Your client provides you with information (as detailed below) on various transactions between 1 July 2014 and 30 June 2015. Your client seeks advice as to what amount(s), if any, must be returned as assessable income for the year ended 30 June 2015. In particular, you are required to discuss the capital gains tax consequences of these transactions and determine your client's net capital gain or net capital loss, if any, for the year ended 30 June 2015. Your advice should include all calculations and references to applicable sections of the Income Tax Assessment Act 1997 and if applicable, rulings or other relevant material from the Australian Taxation Office.
1 | Shares. Your client has a substantial share portfolio which he acquired over many years for long term capital gains and dividend income. During the year ended 30 June 2015, your client sells the following shares. a. 1,500 Bank Ltd shares acquired in July 1991 for $15.00 a share and sold on 14 July 2014 for $47.00 a share. Your client incurred $1,050 in brokerage fees on the sale of the shares and $950 in stamp duty costs on purchase. b. 1,200 shares in Space Exploration Pty Ltd. These shares were acquired in 2012 for $4.90 a share and sold on 24 February 2015 for $1.25 a share. Your client incurred $120 in brokerage fees on the sale of these shares. c. 10,000 shares in Big Builder Pty Ltd. These shares were acquired on 5 July 2014 for $1.00 a share and sold on 22 May 2015 for $2.50 a share. Your client incurred $1,000 in brokerage fees on the sale of the shares.
2 | House and Land. Your client acquired a property in St Lucia in 2001 for $250,000 and lived in it until 3 August 2014. At the time of purchase the property's land was valued at $125,000. Your client decided in early 2014 to demolish the house and rebuild a new modern house containing 4 bedrooms, a media room and large open plan living spaces. The expected cost of the new building was $950,000. Your client moved out of the existing house in March 2014 into a nearby rental apartment. The existing house was demolished in late May at a cost of $150,000. However following the unexpected termination of his employment in June 2014 your client's bank withdrew funding for the construction of the new house. Your client then decided to sell the block of land for $700,000 in early August 2014. Selling costs were $5,000. He used the sale proceeds to purchase a new 3 bedroom apartment in Toowong for $650,000 and he moved into this apartment in December 2014. Your client did not keep any record of expenses associated with the St Lucia property, except for a Brisbane City Council a quarterly rates account for $1,000 dated 13 July 2014.
3 | Painting. Your client acquired a painting by a well know artist for $24,000 in January 2015. He purchased the painting at an art auction conducted by an internationally renowned auction house. When your client had the painting independently valued for insurance purposes, it was discovered the painting was a forgery and nearly worthless. The auction house agreed to purchase the painting back from your client but as per the terms and conditions of the original sale, the maximum amount refunded to your client was limited to $20,000. Your client received this amount in May 2015. Your client also incurred $1,000 in fees associated with the valuation of the painting.
4 | Land. Your client acquired 5 hectares of rural land 200 kilometres west of Brisbane in March 2010 for $75,000. The land adjoins a small creek and your client uses this property as a place to go camping with his family and friends. Since his employment was terminated your client needed to raise some funds to cover living expenses whilst he looked for new employment. Your client decided to sell the land in September 2014 for $125,000. During his period of ownership your client incurred $3,000 in local council rates and $2,000 having power and town water connected to the property. Your client also has $50,000 in capital losses being carried forward from the 2013-2014 tax year. These losses are not quarantined.
Requirement:
Question 2 | Capital Gain Tax [15 Marks]
- Requires the calculation of either an overall capital gain or capital loss based on four transactions during the year ended 30 June 2015. Marks are allocated as follows: ü
Based on the following information you are required to determine your client's taxable income for the year ended 30 June 2015. Using this information you are then required to calculate the net amount of tax payable or tax refund due to your client for the year ended 30 June 2015.
Your answer must include all calculations.
Information provided by your client's employer for the period 1 July 2014 to 30 June 2015.
a. Net salary paid into your client's bank account | $85,000
b. PAYG deducted from your client's gross salary and remitted to the ATO | $20,000
c. Motor Vehicle Allowance |$900
d. Reportable fringe benefits | $3,000
Your client uses their own car for work related purposes and during the year end 30 June 2015 travelled 900 business kilometres. Your client did not keep records of any costs associated with using his car for work purposes but did keep a log book to substantiate the number of business kilometres. You have determined your client's car is a Small Car for the purposes of Division 28.
Your client owns a rental property. For the period 1 July 2014 to 30 June 2015 your client received $17,200 in rent. You have ascertained that your client is eligible to claim $21,000 in tax deductible expenses associated with the property. Your client is married and his wife's income for the period 1 July 2014 to 30 June 2015 was:
a) $45,000 in gross salary and wages.
b) Your client's wife was involved in a workplace accident and was unable to work for 3 months. She was paid $2,000 per month by her employer's workers compensation scheme, for each month she was unable to work.
Your client and his wife do not have any private health insurance. As at 30 June 2015, your client has a HELP debt of $35,000 from his recently completed Master of Commerce studies. 9 | P a g e Based on the sale of some shares in April 2015, your client has an overall net capital gain of $842. Your client also received the following dividends from his share portfolio.
a. $5,000 fully franked dividend from XYZ Ltd, paid on 1 December 2014
b. $14,000 dividend, partially franked to 25%, paid on 4 July 2014.
Your client also received a $525.00 tax refund on 1 September 2014, after lodging his 2014 tax return and he won a $5,000 lottery prize in May 2015.
Requirement:
Question 3 | Tax Payable [10 Marks]
- Part 1 | 5 Marks. Calculate Taxable Income.
- Part 2 | 5 Marks. Calculate Taxable Payable.