LAW2002 Introduction to Income Tax Law

ASS IGNMENT 4 LAW 2002
Subject Code and Name LAW2002 Introduction to Income Tax Law
Assessment Assessment 4 Individual Assignment
Individual/Group Individual
Length 2500 words equivalent
Learning Outcomes This assessment addresses the following subject learning outcomes:
a) Explain the Code of Conduct established under the
TASA 2009
b) Interpret and apply selected sections of the ITAA 36 and ITAA97 covering ordinary and statutory income, general and specific deductions and the taxation of entities and their associates
c) Formulate a piece of written advice for a client about the tax implications of their residency status and business activities with reference to applicable case law and legislation
d) Compare and contrast the tax outcomes for the sole trader, partnership, trust and company structures, including the tax outcomes for associated entities
e) Analyse and apply tax legislation to authentic scenarios
Submission By 11:55pm AEST/AEDT Sunday of Week 10
Weighting 20%
Total Marks 100 Marks
Context:
The assignment is designed to incorporate uncertainty. The student is expected to answer each question and provide appropriate analysis and/or suggestions. The student is expected to identify the facts and issues presented by each aspect of the case study, identify research requirements, identify and apply the relevant legislation and/or case law as appropriate, come to a conclusion and make a recommendations.
This assignment assesses your research skills, your ability to synthesise an original piece of work to specific content requirements and your ability to produce a comprehensible piece of advice meeting the requirements of each task.
It also assesses your written communication skills. The ability to effectively communicate is an essential skill in the workplace. Clients may well approach advisors seeking a combination of specific information needs and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. It is therefore important to be able to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches in uncertain areas.
Instructions:
This assignment must be presented as an individual effort. The case study requires individual research. The course materials and set texts are intended to be the starting point of the research. It is expected the student will survey the relevant literature, including decided cases, and select appropriate additional resources including media and current events.
The assignment must be presented in word processed format and submitted through Blackboard. Handwritten submissions will not be accepted. Extensions will not be granted except in exceptional circumstances. The assignment is designed to be completed sequentially through the trimester and each part can be completed in isolation to each other part.
Torrens University referencing conventions are expected to be followed.
The assessment rubric is attached to the assessment brief.
Submission Instructions:
Submission is by the due date through Blackboard
Question 1 ( 10 Marks)
Recently Australia has been ravaged by bushfires which have been attributed to the adverse effects of human induced climate change. You have been approached as a tax expert to offer some advice as to how the Australian tax system can be utilised to address the effects of climate change.
In 350 words ( approximately) provide and discuss two tax based suggestions which you believe could be incorporated into the tax system to encourage activities designed to reduce the effects of climate change.
You also need to provide a brief explanation of why you believe your suggestions will be effective. In your answer you need to discuss the effectiveness of taxation as a tool for social change.
Possible resources – starting point only
a) https://www.oecd.org/environment/tools-evaluation/environmentaltaxation.htm
b) Investigate the existing primary producer tax concessions in the Australian taxation system.
Question 2 ( 10 marks)
a) Explain the Constitutional powers authorising the collection of tax in Australia.
b) Discuss how the concept of separation of powers facilitates the effective operation of the Australian Taxation System.
Possible resource – starting point only http://www.cefa.org.au/ccf/shaking-federation-through-taxation
Question 3 (10 marks)
a) Identify and briefly describe the principles set out in the Code of Professional Conduct for tax agent professional and their ethical standards.
b) Referring to Explanatory Paper TPB 01/2010 Code of Professional Conduct, what mechanisms can be put in place to manage a conflict of interest? Possible resources – starting point only
https://www.tpb.gov.au/code-professional-conduct-bas-agents
Question 4 (30 marks)
Required
With reference to relevant legislation and/or case law, for Nisha, Jo and Miguel determine their:
a) assessable income,
b) allowable deductions
c) taxable income
d) tax assessed and
e) balance of the assessment, including Medicare Levy.
Show all workings and your legal analysis determining which amounts are assessable and which expenses are deductible. All taxpayers have adequate private health insurance. All are residents of Australia for tax purposes.
Item Nisha (Plumber) Jo (Computer programmer) Miguel (Chef)
Salary $ 34 000 $ 72 000 $ 61 000
Franked dividends $9000
(100% franked) $10 000
(70% franked) $5000
(15% franked)
Purchase of cooking knives $ 650
Purchase of plumbing tools $ 400 $ 800
Everyday clothes for office wear $ 1 200
Trade journals specific to occupations $ 180 $ 190 $ 220
Purchase of books on computer programming $ 500 $ 260
Lottery winnings $ 40 500 $ 280 $ 30 300
Registered tax agent’s fee for preparation of tax return $ 200 $ 500 $ 300
Inheritance from grandmother $ 45 000
Costs of course in plumbing $ 620 $620
Uniforms for work $ 800
Donations to charity $ 50 $ 130 $ 80
Protective clothing $ 630
University fees – Computer course $ 800 $ 800
Interest on bank account $ 25 $ 330 $ 44
Rent from an investment property $ 27 500
Car expenses to travel to work $ 600 $ 500 $ 400
Investment property expenses $ 18 000
Rent paid on home apartment $ 5 200 $ 6 240 $ 6 760
Holiday costs $ 2 000 $ 2 200 $ 2 800
PAYG credits $3 600 $ 21 600 $18 700
Please refer to Appendix 1 for assistance in structuring your answers Question 5 ( 15 marks)
Lisa and Monica are Australian residents for tax purposes and operate a hairdressing salon as partners where they each are entitled to 50% of the profits after allowing for partner’s salaries, interest on capital, interest on advances and interest on drawings.
For the current income year, the partnership derives $102 000 of sales and $9 272 in GST and incurred $44 000 of expenses. The expenses included the purchase of a new hair curling megadevice which has an effective life of 7 years. However, it has not been unpacked and is not currently operational. The megadevice cost $7000. The partnership always uses the Dimishing Value method to calculate Decline in Value deductions.
Lisa and Monica paid themselves a salary of $23 000 and $18 500 respectively. In addition Lisa received $3 000 interest on capital and paid $750 interest on her drawings.
During the income year the partnership sold some unfranked shares for $15 000. The shares had been bought in 2010 for $3000 and were held 75% by Lisa and 25% Monica
Monica was paid $3 500 interest on funds she advanced to the partnership. Monica also has a capital loss of $5000, $2000 of this is from the disposal of a collectible in a previous year.
Required
With reference to relevant legislation and/or case law:
a) Calculate the s90 Partnership Net Income (PNI) and complete a partnership schedule showing the overall distribution to each of the partners.
b) Calculate the taxable income and the tax assessed on taxable income for Monica Question 6 (25 marks)
DellaBella Pty Ltd is a private company which incorporated in Australia in 2009 under the Corporations Act 2001 in order to operate a Bungee jumping business.
The company has had the following results in the last three years:
Income year Tax result
2015/16 $370 000 loss
2016/17 $500 000 loss
2017/18 $35 000 loss
Della Bella Pty Ltd has prepared the following income statement for 2018/19:
Income
Gross profit from trading 510,000
Fully franked dividends 16,800
Exempt income 11,000
Gross Income 537,800
Expenses
Interest expense 23,000
Wages 58,000
Entertainment expense 12,000
Fines and penalties 3,000
Increase in provision annual leave for 14,700
Depreciation 41,000
PAYG Instalments paid 130,000
Total expenses 281, 700
Net Profit 256, 100
Other information
Note 1 – Decline in value for 2017/18 was $38,900.
Note 2 – Annual leave paid amounted to $12,000.
Note 3 – The $256, 100 profit does not include any tax losses from previous years.
On the 1 September 2016 65% of the shares with voting, income and capital distribution rights changed ownership. On the 17 June 2017 the company started to operate a Berry Bomb ice cream outlet.
DellaBella Pty Ltd has collected GST of $25 909 and received a yearly subsidy since 2009 from the Government of $20 000. The subsidy is classified as exempt income.
Required
With reference to the relevant legislation and/or case law:
a) Explain the conditions that must be met to establish if a company is a resident of Australia for tax purposes and determine whether the company is a resident of
Australia for taxation purposes
b) Calculate DellaBella’s taxable income
c) Calculate the tax assessed and the balance of Della Bella 2018/19 tax assessment
d) Discuss how a company’s residency status impacts the taxation of a company in Australia. ( Disregard Double Tax Agreements foer the purpose of this question)
Resource – starting point only
https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Residency/Residency-
requirements-for-companies,-corporate-limited-partnerships-and-trusts/
Appendix 1
Use the following templates to structure your analysis in questions 4, 5, 6 as required Assessable income
Item Yes No Legislative basis and explanation
Tax deduction
Item Yes No Legislative basis and explanation
Tax calculation assistance
Item Taxpayer Taxpayer Taxpayer
Assessable income
– Allowable deductions
= Taxable income
Tax on taxable income
– Non refundable tax offsets
+ Medicare Levy
= Total Tax and Medicare Levy
– PAYG credits
– Other credits
= Balance of the assessment