Taxation Law and Practice A
PART A: (estimated 500 words). Each question is worth 1 mark – a few sentences should be all that is needed to answer each question. Please make sure you use complete sentences in drafting your answers.
You are working as a graduate accountant at a local accounting firm. Your boss has been asked to host a stall and give a presentation at a local university for their careers day. In preparation, she asks you to research and prepare some answers to some questions that selected students are going to ask during the presentation. She has asked that you provide appropriate references for your answers (unless she has specifically instructed you otherwise) so that she may refer the students to the source of the information if required.
1. Briefly discuss the situations where the ATO can decline to make a private ruling.
2. Can a taxpayer ever be considered to be carrying on a business of gambling, or will gambling always be considered a hobby? Explain your answer with support from any relevant case law and ATO rulings.
3. Describe the two accounting methods by which a taxpayer may derive income that are accepted for income tax purposes.
4. What does Taxation Ruling IT 2650 discuss?
5. Jillian purchased 100 shares in Brooklyn Pty Ltd in June 2013 at a cost of $200 per share. She sold 50 of the shares for $300 per share in August 2017. Advise Jillian of the capital gains tax consequences of the share sales for the 2018 income tax year. Assume that Jillian has no other CGT events in the 2018 income tax year. You are not required to include legislative references in your answer.
Part B: case study 12 marks (estimated 900 words). Use complete sentences in the answer.
Samuel is a 52 year old CEO, who lives in Canberra. He has lived in Australia his whole life. Until recently, Samuel had been in a de facto relationship with James. James and Samuel jointly owned their home, and held a joint National Australia Bank account. Samuel also has a bank account with Westpac. On 1 July 2017, Samuel and James separated, after which Samuel moved into rent-free accommodation with various friends. In August 2017, Samuel and James sold their property, and closed their joint account. Following the sale of the property, Samuel’s employer offered Samuel employment as a supervisor at their new office in Hong Kong, which Samuel readily accepted; he no longer had any desire to live in Australia. On the 20th of October 2017, Samuel left Australia for Hong Kong. Prior to his departure, Samuel sold and otherwise disposed of all personal belongings. Immediately upon arriving in Hong Kong, he purchased a fully furnished apartment in Hong Kong. He has not returned to Australia at all since his departure. During the 2018 income tax year, Samuel’s employer deposited his salary in Australian dollars into his account with Westpac until he departed for Hong Kong. After this time, his salary was paid in Hong Kong currency into an account Samuel opened in Hong Kong. Samuel seeks your advice as to whether he will be considered to be a resident of Australia for tax purposes for the 2018 income tax year. In your answer, you should discuss each of the tests of residency, and refer to any relevant taxation rules and/or case law. Please ignore the implications of the Double Tax Agreement between Australia and Hong Kong.
Part C: case study (estimated 1000 words). Use complete sentences in your answer.
Danijela is an IT manager with a large Australian company. She is an Australian resident for tax purposes.
In the 2018 income tax year, Danijela has the following receipts:
• $12,000 per month in salary from her employer
• $400 per month in interest from a joint bank account that Danijela holds with her husband. Danijela advises you that she has a 50% beneficial interest in this account.
• $5000 in prize money. Danijela advises you that she won the $5,000 by entering research paper she wrote in her spare time on digital disruption into a competition being run by an international IT magazine. Her research paper was then published in various journals and discussed at several conferences.
• $25,000 for the sale of a painting. Danijela purchased this painting in June 2015 for $30,000. Whilst she owned it, Danijela had the painting hanging in her bedroom. She paid a total of $500 in insurance during the ownership period.
In addition, Danijela has incurred the following expenses:
• $400 for the purchase of four black t-shirts embroidered with the company monogram. It is compulsory for her to wear these t-shirts at work. The t-shirts are only worn by employees of the company and are not available for purchase by the general public. The company did not reimburse the cost of these uniforms.
• $300 for income tax advice on creating a family trust.
• $10,000 for attending a week long seminar and training course in managerial skills. Daniella attended this course in the hopes that it would secure her a promotion with her current employer.
What is Danijela’s taxable income for the 2018 income tax year? You should provide a concise, but comprehensive, explanation as to why you have included/excluded any amount as assessable income or as an allowable deduction. To support the analysis in your answer, refer, where appropriate, to the ITAA 1993, ITAA 1997, Taxation Rulings, other relevant statues and/or case law.
Part D: case study (estimated 300 words). Use complete sentences in your answer.
ABC Manufacturing Pty Ltd has the following items of stock on hand at 30 June 2018.
Units of Stock A B C
Cost $4,000 $1,000 $800
Replacement price $4,400 $800 $1,000
Market selling value $4,600 $1,100 $1,800
Assuming that ABC Manufacturing wishes to minimise its taxable income for the year, and there is no opening stock, calculate the value of the closing stock for the year. To support your answer, be sure to include a brief discussion of the relevant law, and refer, where appropriate, to the ITAA 1993, ITAA 1997, Taxation Rulings, other relevant statues and/or case law.