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ACC304-Tax Implication Case Study

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Part 1

Starting a new life, Elwood arrived in Australia on 1 July 2017 with his wife and two children. Elwood and his family have been transferred to Australia for a minimum of 3-years. Elwood likes the low interest environment and purchases a home. He moves in immediately. He registers the telephone and electricity in his name. On 1 January 2018, he adds a new kitchen to the home at a cost of $20,000.
Inda, his wife started part-time employment as a sales manager. The children settle happily into the local school. Elwood rents out their former home in the United States and the rent is paid into an American account he can access from Australia. Elwood joins the local gym and becomes a member of the local Chess club. He attends regular meeting and is appointed President after a short period of time.
Inda is asked to work from home 2 days per week as the company is closing their Brisbane office. The company can no longer afford the commercial rent. Inda agrees reluctantly as she loved the work atmosphere.
Elwood and Inda request that you provide them with tax advice in relation to their residency for taxation purposes. Students should quote legislation, appropriate rulings and cases. Marks will be awarded for the format of your business letter and appropriate use of language.

Part 2A Tax Return Information

Jake Smith is an Australian resident and also one of your clients. Jake has the following events during the year.
1. During the entire 2018 income year, Jake worked for MD & A Architects. Jake was provided with his PAYG Payment Summary for the period 1 July 2017 to 30 June 2018. Gross salary was $86,000. Payg tax withheld was $19,820.
2. Jake uses his car for work. Jake was reimbursed for 6,000 kilometers travelled during the year at 75 cents per kilometer. PAYG withholding of $1,500 was deducted during the year.
3. Jake earns interest of $100 during the year (gross). Jake did not provide the bank with his tax file number.
4. Jake received an unfranked divided of $3,500 on 18 June 2018. Jake participated in a dividend reinvestment scheme so that he received an additional 198 shares in the company.
5. Jake purchased 1,000 ANZ bank share on 1 March 2015 at $22 each. Brokerage costs on purchase were $50. Jake sold 500 ANZ bank shares on 1 June 2018 for $24 each. Brokerage costs on sale were $55.
6. On 12 May 2018, Jake sold his “cricket bat” collection. This consisted of 5 cricket bats that were signed by famous people. The great “Sahin Tendulkar” has signed one of the bats. Ricky pointing had signed one of the bats which was worth considerably less than  3 the bat signed by Tendulkar. Jake purchased the bats between 1999 and 2004 for a total cost of $2,600. He sells the entire collection for $900.
7. Jake failed to keep a log book but wishes to claim his Mazda 3 motor car if possible. Jake’s diary notes indicate he travelled 7,420 kilometers. Total car expenses including depreciation are $6,200. He estimates (has a guess) that his business percentage is 95 percent. Jake does not have a second motor car.
8. Jake owns a mobile phone which he uses for work. His mobile telephone call costs for the 2018 income year totalled $1,400. Jake estimates that 60% of these calls were workrelated. Jake failed to keep his receipts and can’t provide any material documentation.
9. On 1 May 2018, Jake paid the invoice which he received from his previous tax agent for the preparation and lodgement of his income tax return for last year. The tax agent's fee was $400.
10. Jake is not married and does not have health cover.
Advise Jake as to the tax implications of each of these 10 items and the impact it will have on his tax return. Students should quote sections of law where appropriate.

Part 2B

Jake while talking to a friend (Max) at a party is informed about a topic called “negative gearing”. Tax advantages were discussed so Jake is seeking your advice. He was also told about potential changes should there be a change in Government. In your own words, explain “negative gearing” to Jake and the potential changes that may occur. In your own words, students should discuss the potential tax benefits for someone earning $100 k per year. 
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