account in Switzerland, so he
asked his employer to pay his salary into his Australian bank account.
After a few months he was able to open a bank account in Switzerland.
When John left Australia he came to an agreement with his girlfriend that
she would rent his house in Mackay, paying a market rental directly into
his Australian bank account. He placed items of furniture and a motorbike
in storage in Mackay prior to leaving in April 2014. During the year ended
30 June 2015 he visited Australia on two occasions, for a week over
Christmas and for his father’s 70th birthday in March 2015.
During the year-ended 30 June 2015 John had the following transactions:
 Salary paid by the mining company AUD$120,000. Of this amount,
$20,000 was paid into his Australian bank account and $100,000
was paid into his Swiss bank account.
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 The mining company awarded John a bonus for his good service
during the year year-ended 30 June 2015. It was paid to John on
15 July 2015.
 Rent of $13,500 paid into his Australian bank account by his
girlfriend for the rent of his house in Mackay.
 Interest on his Australian bank account of $250.
 Interest on his Swiss bank account AUD$450, from which $50
withholding tax had been deducted by the Swiss bank prior to
crediting his account.
 John was injured on one of his visits to a mine in Africa. John could
not work for three (3) weeks and was paid workers’ compensation
of $1,000 a week to replace his salary during this time. John also
received a one-off amount of $5,000 for the physical injury.
Required:
Discuss with reference to legislation, case law and/or rulings (where
relevant) whether John would be considered a resident of Australia for tax
purposes for the income year ended 30 June 2015. Based on this
conclusion and discussing the source and derivation of income principles,
state which amounts would be included in his assessable income for the
year. You do not need to consider the consequences of any Double Tax
Agreements.
LAW5230 Assignment Semester 3, 2015
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Case Study Two
The following separate scenarios require your advice as indicated:
Part A
Regional Aussie Bank Ltd (RAB) is an Australian resident company that
has been making good profits in recent years.
Due to its success it became a target for a takeover by one of the larger
banks. During the year ended 30 June 2015, RAB incurred $75,000 in
legal, accounting, public relations and printing costs in an attempt to
defend itself against the takeover.
One of the services RAB provides is investment advice for high wealth
customers. RAB was sued for damages by some of its customers for
negligent investment advice that resulted in these customers losing
significant amounts of money. The Court awarded the customers
$200,000 which RAB paid on 31 May 2015. RAB spent $45,000 on legal
fees when the matter went to Court, receiving an invoice from the law
firm on 25 June 2015. The legal fees were paid on 10 July 2015.
After successfully defending itself against the takeover attempt, RAB
wanted to expand its home lending business. On 1 January 2015 it paid
$1,000,000 to a large mining company to be the sole provider of home
loans to the company’s employees in regional mining towns for five (5)
years.
Required:
Based on this information what amount can RAB claim as an allowable
deduction under s 8-1 Income Tax Assessment Act 1997 for the year
ended 30 June 2015? Support your discussion with reference to
appropriate authority.
Part B
In July 2014 Barry decided to buy a boat for $32,000 to take tourists on
fishing trips in Moreton Bay. Barry commences his business on 28 August
2014, charging each passenger $150 per trip. The boat Barry purchased
was five years old and had damage to its hull due to the previous owner
hitting a submerged rock. Barry had to spend $5,000 to repair the hull in
order to make it safe to commence fishing trips. On 1 August 2014 Barry
purchased 12 life jackets costing $149 each to comply with safety
regulations.
In December 2014 a passenger damaged one of the fishing rod holders on
the boat. Barry had to pay $700 to have the rod holder replaced.
A storm in January caused damage to the canvas canopy under which
passengers sit while the boat is travelling out to fishing locations. Barry
decided to replace the canvas canopy with a fibreglass canopy which
would not be damaged as easily in future bad weather. The replacement
canopy cost $2,000.
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Required:
Discuss with reference to appropriate (and most relevant) legislation, case
law and/or rulings whether the expenses described above are deductible
for Barry in the year ended 30 June 2015. You should discuss
deductibility and timing issues, but DO NOT need to calculate any capital
allowances.
Part C
Stella is an accountant employed with an accounting firm in Toowoomba.
Stella regularly travels to client’s premises I Toowoomba and the
surrounding area during her working day using her own car. On 1 August
2014 Stella purchased a new car for $67,000 which she used both for
personal and work-related travel. The effective life of the car is eight (8)
years.
The total kilometres travelled to 30 June 2015 was 40,000, with 7,500kms
being work-related use.
Stella incurred the following expenses:
Registration $670
Insurance $850
Petrol $2,250
Replacement windscreen $250
The windscreen was badly chipped when Stella was driving to a client
along a gravel road, and her insurance did not provide any compensation.
Required:
Advise Stella whether she is entitled to claim an allowable deduction for
the use of her car. Calculate the maximum allowable deduction, if any,
Stella will be able to claim for the year ended 30 June 2015. Show all
workings.
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Case Study Three
Billy is a resident of Australia for tax purposes and has informed you of
the following transactions which occurred during the income year ended
30 June 2015. Billy also informs you that he has carried forward capital
losses from the 2012 year of $11,000. This loss relates to the sale of
shares. Additionally he has a $1,200 carried forward capital loss from the
2009 income year in relation to the sale of an oil painting.
House
During the current income year Billy decided to sell his 4 hectare property
near Toowoomba and move to Brisbane. The Toowoomba property had
always been used as Billy’s main residence. Billy had never carried on a
farming business on the land, only having a few sheep to eat the grass.
He first purchased the land on 1 October 2000 for $100,000 plus stamp
duty of $2,000. Billy built the house immediately after purchasing the
land, and paid $180,000 in construction costs. Billy signed a contract to
sell the property for $620,000 on 1 June 2015 and the properly settled on
15 July 2015. The real estate agent’s commission on the sale was
$15,000. The real estate agent valued the two (2) hectare yard the house
was located on at $420,000 and the remaining two (2) hectare paddock at
$200,000.
Coin
Billy acquired a rare Roman coin from his father’s estate. His father had
purchased the coin on 1 September 1998 for $1,000. At the time of his
father’s death in May 2013 the market value was $6,000. Billy sold the
coin for $6,800 on 1 June 2015, incurring $950 in commission fees at the
time of sale.
Letter of Advice:
 Provide advice to Billy as to any net capital gain he will have to
include in his assessable income for the income year ended 30 June
2015 as a result of the above transactions. Your advice must be in
the form of a Client Letter of Advice.
 Your letter of advice should be written in language suitable for the
audience (individual taxpayer) and discuss the capital gains tax
consequences of each transaction. You should also advise Billy of
any record-keeping requirements.
 The calculations of any relevant capital gains should be included in
an Appendix to the letter, showing explanation for these
calculations. This is where you should make reference to all
relevant legislation, case law principles and rulings in approaching
this question. Please consult the marking criteria for further
information.
100 Marks Total for this Assignment
See Criteria Sheet on next page for mark allocations.
LAW5230 Assignment Semester 3, 2015
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LAW5230 – Taxation Law
Semester 3, 2015
Assignment Marking Criteria Sheet
Case Study 1 – Assessable Income
Issues
Little
attemp
t
F C B A HD
Identification of legal issues, legislation
and case law
Overall the student has identified the
relevant assessable income issues,
legislation and where appropriate case law
and rulings.
0 0.5 1.5 2 2.5 3
Application
Demonstrated level of understanding of the
specific residency issues in relation to John
through the application of the identified law.
1 2 5 6 8 10
Demonstrated level of understanding of the
specific derivation and source of income
issues in relation to John through the
application of the identified law.
1 2 5 6 7 9
Demonstrated level of understanding of the
specific ordinary and statutory income issues
in relation to John through the application of
the identified law.
1 2 5 6 7 9
Conclusions
Overall, the student has drawn appropriate
and valid conclusions after applying the law. 0 0.5 1.5 2 2.5 3
Total out of 34
Case Study 2 – Deduction Issues
Little
attem
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