Taxation
T2 2018 Individual Assignment
(2500 words)
Due
date: Week 10
Maximum
marks: 20 (20%)
Instructions:
This assignment is to be submitted by the due
date in soft-copy only (Safe assign – Blackboard).
The assignment is to be submitted in
accordance with assessment policy stated in the Subject Outline and Student
Handbook.
It is the responsibility of the student
submitting the work to ensure that the work is in fact his/her own work. Ensure
that when incorporating the works of others into your submission that it is
appropriately acknowledged.
You are working as a tax consultant in Mayfield,
NSW. Your client is an investor and antique collector. You have ascertained
that she is not carrying on a business. Your client provides the following
information of sales of various assets during the current tax year:
(a) Block
of vacant land. On 3 June
of the current tax year your client signed a contract to sell a block of vacant land for $320,000. She acquired
this land in January 2001 for $100,000 and incurred $20,000 in local council,
water and sewerage rates and land taxes during her period of ownership of the
land. The contract of sale stipulates that a deposit of $20,000 is payable to
her when the contract of sale is signed and the balance is payable on 3 January
of the next tax year, when the change of ownership will be registered.
(b)Antique
bed. On 12 November of the
current tax year your client had an antique
four-poster Louis XIV bed stolen from her house. She recently had the bed
valued for insurance purposes and the market value at 31 October of the current
tax year was $25,000. She purchased the bed for $3,500 on 21 July 1986.
Although the furniture was in very good condition, the bed needed alterations
to allow for the installation of an innerspring mattress. These alterations
significantly increased the value of the bed, and cost $1,500. She paid for the
alterations on 29 October 1986. On 13 November of the current tax year she
lodged a claim with her insurance company seeking to recover her loss. On 16
January of the current tax year her insurance company advised her that the
antique bed had not been a specified item on her insurance policy. Therefore,
the maximum amount she would be paid under her household contents policy was
$11,000. This amount was paid to her on 21 January of the current tax year.
(c) Painting. Your client acquired a painting by a well-known Australian artist on 2
May 1985 for $2,000. The painting
had significantly risen in value due to the death of the artist. She sold the
painting for $125,000 at an art auction on 3 April of the current tax year.
(d) Shares. Your client has a substantial share portfolio which she has acquired
over many years. She sold the
following shares in the relevant year of income:
(i) 1,000 Common Bank Ltd shares acquired in 2001
for $15 per share and sold on 4 July of the current tax year for $47 per share.
She incurred $550 in brokerage fees on the sale and $750 in stamp duty costs on
purchase.
(ii)2,500 shares in PHB Iron Ore Ltd. These shares were also acquired in
2001 for $12 per share and sold on 14 February of the current tax year for $25
per share. She incurred $1,000 in brokerage fees on the sale and $1,500 in
stamp duty costs on purchase
(iii) 1,200 shares in Young Kids Learning Ltd. These
shares were acquired in 2005 for $5 per share and sold on 14 February of the
current tax year for $0.50 per share. She incurred $100 in brokerage fees on
the sale and $500 in stamp duty costs on purchase.
(iv) 10,000 shares in Share Build Ltd. These shares
were acquired on 5 July of the current tax year for $1 per share and sold on 22
January of the current tax year for $2.50 per share. She incurred $900 in
brokerage fees on the sale and $1,100 in stamp duty costs on purchase.
(e) Violin.
Your client also has an interest in collecting
musical instruments. She plays the
violin very well and has several violins in her collection, all of which she
plays on a regular
basis. On 1 May of the current tax year she sold one of these violins for
$12,000 to neighbor who is in the Queensland Symphony Orchestra. The violin
cost her $5,500 when she acquired it on 1 June 1999.
Your client also has a total of $8,500 in
capital losses carried forward from the previous tax year, $1,500 of which are
attributable to a loss on the sale of a piece of sculpture which she sold in
April of the previous year.
Required:
Based on this information, determine your client’s
net capital gain or net capital loss for the year ended 30 June of the current
tax year.
Question 2 (10 marks)
Rapid-Heat Pty Ltd (Rapid-Heat) is an Electric
Heaters manufacturer which sells Electric Heaters directly to the public. On 1
May 2017, Rapid-Heat provided one of its employees; Jasmine, with a car as
Jasmine does a lot of travelling for work purposes. However, Jasmine's usage of
the car is not restricted to work only. Rapid-Heat purchased the car on that
date for $33,000 (including GST).
For the period 1 May 2017 to 31 March 2018,
Jasmine travelled 10,000 km in the car and incurred expenses of $550 (including
GST) on minor repairs that have been reimbursed by Rapid-Heat. The car was not used
for 10 days when Jasmine was interstate and the car was parked at the airport
and for another five days when the car was scheduled for annual repairs.
On 1 September 2017, Rapid-Heat provided Jasmine
with a loan of $500,000 at an interest rate of 4.25%. Jasmine used $450,000 of
the loan to purchase a holiday home and lent the remaining $50,000 to her
husband (interest free) to purchase shares in Telstra. Interest on a loan to
purchase private assets is not deductible while interest on a loan to purchase
income-producing assets is deductible.
During the year, Jasmine purchased an Electric
Heaters manufactured by Rapid-Heat for $1,300. The Electric Heaters only cost
Rapid-Heat $700 to manufacture and is sold to the general public for $2,600.
Required:
(a) Advise Rapid-Heat of its FBT consequences
arising out of the above information, including calculation of any FBT
liability, for the year ending 31 March 2018. You may assume that Rapid-Heat
would be entitled to input tax credits in relation to any GST-inclusive
acquisitions.
(b) How would your answer to (a) differ if Jasmine
used the $50,000 to purchase the shares herself, instead of lending it to her
husband?
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