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;
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: 11:59pm Monday 9 September 2019.
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)
Deb works as a tax specialist for a major supermarket chain. In addition to her annual $150 000 salary, she is paid the following amounts by her employer:
• $20 000 lump sum in exchange for her giving up her current contractual right to have a paid rostered day off every month.
• Deb currently runs her own tax business on weekends. Her employer is concerned that this has the potential of making her overly tired, which might lead to her underperforming in her job during the working week. As a result, her employer pays her $10 000 for Deb agreeing to not carry on running her business.
Ignoring Capital Gains Tax, discuss whether:
a) The receipt of the $20,000 constitutes assessable income.
b) The receipt of $10,000 constitutes ordinary income.
PROBLEM QUESTION 1B- THIS IS WORTH 15% OF YOUR OVERALL MARK FOR THE UNIT (APPROX 1100 WORDS)
Greg entered into a contract on 10 October 2011 to purchase a vacant piece of land. The purchase price was $300 000. Settlement occurred on 10 December 2011, and stamp duty of $15 000 was payable.
Greg subsequently decided to enter into a contract to get someone to build an office premises on this block for $400 000. This contract also included the building of a small shed in the corner of the land. The contract was entered into during January 2012, and construction of the office and the shed was completed by April 2012.
Greg then utilised the office premises to carry on his new financial planning business. He had purchased an expensive office desk for $15 000 to be used in the business because he believed that this would impress clients.
During the years that Greg ran this financial planning business, annual turnover generally was always at least $3 million a year. Further, he rented out the shed on the property to a local motorcycle enthusiast, Trixie, who stored her personal motorbikes there. Trixie paid Greg rent of $300 a week for this.
During February 2019, Greg (44 at the time) entered into a contract to sell his business to Rachel. Specifically, this contract comprised of the following payments:
• The land with the buildings was to be sold for $1 100 000
• Goodwill of the business was to be sold for $150 000
• The office desk was to be sold for $13 000
• Greg was paid to not compete with Rachel for 3 years in exchange for $200 000. Greg paid his solicitor $5000 in legal fees to prepare this part of the contract.
At the time of entering the February 2019 contract, Greg owned the following assets:
• His primary residence worth $1.2 million (unmortgaged), purchased in 1990 for $200 000.
• His investment property, worth $600 000 (with a $400 000 mortgage), purchased in 2011 for $500 000.
• Shares in Woolworths (listed on the Australian Stock Exchange) – purchased for $100 000, currently worth $350 000.
• A car that is currently worth $25 000 -- it has in the past fully been used for business purposes – after the sale of the financial planning business Greg will use it for personal use.
• 35% share in a company called YRT Pty Ltd – the company had a market value of $800 000.
• 80% in a company called Mil Pty Ltd – the company had a market value of $400 000.
• Superannuation of $50 000.
In May 2019, Greg bought all the shares in a company called Asset Pty Ltd for $1 000 000. It owned the following assets:
• An office that was rented out to a third party, worth $300 000; and
• A retail premises that was used by the company (Asset Pty Ltd) for carrying on a clothing store, worth $700 000.
Advise Greg as to the Capital Gains Tax implications for this question. Specifically, advise Greg as to any CGT payable due to the above events. Ensure that this includes a discussion on whether Greg can utilise the CGT Small Business Concessions (in Division 152 ITAA97), including the CGT small business rollover concession.
PART 2- POLICY
BASED ESSAY QUESTION
POLICY BASED ESSAY QUESTION THIS IS WORTH 20% OF
YOUR OVERALL MARK FOR THE UNIT (APPROX 1500 WORDS)
It has been argued that Australia should raise the level of its GST which would enable lower personal income tax rates.
Discuss what would be the advantages of disadvantages of doing so. Include in your discussions the impact on such a change on
• the simplicity of the tax system; • economic efficiency;