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MAC008 Taxation Law

QUESTION 1 (45 Marks)

John is a sole trader and has a shop where he sells computers and computer equipment.

Rachel is employed by John as his store manager and she was given an interest free loan of $500,000 by John on 1 April 2019. Rachel used the loan for two purposes: 60% for the purchase of an investment property and 40% to pay off her home mortgage.

John also provided her with a laptop computer worth $2,000 which he provided to Rachel on 1 April 2019. It was used by her exclusively to record the accounts for the shop.

John also paid the private health insurance premiums for Rachel and these premiums amounted to $3,000 for the year ended 31 March 2020.

Earlier, in January 2020, John purchased a vacant office building for $1,000,000. It was a very old building and it remained vacant with no tenants throughout the period he owned it. On 30 June 2020 he sold the vacant office building for $1,500,000. The costs he incurred on the purchase were $10,000 for the legal expenses and $40,000 Stamp duty. The costs he incurred on the sale were $30,000 for real estate agent’s commission $5,000 for legal expenses and $2,000 for advertising. His ownership costs over the period were $15,000.

John purchased some BHP Billiton Limited shares in May 2000 for $50,000 and then sold them in May 2020 for $100,000. He purchased an antique clock for $450 in June 2000 and sold it in June 2020 for $2,000.

Required:

Part a (15 marks)

What is the Fringe Benefits Tax payable by John on the Fringe Benefits he has provided to Rachel for the year ended 31 March 2020?

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

Where relevant, you must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question

Part b (15 marks)

What is John’s statutory income (that is the net Capital Gain) in relation to the sale of the vacant office building for the year ended 30 June 2020?

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

Where relevant, you must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question

Part c (15 marks)

What is John’s statutory income (that is the net Capital Gain) in relation to the sale of the BHP shares and the antique clock for the year ended 30 June 2020?

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

Where relevant, you must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question

QUESTION 2 (15 MARKS)

Henry and Gerard are partners in an accounting practice. According to their partnership agreement, the two men must share profits on a 40% / 60% basis after any partner’s salary.

The agreement also allows for a salary payment of $30,000 to Henry.

At the end of the financial year, their partnership profit and loss show that the business made an accounting net profit of $150,000 (before paying the above-mentioned salary).

The previous financial year had ended with a net loss of $30,000.

Required

Part a (5 Marks)

From a tax accounting view, what is the net income of the partnership.

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

You must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question.

Part b (5 Marks)

Calculate the partnership distribution for Henry.

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

You must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question.

Part c (5 Marks)

Calculate the partnership distribution for Gerard.

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law.

You must show your calculations.

You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question.

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