LAWS5065-Taxation Law
Question 1
Part A
Suman gained a Degree in Business when he was a young lad and with skill and hard work, he has used that knowledge to start his own business
He operates his own business selling computers and related equipment. Over the last financial year, sales of computers and equipment were paid for at the time of sale. During the year ended 30 June 2019, Suman received $3,000,000 for the sales of computers. 90% of the sales is received in Cash the remaining 10% on credit.
Purchases during the year ended 30 June 2020 were $950,000 and at the end of the year ended 30 June 2020 his stock on hand was $600,000 (valued at cost). Suman’s closing stock for the year ended 30 June 2019 was $450,000. Suman took 6 computers from his stock for his own use during the year. These computers cost him $1,080 each and had a market value of $1,500 each. Suman also gave away 12 similar computers to his friends during the year.
He paid wages of $1,710,000 to his 30 staff members. This included an amount of $20,000 paid to his sister, who is still at school. The work of the brother could have been done by an unrelated person for $18,000. He also paid $4500,000 into his staff’s complying superannuation funds as concessional employer contributions.
Explain how you would calculate the income from his business and the amount of all deductions that would be allowed for the year ending 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 calculation. Ignore residency, Fringe Benefits Tax and Goods and Services Tax issues. You must apply the law to the facts given in this question and provide YOUR OWN analysis of the issues. Calculations must be included where relevant.
Part B
One of Suman’s customers bought some computer equipment for $7,000 on credit on 21 June 2018 but could not pay the account, which was issued on the same day. The customer went bankrupt in November 2018. Suman wrote off the debt on 1 July 2019.
In May 2018, Suman decided to take a night off and go to Star City Casino. It was his lucky night. He won $300,000 playing the card game “blackJack”. His friends told him it was “beginners luck”.
In July 2018, Suman decided to use the winning money from the casino to purchase a van for $156,000 and used it as a delivery vehicle for his business. Suman often delivered computer equipment to his customer directly from his suppliers and the toll fares that he incurred for these delivery trips were $1,642 for the 2019 financial year. He had to lodge a tax return for the year ended 30 June 2019 and seek your advice whether he would be able to claim any deduction (including the van if any) for his business
Explain how you would account for these events from the perspective of the Income Tax return for the year ending 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 calculation. Ignore residency, Fringe Benefits Tax and Goods and Services Tax issues You must apply the law to the facts given in this question and provide YOUR OWN analysis of the issues. Calculations must be included where relevant.
Question 2
Suman was a resident of Australia and gained a number of assets over the 40 year since his graduation. These were:
a.On 1st July 1982 he bought his home at Burwood for $200,000 and lived there with his wife and children until he sold it on 1st June 2020 for$1,200,000.
b.Then, on 1st January 2000, Suman had bought a vacant block of land for $250,000 and since that date, he has paid rates and taxes totaling $60,000 on the block of land up to 30th June 2020. His incidental costs in buying and selling the land amount to $60,000. On the 30thJune 2020, Suman sold the vacant block of land for $875,000.
c.On the 1st July 2010, he had some spare money in his bank account which he used to buy 1,000 BHP shares for $20 per share. He sold them all on the 30th June 2020 for $35.82 per share.
d.Suman’s Uncle died on the 1st Jan 2019 and left Suman a bequest of $180,000 which he received on the 30th June 2020.
Explain how these transactions would be dealt with having regard to the capital gains legislation and calculate the net amount that would be added to his assessable income as statutory income for the year ending 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. You must apply the law to the facts given in this question and provide YOUR OWN analysis of the issues. Calculations must be included where relevant.
Question 3
Ali and Sumara started a retailing shop on a partnership. Each of them contributed $100,000 fund to the business. The partnership agreement provides:
%·Both Ali and Sumara are to receive interest at the rate of 6% pa on their capital contribution.
%·Sumara will receive a salary of $55,000 for the management of the shop, as well as superannuation contributions of $12,000.
%·The remainder in profit and loss will be shared Ali 60% and Sumara 40%
The accounts for this income year show the following:
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Income ($)
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Sales
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515,000
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Expenses ($)
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Cost of goods sold
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126,000
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Interest on capital paid to Ali and Sumara in total
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8,000
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Salary to Ali
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55,000
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Concessional Superannuation to Ali
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12,000
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Rent expense
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28,000
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Other deductible operating expenses
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41,000
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Required:
Calculate the net income of the partnership. Show the allocation of net income to each of the partners.
