Sales of Personal Property and Land Sales

Question 1: Sales of Personal Property

QUESTION 1: SALES OF PERSONAL PROPERTYAna is a recently qualified accountant who is saving up for a deposit for a house. She decides that the best way for her to accumulate the money for the deposit quickly is to invest in the stock market.As she is still living with her parents, she can afford to invest $1000 a month, and, because she has finished her studies, can dedicate two hours a day to investigating and keeping track of her investments. Ana considers that holding 20 different shares will provide her with a sufficientlydiversified portfolio. In the period 1 April2020 to 31 March2021, Ana invests in 30 companies and sells shares in 10 of them to maintain her portfolio mix of 20 investments.Ana’s portfolio performs very well and the value of her $12,000 investment increases to $16,000. She also receives $2000 from the sale of shares.Required:Explain whether Ana is subject to income tax:(a)On the increase in the value of the portfolio. b)On the $2000 amount received on the sale of shares under:(i)Income Tax Act 2007 section CB 3; or (ii)Income Tax Act 2007 section CB 4; or (iii)Income Tax Act 2007 section CB 5. You should support your explanations with references to case law, if you can.QUESTION 2: LAND SALESDanielis a retired farmer who lives with his partner Viv on a lifestyle block in Levin. After retiring, Daniel decided to take up a new hobby –restoring vintage tractors. He exhibits his restorations at framing and agriculture shows around the North Island and hasgained a reputation in farming circles as the go-to man for vintage tractor restorations. Daniel is usually restoring three or four tractors at any given time, and these (along with numerous spare parts and equipment) are stored on his property in Levin.In order to pay for the parts he needs to

TAXN201 Page 3of 5complete the restorations, he typically sells one or two of the restored tractors each year. He usually makes a 20 –30 per cent gain on the sale of each tractor.Viv is not happy with Daniel keeping the tractors and spare parts on their property, so she convinces him to purchase an empty section of land nearby on which to all of the things related to his tractor restoration hobby. A largesection was purchased for $100,000 in June 2018.The section is zoned for commercial use. Daniel has a garage/workshop built on the front portion of the section in August 2018 and moves his tractors and spare parts there soon afterwards. In September 2020, Daniel decides that the section is larger than what he needs, so he hires a surveyor to draw up plans tosub-divide the property. In October 2020, he sellsthe half of the section that he is not using to a land developer. The land developer pays $75,000 for the land. Required:a)Explain whether the gain made on the saleof the land is income to Danielunder sections CB 6 –CB 14 of the Income Tax Act 2007.b)What difference would it make to your answer in part (a)if Daniel’s partner Vivoperates a building business?]QUESTION 3: DEDUCTIONSOne of the general limitations in section DA 2 specifies that “a person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving income from employment. This rule is called the employment limitation.”In light of mandatory lockdown periods in New Zealand to stop the spread of COVID-19 last year, there have been increasing calls for changes to be made to the deductibility rules for employees; specifically,to allow employees to claimdeductions for expenses incurred in relation to their employment.The New Zealand Government has asked you, as a tax expert, for advice on a proposal that would allow employees to deduct up to $20/week for the weeks they worked from home during lockdown.Required:a)Critically evaluate the above proposal using the following Tax Working Group (TWG) criteria for good tax policy:i.Efficiency ii.Equity and Fairnessiii.Compliance and Administrationiv.ONE other TWG criterion of your choosing TAXN201 Page 4of 5b)Based on your evaluation in part (a), make a recommendation to the Government about whether the proposal should be implementedQUESTION 4: DEPRECIATIONStevie runs The Rosebud Motel, located in Te Anau, New Zealand. The business owns the assets shown in the following table. Currently Stevieuses the diminishing value method for depreciation. Asset CostAdjusted Tax Value (as at 1 April 2020)Bedding$15,000$4,950Beds(pooled for depreciation purposes)$30,000$18,000Spa pool$16,000$10,880Coffee makers (pooled for depreciation purposes)$10,000$4,000You are given the following information in relation to the assets:(i)On 20 September 2020, the spa poolwas sold for $12,000. (ii)Five new bedswere purchased on 1 December 2020, costing $2,500each. These were added to the existing pool. (iii)A new cash register system for the front desk was purchased on 15 June 2020at a cost of $3,700.(iv)Tennew electric blanketswere purchased on 20 March2021at a cost of $150each.(v)Sixnew coffee machines were purchased on 31 May 2020 for a total of $6,000.Stevie is unsure whether to add these to the existing pool or depreciate them separately.(vi)Some new decorative articles (ceramic sculptures, etc.) for the motel rooms were purchased on 5 February 2021 for a total of $5,500. A new pool was created for these items.Required:Calculate the annual allowable depreciation deductions for Steviefor the year ended 31 March 2021. Your answer should include any adjustments made on the disposal of assets during the year. Show your working