PRINCIPLES OF INCOME TAX LAW
INSTRUCTIONS
Please note that the following will not form part of the word count:
?? References, including statute and cases;
?? Diagrams; ?? Tables; ?? Calculations.
You must complete both parts of the assignment. Please complete both parts of the assignment separately. You should allocate approximately 1500 words on both Part A and approximately 1500 words on the policy-based essay question in Part B. There is a strict word limit of 3000 words for this assignment.
For both parts of the assignment you will be required to go beyond the study materials for this unit and you will be expected to conduct your own research of cases and other academic material upon which you should base your answer.
You are encouraged to use headings for purposes of clarity and presentation of your assignment. It is however essential that your assignment is written in full sentences and not dot point form. If you use any equations in solving the problem question please make sure that you cite the correct sections of the relevant legislation and that you outline your entire working.
You must begin each question separately. It is however essential that you place your name and student number and the question number on each question which you complete.
Regarding referencing, you will find the Australian Guide to Legal Citation (AGLC) style of referencing in the following web site:
https://www.law.unimelb.edu.au/files/dmfile/FinalOnlinePDF-2012Reprint.pdf
Please note that this AGLC style is intended for Law students and although it would be great if you followed it, marks will not be deducted for not citing cases etc exactly as described. In other words, whilst you must reference, you can choose to use other referencing styles (ie not necessarily the AGLC style) if you wish.
The assignments must be completed individually.
PART 1- PROBLEM
QUESTIONS
• During 2013 Clara started working as a senior tax manager with an office supply retailing chain. During the initial job interview process it was made clear that this would be a role predominantly dealing with income tax matters.
• During February 2015 Clara was told that her role would change to one that deals predominantly with GST. However, her job title was to remain unchanged. When Clara complained that this was not the job that she had applied for, she was told that she would receive $25,000 compensation over 4 equal instalments to compensate her for the change of position.
• Since 2014 Clara has also been running her own private business on weekends completing tax returns for members of the public. Her employer believed that this had the potential to cause Clara to be mentally tired and perform her employee role in a suboptimal manner. As a result, Clara and her employer agree for Clara to be paid $15,000 in exchange for her agreeing to cease her business for the next 5 years.
Ignoring Capital Gains Tax, discuss whether:
a) The receipt of the $25,000 constitutes assessable income.
b) The receipt of $15,000 constitutes ordinary income.
PROBLEM QUESTION 1B- THIS IS WORTH 15% OF YOUR OVERALL MARK FOR THE UNIT (APPROX 1100 WORDS)
On 1 August 2007, Tanya entered into a contract to purchase a block of land for $115,000. She also paid stamp duty of $5000. This land was mostly vacant but had an empty garage in the corner. Settlement was on 1 December 2007. On 1 February 2008 Tanya paid a builder to build a retail shop premises on the land. This cost her $280,000 and was completed in June 2008.
After the retail premises was built Tanya used it to run a dress store aimed at wealthy customers. In July 2008 Tanya purchased an expensive leather sofa for $20,000 for her customers to use while in the store.
While Tanya owned and ran the store, annual turnover was between $2,800,000 and $2,900,000. Tanya also rented out the garage on the corner of the block of land for one of her shop customers to store their expensive vintage car. She would collect about $15,000 a year in rent from this.
Tanya decided during March 2015 (when she was 51 years of age) to sell her business, and so entered into the following contracts:
• Sale of land with shop and garage for $900,000.
• Sale of sofa used in shop for $15,000.
• A contract that Tanya will not compete with the purchaser of the business for the following 4 years for $150 000.
In April 2015 Tanya purchased a corporation called TLC Pty Ltd for $400,000. The company's only assets were Australian Government Bonds worth $100,000 and a restaurant worth $300,000.
When Tanya sold her shop in March 2015, she also owned the following:
• House that was her primary residence. This was purchased in 2004 for $650,000 and is now worth $1,400,000.
• A rental property purchased in 2009 for $350,000 and is currently worth $550,000 but has a $50,000 mortgage on it.
• Shares in a company called Invist Pty Ltd. Tanya owned 65% of the shares in this company. This company owns several properties, and Tanya's share of the company is worth $975,000.
• Shares in Commonwealth Bank that were purchased in 2001 for $100 000 and are now worth $600 000.
• A motor vehicle, current market value of $30,000. Tanya had been using this car exclusively for business purposes, but she intends on using it for personal purposes after the sale of the store.
Please only focus upon the Capital Gains Tax implications for this question.
Please refer to all of the relevant sections of the legislation, cases and any other scholarly material when providing advice to Tanya. Advise Tanya on:
• Any Capital Gains Tax liabilities for her in relation to her activities.
• Specifically, make sure that your discussion includes advice on whether Tanya can take advantage of the CGT small business concessions to reduce the amount of tax payable. Tanya is specifically interested in whether she is eligible for the Small Business Rollover, as well as her eligibility for the other CGT small business concessions.
PART 2- POLICY BASED ESSAY QUESTION
There has recently been some discussion about the lack of housing affordability and the effect that tax policy has on house prices.
Discuss the following:
i) Which of the current tax policies impact on housing affordability; and
ii) Whether changing any of the specific tax laws that currently contribute to making housing less affordable is desirable. Please consider this in the context of fairness, economic efficiency, protection of government revenue and any other relevant considerations.