The case study will potentially cover lecture topics 2 to 7 and related tutorial
questions, and is due to be lodged via turnitin and ilearn by 5pm 1 May 2015.
The case study requires students to provide a detailed analysis of a fact situation
below applying the taxation laws to arrive at a conclusion and/or recommendations.
Guidelines to marking the case study will be provided on ilearn after the case study
marks are returned to students.
No extensions will be granted. Students who have not submitted the task prior to the
deadline will be awarded a mark of 0 for the task, except for cases in which an
application for Disruption of Studies is made and approved
Assume you are employed as a graduate tax accountant and have been asked
to detail to your manager, the Australian income tax implications of the
following facts relating to Mrs Gilling, who is a major client of the accounting
firm that you work for. In your analysis you should specifically address the
a) Entering into the agency contract
b) Benefits paid by Alesse to Mrs Gilling for travel to negotiate the terms of
the agency and luggage set
c) Cost of attending annual launch paid by Bronx
d) Product support payments etc paid by Bronx to Alesse
e) Sale of 20% of shares in Bronx by Mrs Gilling
f) New showroom CGT cost base
g) Insurance payment and cost of hail damage
h) Silvio staying in Australia permanently
As you are detailing the tax implications for your manager, who will ultimately
draft the letter of advice, you should provide comprehensive written analysis
including the justification and authority for your conclusions, relevant
sections and case law. Calculations without written analysis will not be
With respect to any calculations provided to your manager it is recommended
(but not essential and no marks will be lost if you do not) that you use an Excel
spread sheet to provide the detail.
Mrs Gilling owns 100% of the shares in Bronx Lighting Pty Ltd ‘Bronx’ as at 1 July
2014. Bronx supplies and installs lighting for large commercial projects and has
undergone substantial growth in the last two years. The business employs 45 staff
including Mrs Gilling’s son and daughter (responsible respectively for the marketing
and finance aspects of the business).
Bronx has negotiated a sole agency agreement with a high profile lighting system
manufacturer located in Italy (‘Alesse’). This sole agency will add substantially to the
turnover of Bronx. Under the sole agency agreement Bronx will promote and sell the
Alesse lighting systems in Australia.
Mrs Gilling travelled to Italy in November 2014 to negotiate the terms of the sole
agency agreement, spending $7,500 on travel costs as well as $10,500 in legal fees.
The agreement was signed on 1 March 2015. Alesse paid for a number of formal
dinners and local sightseeing trips (valued at A$850) and a leather travel set (valued
at A$2,500) for Mrs Gilling.
The final contract negotiated with Alesse includes the following terms:
1. Bronx will be the sole supplier of Alesse lighting systems in Australia for five
years from 1 March 2015 and Bronx will pay $85,000 for the sole agency
rights of sale and distribution.
2. Bronx must establish a showroom in the Sydney CBD to display only the
Alesse brand of lighting systems.
3. Mrs Gilling, with her son and daughter will travel to Italy once every 12 months
to attend the annual launch of the Alesse product range. The cost of travel,
accommodation to attend the annual launch and food while travelling will be
paid by Bronx. It is envisaged that Mrs Gilling, her son and daughter will all
attend the launch but also do some sightseeing during their stay.
4. Product support, information sheets and marketing material will be supplied
by Alesse for a fee payable by Bronx. The fee is a fixed charge per month of
$5,000 irrespective of the amount of support provided by Alesse.
5. Alesse will send the marketing manager from the Italian head office to
Australia each year to be available to Bronx for sales pitches and marketing
campaigns. Bronx will pay for the cost of the marketing manager’s travel and
accommodation for the month that he is in Australia.
To fund the purchase of the new showroom, Mrs Gilling decided to sell 20% of her
shares in Bronx on 1 February 2015 to an arms-length investor for $1,200,000. The
$1,200,000 was paid to Mrs Gilling in instalments of $400,000 in each month of
February 2015, May 2015 and August 2015 and legal fees associated with sale of
20% of the shares in 2015 of $9,900 were paid by Mrs Gilling but reimbursed by
Mrs Gilling had originally acquired 100% of the shares in Bronx in January 2000 for
$256,000 from her ex-husband after their divorce was finalised. Although the shares
in Bronx was independently valued at $350,000 as at January 2000 Mrs Gilling’s exhusband
applied a discount to the sale price due to the upsetting personal
circumstances. Mrs Gilling incurred legal fees associated with the purchase of 100%
of the shares of $3,500.
A new showroom was purchased for $1,500,000 by Mrs Gilling in her own name on
1 March 2015 and is made available to Bronx to display the Alesse lighting systems.
Mrs Gilling charges rent to Bronx at a commercial rental charge however before the
showroom could be used by Bronx Mrs Gilling had to arrange a coat of paint
($6.600) and new flooring ($16,600) throughout the premises on 10 March 2015.
One month into the agreement, in April 2015, the showroom was damaged by a wild
hail storm resulting in the closure of the showroom for 3 weeks for repair (costing
$75,000) and structural work to the building (costing $166,000). Bronx claimed
compensation from its insurance company to cover the cost of the repairs and
structural work. The insurance company argued that the need for the structural work
actually existed when the premises was purchased by Mrs Gilling. Accordingly the
insurance company would not pay the claim for the total amount. Ultimately Mrs
Gilling settled for a payment totalling $85,000 to cover both the repairs and structural
work to the building.
The Italian marketing manager, Silvio, came to Australia with his wife and two
children on 1 April 2015 and loved it so much that they decided to stay in Australia
indefinitely. Silvio resigned from his employment with the Alesse and takes on part
time employment in Australia until something more permanent arises. Silvio does
own an investment property in Italy but does not own a family residence there. The
two children will attend school in Australia and Silvio and his wife are looking at
purchasing an apartment in Sydney. Alesse pays Silvio a lump sum of $60,000 for
Silvio’s promise not to work for a competitor in the next 12 months starting 1 April