Students are required to submit, on an individually prepared basis, a fully prepared written answer to the following assignment question.
Rex is 60 years of age and planning for his retirement. He has decided to sell most of his assets to raise money to put into his superannuation fund.
Rex provided you with the following details of the assets he has sold:
. An apartment in South Perth in which he has lived for the past 35 years. He paid $92,000 to purchase the apartment and received $900,000 on sale of the apartment at auction on 5 June 2015. The auctioneer deducted $15,000 commissions from the sale price.
. Vacant land that he had inherited from his mother on 3 March 2012. His mother, who died on 4 February 2011, had purchased the land on 5 January 1986 for $65,000. The land had been valued at $500,000 on 4 February 2011 and $550,000 on 3 March 2012. On 5 May 2014, at a cost of $10,000, Rex had planted trees on the land to provide shade. Rex sold the land on 1 April 2015 for $$600,000 payable in ten monthly instalments, commencing on 1 April 2015 with the final instalment on 1 January 2016.
. A painting that he purchased on 21 September 1985 for $62,000. The painting, which hung on the dining room wall of his South Perth apartment was sold for $50,000 on 25 June 2015.
. A luxury motor yacht that he had moored at the South Perth Yacht Club was sold on 1 June 2015 for $75,000. The luxury yacht had cost Rex $110,000 on 1 October 2013.
. A sculpture purchased on 1 December 1993 for $5,500 was sold on 1 January 2015 for $7,000.
. On 5 June 2015 Rex sold for $90,000 shares in a gold mining company that he had purchased on 10 January 2015 for $85,000. He borrowed $80,000 to help purchase the shares and incurred interest of $6,000 on the loan during the period of ownership. He also paid $1,000 in brokerage on sale of the shares. Rex has contacted the ATO and has been advised that the interest on the loan will not be an allowable deduction because the shares are not producing any assessable income.
Rex has also advised that for the year ended 30 June 2014 he had a net capital loss of $8,000 from the sale of shares.
Based on the information above, advise Rex’s net capital gain or capital loss for the year ended 30 June 2015. [12 Marks]
Felix commenced a florist shop business during the year ended 30 June 2012 and borrowed $600,000 from a bank for use as “working capital”. In fact only $500,000 of the borrowed funds were used for this purpose and the balance of $100,000 was used to help build a holiday house on the coast for Felix and his family. The total amount of interest paid during the year ended 30 June 2015 on the $600,000 loan was $48,000.
Felix unknowingly traded under a business name “Green Shoots” that was used by one of his competitor florist shops and he was sued by the competitor. Felix lost the court case and was ordered by the Court to pay damages of $400,000 to the competitor as well as a court imposed fine of $200,000. In addition he had his own legal expenses of $50,000.
As a result of this bad experience Felix decided to leave the florist business and sold his florist shop on 1 May 2015. Unfortunately, the sale proceeds were not sufficient to discharge the bank loan and he was therefore required to keep making regular monthly interest payments on the outstanding balance of the loan. In respect of the $48,000 interest paid during the year ended 30 June 2015, $8,000 interest was paid during the period 1 May to 30 June 2015.
Advise Felix as to whether he is entitled to deductions for any of the above expenditure. [8 Marks]
NOTE: The assignment is worth 20 marks as shown in the Schedule of Assessment
• Awareness and understanding of the technical tax issues and concepts/principles involved.
Presentation and development of arguments: application of concepts/principles to the facts; logical development of reasoned discussion with reference to appropriate supporting evidence/authorities (sections of the Income Tax Assessment Act, case law, ATO rulings etc – a quote/paragraph number from Foundations of Tax Law is not an acceptable authority) in support of the analysis; validity of the conclusion(s) drawn
The book foundations of tax lawyers
its a book that comes with foundations of tax legislation.
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