HI6028 Taxation, Theory, Practice & Law

T2, 2016 ASSIGNMENT 1 Due dates: Week 8 Maximum marks: 20 (20%)

Case study 1:

Capital Gains TaxFred is a resident who signed a contract to sell his holiday home in the Blue Mountains in August last year. The sale was settled in February this year when Fred received \$800,000from the purchaser. Fred incurred legal fees of \$1100 (Inclusive of GST) and real estate agent’s commission of \$9,900 (Inclusive of GST) in relation to the sale. Fred purchased the holiday home in March 1987 for \$100,000 and paid \$2,000in stamp duty on the transfer and \$1000 in legal fees. In January 1990, Fred engaged a builder to build a garage on the property for \$20,000, Calculate Fred’s net capital gain for the current year. Assume he also has a net capital loss from last year of \$10,000 arising from the sale of shares.Would your answer be different if the loss arose from the sale of an antique vase?  (10 marks, max. 1000words).

Case study 2:

Fringe Benefits TaxPeriwinkle  Pty  Ltd  (Periwinkle)  is a  bathtub manufacturer which sells bathtubs directly to the public. On 1 May 2015, Periwinkle provided one of its employees, Emma, with a car as Emma does a lot of traveling for work purposes. However, Emma’s usage of the car is not restricted to work only. Periwinkle purchased the car on that date for \$33,000 (including GST).For the period 1 May 2015 to 31 March 2016, Emma travelled 10,000 kilometres in the car and incurred expenses of  \$550  (including  GST)  on minor repairs that have been reimbursed by Periwinkle. The car was not used for 10 days when Emma was interstate and  the  car  was  parked  at  the  airport  and  for  another  five  days  when  the  car  was scheduled for annual repairs.On 1 September 2015, Periwinkle provided Emma with a loan of \$500,000 at an interest rate of 4.45%. Emma used \$450,000 of the loan to purchase a holiday home and lent the remaining \$50,000 to her husband (interest free) to purchase shares in Telstra. Interest on  a  loan  to  purchase  private  assets  is  not  deductible  while  interest  on  a  loan  to purchase income-producing assets is deductible.

During  the  year,  Emma  purchased  a  bathtub  manufactured  by  Periwinkle  for  \$1,300. The bathtub only cost Periwinkle \$700 to manufacture and is sold to the general public for \$2,600.(a)Advise  Periwinkle  of  its  FBT  consequences  arising  out  of  the  above  information, including  calculation  of  any  FBT  liability,  for  the  year  ending  31  March  2016.  You  may assume that  Periwinkle  would  be  entitled  to  input  tax  credits  in  relation  to  any  GST-inclusive acquisitions.(b)How  would  your  answer  to  (a)  differ  if  Emma  used  the  \$50,000  to  purchase  the shares herself, instead of lending it to her husband?

(10 marks, max. 1000 words).

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