BULAW5916 Taxation Law & Practice Assignment – Semester 1, 2020
The purpose of this assignment is to enable you to explore and communicate your understanding of relevant aspects of taxation law.
In the future some of you will work as accountants. In the course of doing so, you may have clients who ask for tax advice. They may ask you how transactions they have entered into might be regarded for tax purposes (for example, is a transaction likely to be regarded as income or capital?). You may therefore be faced with clients in real-life situations and be asked to give advice to them about how they should treat these situations for the purpose of their tax returns.
During this course, we will discuss what the law is (through reference to some of the main tax legislation, case law and ATO rulings) and will also discuss from time to time how we would tackle giving advice. For example, with some of the tutorial questions, we will discuss how to study law courses and write answers to tax law exams. In the course of doing so, we will talk about how we must identify the relevant facts in a situation, identify the relevant rules, apply the rules to the facts and reach a conclusion. This will lead us to the exam, where you will continue to gain practical experience in answering problem style questions. This assignment will enable you to develop skills in answering such problem style questions before you sit the examination for this course.
The length of the assignment is to be approximately 2,000 words. Assignments of more than 2,200 words will not be marked; those with less than 1,800 words will be at risk of failing. Please provide a word count with your assignment. Do not use appendices or footnotes as a way around the word limit.
4pm on Thursday of Week 9. Penalties apply for late submission of work. Please submit your assignment via Turnitin through the BULAW5916 Moodle shell.
Note all Federation University Australia rules relating to assessment apply.
Your lecturer will mark your assignment. It carries a 30% weighting. It contains two questions. You must answer both question 1 and question 2 (and both part 1 and part 2 within question 1). Feedback and grades will be communicated via Moodle within two weeks of the assignment deadline or submission (whichever is the latter).
All written answers (other than calculations) should be presented as complete sentences. Where relevant, answers should be supported by reference to appropriate case law, legislative references and ATO rulings. Please do not refer to legislation other than the Income Tax Assessment Acts. For example, please do not refer to legislation governing taxation in other countries. Also, please do not consider residency and source issues. State any assumptions you make, and if your answer requires further information from the hypothetical client, please state precisely what information this is and why this is required. Providing irrelevant detail and lengthy references to facts without attempting to analyse the situation from a tax law perspective will not be looked on favourably.
ABC Ltd. is an Australian company carrying on a diversified merchandising and financial business, including an agency arrangement with an Indian shipping company. This agency arrangement was documented by a contract which ABC Ltd. and the Indian shipping company signed on 1 August 1985. The period of the contract was for 30 years.
As a result of the reorganisation of the Indian shipping company’s affairs, the agency contract was terminated after it had been in operation for 24 years. ABC Ltd. calculated the profits which it had expected to earn from the agency contract during the subsequent six years, and negotiated a cancellation of the contract in consideration of the payment by the Indian shipping company of $4 million. The Indian shipping company paid this amount, without questioning how it had been calculated.
The contract with the Indian shipping company had provided ABC Ltd. with business which equated to 60% of its profits. When the contract was cancelled, other minor activities of ABC Ltd. which also related to shipping were terminated.
Part 1- Advise the directors of ABC Ltd. of the income tax consequences of the above arrangements. For the purpose of your answer to Part 1, you will be required to mainly refer to case law regarding income tax.
Part 2- What difference would it make if the agency agreement had been entered into on 1 August 1993? For the purposes of your answer to Part 2, you will be required to mainly refer to the Income Tax Assessment Act 1997 where relevant.
Your combined answer to parts 1 and 2 of Question 1 will be marked out of 20 marks.
The directors of ABC Ltd. also consult you about some land that the company acquired in January 1995 as a possible site for a future warehouse and sales office. Following an increase in its lease payments, the company decided in February 1997 to erect a building on the land. Construction commenced on 14 April 1997. The building was completed in December 1998 and the company took up residence of the building on 20 January 1999. The land cost $1.33 million and the building cost $5 million.
On 2 January 2020, the company received an offer to buy the land and buildings for $11 million. Given the termination of the agency contract, the company accepted the offer. Contracts were signed on 14 January, and settlement took place on 18 February. A profit of $4.58 million relating to this transaction is included in the company’s profit and loss statement. ABC Ltd. is continuing to operate, but again from leased premises.
With reference mainly to the Income Tax Assessment Act 1997, please advise ABC Ltd. of the tax implications of the above transactions. What is the capital gain or capital loss of the company? Has the company overstated or understated its profit?
Your answer to Question 2 will be marked out of 10 marks.
Criteria used to grade this assessment
In marking your assignment, your lecturer will primarily look at whether you have answered each part of Question 1 and 2 above. They will place emphasis on whether you have demonstrated an ability to:
• Identify and appropriately explain the range of tax issues connected with the fact scenarios posed in the questions
• Apply case law, legislation and tax rulings (where appropriate) to the fact scenarios posed in the questions
• Apply the required knowledge appropriately to the facts identified in the questions, in discussing your advice to the client (primarily in the case of question 1) and in performing your calculations (primarily in the case of question 2)
• Work independently
• Communicate in clear written English
• Format your assignment appropriately