SECTION A (20 Marks)
Baldrick bought an investment property on 1 July 2018 for $2,000,000. He rented out his property from 1 July 2018. He borrowed $1,800,000 on the same day from the bank to buy the property. The term of the loan was 8 years. The building was originally constructed in 2001 at a cost of $900,000. He received rent in cash from his tenants during the year ended 30 June 2019 in the amount of $93,000. Included in this amount was a payment of $9,000 on 30 June 2019 as rent for the month of July 2019.
Baldrick incurred the following expenses during the year ended 30 June 2019 in relation to the property:
• State Government Land Tax $22,500
• Loan Repayments ($52,000 principal and $130,000 interest) $182,000
• Real Estate Agents fee to evict a tenant for non-payment of rent $2,300
• The front window was badly damaged at the time of acquisition and replaced on 4 July 2018 $2,800
• A new refrigerator was purchased on 1 March 2019 $3,800
• Loan application fee (paid on 1 July 2018) $2,000
• Legal costs for the loan to buy the property (paid on 1 July 2018) $2,600
• Legal costs for buying the property (paid on 1 July 2018) $4,600
• Stamp duty on the purchase of the property (paid on 1 July 2018) $95,000
Baldrick wants to minimise his taxable income for this year. Assume all depreciating assets, if any, have an effective life of 6 years. He does not wish to use the SBE election.
Advise Baldrick as to what his taxable income or loss is for the year ended 30 June 2019.
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. If relevant, you must show your calculations
Edmund Pty Ltd (an Australian resident private company) is wholly owned by Melchett Pty Ltd, another Australian resident private company. All the shares in Melchett Pty Ltd are owned by George, an Australian resident.
During the year ended 30 June 2019 the following events occurred in relation to Melchett Pty Ltd:
1 July 2018 Opening balance of franking account $60,000
4 July 2018 Payment of dividend franked to 55% $480,000
3 August 2018 Payment of Payroll Tax $170,000
28 September 2018 Payment of income tax $27,000
31 January 2019 Refund of income tax $460,000
22 February 2019 Receipt of dividend from company outside the group, franked to 90% $280,000
2 March 2019 Payment of dividend franked to 30% $420,000
31 March 2019 Payment of income tax $44,000
2 May 2019 Refund of Land Tax $150,000
4 May 2019 Payment of Fringe Benefits Tax $3,000
30 June 2019 Payment of dividend franked to 65% $380,000
Prepare the franking account for Melchett Pty Ltd for the year ended 30 June 2019 and indicate the consequences for Melchett Pty Ltd of the final balance of the franking account and of any beaches of the Benchmark Rule.
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. If relevant, you must show your calculations.