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LAW5230 Taxation Law

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Question 

Part A

Marzena is a property developer and operates her business as a sole trader. As at 1 July 2016, Marzena owned 7 blocks of land with a value of $72,000 each. Marzena had purchased these blocks on 1 July 2012 at a cost of $53,000 each. During the income year ended 30 June 2017, Marzena acquired a further 10 blocks of land in Brisbane with the intention of preparing these blocks for sale at a profit. The 10 blocks of land cost $81,000 each. Marzena also incurred $3,700 for each new block in relation to land clearing costs and preparation costs. During the year, Marzena sold 11 blocks of land for $100,000 each. Further, she also sold on of these blocks of land to her brother for $60,000. This was a similar block to one of those sold throughout the year. Additionally, on 1 September 2016 Marzena entered into a contract to sell an entirely separate block of land for $79,000. She had originally purchased this smaller block in Springfield in March 2015 for $81,000. She had intended building an office block on the land to be used as a ‘shop front’ for her business where she could meet with potential clients and conduct her daily activities. However, after submitting plans to council (at a cost of $1,800), Marzena was advised that due to planning restrictions in the area, the building would need underground parking and would therefore cost substantially more. Marzena then decided to sell the land and look for a block in a more suitable area. Advise Marzena as to whether she will have any ‘assessable income’ for the year ended 30 June 2017 as a result of the above transactions regarding her business and also advise whether the sale of the separate block of land would be ‘ordinary income’ for the year ended 30 June 2017.

Toowoomba Drilling is a medium sized business which specialises in large scale surface and underground drilling. The business operates through a private company, Toowoomba Drilling Pty Ltd. The company has a turnover of approximately $1.5 million and employs around 12 tradespersons and 5 administrative staff. The value of the large machinery used in drilling has a market value of approximately $20 million. The business enters into contracts with property developers, private land holders and the QLD State Government. It specialises in large infrastructure projects where drilling for pipework is required.

As part of a major new rail infrastructure project the QLD State Government offered large grants to local businesses for the purchase of new machinery that could be used in building the new railway. Toowoomba Drilling Pty Ltd entered into a contract with the State Government to accept $550,000 in funding for the purchase of new machinery. Toowoomba Drilling received a lump sum of the full amount in June 2017. Part of the terms of the contract were that Toowoomba Drilling would work exclusively on the rail project for a
period of three years, otherwise a pro-rata of the financial assistance would have to be repaid. 

Required:

  • Briefly discuss with reference to appropriate legislation, case law and/or rulings whether Toowoomba Drilling Pty Ltd should account for income on a cash or accruals basis.
  • Discuss with reference to appropriate legislation, case law and/or rulings whether the State Government funding would be either ordinary or statutory income and whether it would be derived
    in the 2017 income year? 

Part B

You are required to prepare a written research assignment that addresses one of the provided topics below. The purpose of the task is for you to demonstrate high level critical reflection and analytical reasoning skills in the context of the application of Australian taxation law and taxation law policy. You must undertake academic research which demonstrates the following:
  • An in-depth your understanding of how the specific tax law applies,
  • The policy context of the law and if relevant how other jurisdictions deal with similar issues,
  • Critical reflection as to whether the law achieves its stated purpose, aligns with principles of good tax policy or could be improved/amended. These critical reflections should be supported by the research you have undertaken as well as your own independent thought.

Topic Choices

1. Deductions – discuss and critically evaluate the extent to which Australia’s deduction regime satisfies the principles of a good tax system (specifically simplicity and fairness). You may like to compare and contrast this with the deduction system in New Zealand.

2. CGT Small Business Concessions – discuss and critically evaluate the Small Business CGT Concession regime in Australia. You should include a discussion of the overall policy objectives and your evaluation of whether regime currently meets these objectives or whether further amendments are necessary.

3. Division 7A (treatment of private company loans) - discuss and critically evaluate Division 7A as a specific anti-avoidance provision. You should include a discussion of the overall policy objectives and your evaluation of whether the Division currently meets these objectives or whether further amendments are necessary.

4. Part IVA Amendments – The general anti-avoidance provisions were recently amended. Discuss and critically evaluate the policy reason for these amendments and whether they are likely to meet these objectives or not.

5. Negative Gearing – discuss and critically evaluate the extent to which tax deductible negative gearing impacts upon savings and investment decisions. Your paper should clearly outline what is meant by negative gearing from a tax perspective and how the Australian tax system treats negatively geared investments. You should include an evaluation of whether negative gearing from a tax perspective should be removed.

6. Another tax technical or tax policy topic of your choice. Must be approved by course examiner
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