Require ilac method with application of relevant law

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Major Assignment

Due date: 01 May 2017

Value: 40%

Length: Approximately 2800 words (excluding any calculations)

This assignment consists of two (2) case studies. You must complete all the case studies and all

parts of each case study.

Case Study One

Peter is an engineer who was born in Australia. Peter works in Brisbane for large multinationa l

firm. He was recently offered a position in Bangkok with another firm which is a major promotion

for him. The position is a 2 year contract with possibility for extension. Excited by the opportunity

to experience a new culture and learn the language, he resigned from his position in Brisbane, and

travelled to Bangkok on 05 September 2016. Peter’s partner, Alex planned to join him in Bangkok

in December. Whilst in Bangkok, Peter has been living in hotel, however plans to find an apartment

to rent once Alex arrives. During the income tax year ended 30 June 2017, Peter earned $8,500 in

net rental income from a property he owns in Ipswich and interest income of $420 from money in

an Australian bank account. He also earned $123,000 from his employment in Bangkok. Provide

advice to Peter as to whether he is a resident of Australia for tax purposes for the income year

ended 30 June 2017 and based on this conclusion, also provide advice as to any amounts of income

that would be included in his assessable income in Australia for the year ended 30 June 2017.

Marzena is a property developer and operates her business as a sole trader. As at 1 July 2016,

Marzena owned 7 blocks of land with a value of $72,000 each. Marzena had purchased these

blocks on 1 July 2012 at a cost of $53,000 each. During the income year ended 30 June 2017,

Marzena acquired a further 10 blocks of land in Brisbane with the intention of preparing these

blocks for sale at a profit. The 10 blocks of land cost $81,000 each. Marzena also incurred $3,700

for each new block in relation to land clearing costs and preparation costs. During the year,

Marzena sold 11 blocks of land for $100,000 each. Further, she also sold on of these blocks of

land to her brother for $60,000. This was a similar block to one of those sold throughout the year.

Additionally, on 1 September 2016 Marzena entered into a contract to sell an entirely separate

block of land for $79,000. She had originally purchased this smaller block in Springfield in March

2015 for $81,000. She had intended building an office block on the land to be used as a ‘shop

front’ for her business where she could meet with potential clients and conduct her daily activit ies.

However, after submitting plans to council (at a cost of $1,800), Marzena was advised that due to

LAW3130 Revenue Law and Practice

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planning restrictions in the area, the building would need underground parking and would therefore

cost substantially more. Marzena then decided to sell the land and look for a block in a more

suitable area. Advise Marzena as to whether she will have any ‘assessable income’ for the year

ended 30 June 2017 as a result of the above transactions regarding her business and also advise

whether the sale of the separate block of land would be ‘ordinary income’ for the year ended 30

June 2017.

Toowoomba Drilling

Toowoomba Drilling is a medium sized business which specialises in large scale surface and

underground drilling. The business operates through a private company, Toowoomba Drilling Pty

Ltd. The company has a turnover of approximately $1.5 million and employs around 12

tradespersons and 5 administrative staff. The value of the large machinery used in drilling has a

market value of approximately $20 million. The business enters into contracts with property

developers, private land holders and the QLD State Government. It specialises in large

infrastructure projects where drilling for pipework is required.

As part of a major new rail infrastructure project the QLD State Government offered large grants

to local businesses for the purchase of new machinery that could be used in building the new

railway. Toowoomba Drilling Pty Ltd entered into a contract with the State Government to accept

$550,000 in funding for the purchase of new machinery. Toowoomba Drilling received a lump

sum of the full amount in June 2017. Part of the terms of the contract were that Toowoomba

Drilling would work exclusively on the rail project for a period of three years, otherwise a pro-rata

of the financial assistance would have to be repaid.

Required:

(1) Briefly discuss with reference to appropriate legislation, case law and/or rulings whether Toowoomba Drilling Pty Ltd should account for income on a cash or accruals basis.

(2) Discuss with reference to appropriate legislation, case law and/or rulings whether the State

Government funding would be either ordinary or statutory income and whether it would be

derived in the 2017 income year?

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Case Study Two

Benjamin operates a business in Toowoomba selling harnesses and other equipment related to

Greyhound Racing. Benjamin estimates that at least 80% of his sales are made to customers in the

Greyhound Racing industry and the remaining 20% to those with domestic pets. In September

2016, the state government introduced draft legislation which would ban all forms of competitive

Greyhound Racing. The legislation was very controversial and various lobby groups were formed

to attempt to stop this legislation from passing. Benjamin engaged a solicitor to advocate and

communicate with other lobby groups on his behalf. Benjamin was very concerned for the viability

of his business should the legislation proceed. The legal fees associated with this campaign

amounted to $60,000 in the 2017 income year. Additionally, as Benjamin did not have the money

to finance this, he incurred $5,000 in interest payments on a loan used to fund the campaign. Advise

Benjamin as to the potential deductibility of either of the above amounts in the year ended 30 June

2017 and additionally any further information you would require.

Kathy owns a number of rental properties in North Queensland. As a result of a severe tropical

cyclone in January 2016, a number of Kathy’s properties sustained damage. All rental properties

were tenanted at the time of the cyclone, however they have been vacant since that time while

repairs are carried out. Kathy has had the following expenses up until 30 June 2017 in relation to

her properties;

– Replacement of all kitchen cupboards and bench tops at a cost of $11,500. The old kitchen

cupboards were water damaged from stormwater run-off and the old bench tops were not able

to be used on the new cupboards, however all other aspects of the replacement were of a similar

design and with similar materials to the old kitchen. Kathy made two payments in relation to

the installation of the kitchen. The first payment was $3,000 on 1 March 2017 and the second

final payment of $9,000 was made on 20 July 2017. The kitchen was fully installed and

invoiced on 1 June 2017.

– Replacement of the downstairs windows. Due to wind and trees falling, a number of windows

were shattered. The cost of the new windows was $2,000 including installation and was paid

on 1 April 2016. The old windows were plain glass however the current building requirements

are that safety glass be used in all accessible glass which is slightly more expensive. Kathy

also took the opportunity to add a security screens to the windows at an additional cost of

$1,800.

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– Replacement of the whole roof on one of the rental properties. Many of the existing sheets of

corrugated iron were lifted in the storm and unable to be repaired. In this instance the whole

roof was replaced with new corrugated iron at a cost of $9,500. This amount was paid in the

2017 income year.

Required:

 Discuss with reference to appropriate (and most relevant) legislation, case law and/or rulings

whether the rental property expenses are deductible in the 2017 income year. For the purpose

of this discussion you can assume Kathy is not covered by insurance for this type of event.

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LAW3130 –Revenue Law and Practice

Semester 1, 2017

Assignment Marking Criteria Sheet

Case Study 1 – Assessable Income Issues Little

attempt F C B A HD

Identification of legal issues, legislation and case law

Overall the student has identified the relevant assessable

income issues, legislation and where appropriate case

law and rulings.

0 1 1.5 2 2.5 3

Application

Demonstrated level of understanding of the specific

residency & source issues in relation to Peter through

the application of the identified law.

1 3 6.5 8.5 10 13

Demonstrated level of understanding of the specific

ordinary income and trading stock issues in relation to

Marzena through the application of the identified law.

1 3 6.5 8.5 10 13

Demonstrated level of understanding of the specific

derivation, business and ordinary income issues in

relation to Toowoomba Drilling through the application

of the identified law.

1 3 6.5 8.5 10 13

Conclusions

Overall, the student has drawn appropriate and valid

conclusions after applying the law. 0 1 1.5 2 2.5 3

Total out of 45

Case Study 2 – Deduction Issues Little

attempt F C B A HD

Identification of legal issues, legislation and case law

Overall the student has identified the deduction issues,

legislation and where appropriate case law and rulings. 0 1 2 3 3.5 4

Application

Demonstrated level of understanding of the deduction issues for Benjamin through the application of the

identified law.

1 5 9 11 14 18

Demonstrated level of understanding of the repair and

timing issues in relation to Kathy through the application

of the identified law.

1 5 9.5 12 15 19

Conclusions

Overall, the student has drawn appropriate and valid

conclusions after applying the law. 0 1 2 3 3.5 4

Total out of 45

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General Criteria Little

attempt F C B A HD

Overall clarity of expression, logical flow of ideas, use of grammar and punctuation.

1 3 4 5 6 7

Ability to use chosen referencing method

appropriately and correctly. 0 1 1.5 2 2.5 3

Total out of 10

TOTAL (out of 100)

General Comments

Description of Performance Standards;

HD – the student has shown a very high level of demonstrated ability in relation to the stated criteria by covering all

valid points in a clear and succinct manner. The student may have also demonstrated an ability to think beyond the

facts and recognise the broader implications of the facts, missing facts or alternate arguments.

A – The student has shown a high level of demonstrated ability in relation to the stated criteria by either covering all

valid points or by covering the majority of valid points in a clear and succinct manner. The student may have very

briefly or occasionally shown ability at the HD level.

B – The student has shown a good level of demonstrated ability in relation to the stated criteria by covering most of

the valid points. The student may have made some minor incorrect statements or missed some minor points.

C – The student has shown a satisfactory level of demonstrated ability in relation to the stated criteria by covering

the main valid points. The student may have made a number of minor incorrect statements but did make incorrect

statements in relation to major points.

F – The student has not shown a satisfactory level of demonstrated ability in relation to the stated criteria by missing

some main points or by making incorrect statements in relation to major points.

Little Attempt – The student has not addressed or attempted to address this criterion.

END OF ASSIGNMENT

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