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CLWM4100-Tax On Disposal And Deductions

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Question:

Part 1- Starting a new business

Elwood has started a new business venture. He has started an international shipping company based in Singapore. There are 4 directors:
 
• Two are located in Singapore
• One is located in Monaco, and
• Elwood.
 
All the director’s meetings are held in Singapore and the annual general meeting is held in Monaco. The company’s main business is shipping containers between Sydney and Africa, via Singapore. The contracts are signed in Sydney on behalf of the company by Elwood. The company has a rotating Managing Director with the role changing every three months between the directors. The shares are held only by the directors and are held in equal proportion. Elwood would like to know:
Is the company a resident of Australia for tax purposes?

Part 2 – Sale of assets

Elwood has sold the following items

1. A car he bought 3 years ago for $65 000 and was used solely for his personal use was sold for $25 000. The book value of the car is $27500
 
2. Vacant land sold in June 2018 for $200,000 that had been bought by him on 21/3/1984 for $20,000. This is being paid in 10 instalments of $20 000, however the purchaser has declared bankruptcy and the last two instalments due next financial year will not be paid.
 
3. 10,000 shares in ABC Ltd sold in February 2017 for a total sale price of $175,000. Elwood bought all the shares for long term investment purposes during November and December 1994 at a total cost of $80,000.

Part 3 General deductions

Elwood is keenly promoting a car made in Fiji which runs on overproof alcohol. However, the Federal Government has decided this is undesirable and has imposed a new, strict limit on the number of cars which can be imported. Elwood is Fijian and is hopping mad about this. He has launched a media campaign, costing $175 000, attacking this restriction and demanding its removal claiming it is an unfair restriction on his business structure and is undermining freedom of product choice. Elwood has borrowed a significant amount of money to set up the structure to import the cars, buy and fit out showrooms and provide the after sales support for the cars. Elwood wishes to know whether the:
 
• interest on the loan, amounting to $250 000, will be deductible. He took the loan out after confirmation from both governments the importation could go ahead, however he did not have a showroom at this time. He acquired the showroom before the first cars arrived.

• costs of the media campaign are deductible
 
 
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