MLC 703- PRINCIPLES
OF INCOME TAX LAW
Please note that the following will not form part of the word count:
? References, including statute and cases;
? Diagrams; ? Tables; ? Calculations.
You must complete both parts of the assignment. Please complete both parts of the assignment separately. You should allocate approximately 1500 words on both Part A and approximately 1500 words on the policy-based essay question in Part B. There is a strict word limit of 3000 words for this assignment.
For both parts of the assignment you will be required to go beyond the study materials for this unit and you will be expected to conduct your own research of cases and other academic material upon which you should base your answer.
You are encouraged to use headings for purposes of clarity and presentation of your assignment. It is however essential that your assignment is written in full sentences and not dot point form. If you use any equations in solving the problem question please make sure that you cite the correct sections of the relevant legislation and that you outline your entire working.
You must begin each question separately. It is however essential that you place your name and student number and the question number on each question which you complete.
Regarding referencing, you will find the Australian Guide to Legal Citation (AGLC) style of referencing in the following web site:
Please note that this AGLC style is intended for Law students and although it would be great if you followed it, marks will not be deducted for not citing cases etc exactly as described. In other words, whilst you must reference, you can choose to use other referencing styles (ie not necessarily the AGLC style) if you wish.
The assignments must be completed individually.
DUE DATE: 8:00pm Monday 14 September 2020.
PART 1- PROBLEM QUESTIONS
PROBLEM QUESTION A- WORTH 5% OF YOUR OVERALL MARK FOR THIS UNIT SO YOU SHOULD ALLOCATE APPROXIMATELY 400 WORDS ON
PROBLEM QUESTION B- WORTH 15% OF YOUR OVERALL MARK FOR THIS UNIT SO YOU SHOULD ALLOCATE APPROXIMATELY 1100 WORDS ON
PROBLEM QUESTION 1A- THIS IS WORTH 5% OF YOUR OVERALL MARK FOR THE UNIT (APPROX 400 WORDS)
Nikki owns and carries on a chain of clothing stores. So far she has 7 of such stores. When she chooses a premises to open a new store on, the most important criterion is where she can maximise the sales of clothes. However, she is also influenced by the potential for the land on which each of the shop premises is located on to grow in capital value.
In late 2019, Nikki decides to develop one of the shop premises, because real estate in the area which it is located on had appreciated markedly in recent years. This involved Nikki obtaining a building approval from the local council, demolishing the shop, and building a 6 storey apartment building on the land. As Nikki did not know much about building, this consisted of contracting a major builder to be in charge of the process of building the apartment. These apartments are sold individually to the public through a leading real estate agent.
Ignoring Capital Gains Tax, discuss whether the sales proceeds from the apartments generate ordinary income.
PROBLEM QUESTION 1B- THIS IS WORTH 15% OF YOUR OVERALL
MARK FOR THE UNIT (APPROX 1100 WORDS)
Ken entered into a contract to purchase two retail store premises in June 2003. The cost of each was $300,000, with stamp duty of $20,000 each. Settlement was during August 2003. He used these retail premises (which had been previously unoccupied) to commence a business that sold furniture to the public.
During the time that Ken owned the store, they each had an annual aggregated turnover of approximately $3 million.
During November 2019, Ken, who was 53 at the time, wanted to have more spare time and not carry on a business anymore. He had found that although his turnover was high, after costs his profits were very modest. As a result, he entered into the following contract with Jane:
• The first of the two furniture premises was to be sold to Jane for $1,200,000, and the goodwill attached to it sold to Jane for $400,000.
• The second store was to be rented to Jane for a two year lease (with an option to renew for another two year period). Rent was set at $2,000 a month, with an upfront lease premium of $25,000 payable.
• Jane was to pay Ken $200,000 to not compete with her for the following 3 years.
At the time of the November 2019 contract, Ken owned the following assets:
• Full ownership of a main residence in Hawthorn, worth $3 million.
• 42% ownership of a company called PI Pty Ltd, which invests in rural properties. The total market value of PI Pty Ltd was $300,000.
• 80% share on an investment property (Ken’s cousin owns the other 20%). The total value of the property was $500,000. It had a $300,000 mortgage over it.
• Superannuation worth $1.5 million.
• Shares in BHP worth $200,000.
• An apartment in Kew (see below)
On 1 December 2015 Ken had bought an apartment in Kew to live in. This cost him $400,000. After living in it for 2 years, on 1 December 2017, Ken bought and moved into his Hawthorn house (mentioned above), which he from that point on claimed as his main residence. At the time, his apartment in Kew was worth $500,000, which he immediately rented out. The Kew apartment was sold for $510,000 in December 2019.
Advise Ken as to the CGT consequences regarding the 2019-20 tax year. In doing so please discuss Ken’s ability to utilise the CGT Small Business Concessions.
Please also include a discussion of the Net Capital Gain made by Ken for the 2019-20 tax year.
PART 2- POLICY
BASED ESSAY QUESTION
POLICY BASED ESSAY QUESTION THIS IS WORTH 20% OF
YOUR OVERALL MARK FOR THE UNIT (APPROX 1500 WORDS)
Should the Australian Capital Gains Tax system have a 50% discount available to taxpayers?
Discuss this with reference to the criteria for evaluating tax policy:
• Economic efficiency
You should feel free to discuss any other relevant matters.