LAWS3101: Tax Advice Statement (Semester 2, 2024)
Tax Advice Statement
Problem Sets
Instructions
1. Read the Task description and Criteria, marking and performance standards on the course Blackboard site.
2. You are required to prepare typed-up responses to all three problem sets described herein in one Word document.
3. This is an individual assessment activity. Students must work alone. The use of generative artificial intelligence (AI) tools is not permitted. Any attempted use of AI may constitute student misconduct under the Student Code of Conduct. Students must read and comply with the Integrity Notice for this assessment item available on the course Blackboard site.
4. You are required to conduct research in preparing your responses to the problem sets using four specific ATO Guides. These guides and specific instructions about the relevant parts of each guide you must use, are set out on the course Blackboard site: >> Assessment-folder >> Tax Advice Statement-folder. You must not include references to these ATO Guides in your responses. Therefore, there is no word limit allocation for references to these ATO Guides. Simply use the ATO Guides to formulate your responses.
5. There is no requirement to use a specific font type or font size when you type up your responses. Using Arial or Times New Roman in 10 or 12 font size works well. Do not include the problem sets in your responses, just your answers.
6. Type your name, surname and student ID at the top of the first page.
7. You are not permitted to use footnotes, end notes , spreadsheets or text boxes. You must not include a separate bibliography. As a matter of principle, you must reference relevant case law and sections and divisions of the Income Tax Assessment Acts in your responses that are specifically listed in the Topic Learning Plans. Do not include other references in your responses, as there is no word limit allocation for other references. Therefore, you must treat this assessment item problem sets as you would any other question.
8. The only permitted submission method is to upload one Word document via Turnitin, using the Tax Advice Statement submission link on the course Blackboard site: >> Assessment-folder >> Tax Advice Statement-folder. Students cannot resubmit from 5 pm on Thursday 10 October 2024. It is your responsibility to retain a copy of the Turnitin receipt. Email or paper copy submissions will not be accepted. Contact AskUs through the UQ Library and retain evidence of your actions if you encounter technical difficulties.
9. Due date and time: 5 pm on Thursday 10 October 2024.
10. The total word limit for your responses that includes all headings, all responses, all references, all pages and all words, all calculations and all amounts is 2500 (two and a half thousand) words. If you exceed the word limit, the course staff will only grade the first 2500 words in your submission. Therefore, no penalty applies to submissions that exceed the word limit. Only the first 2500 words are graded.
Total marks for the Tax Advice Statement = 70 marks
Weighting in final mark = 30%
Problem Set 1
Abigail Barnes and her three sisters, Caitlin, Donna and Elizabeth, started a private company, Sisterhood Investments Pty Ltd, in 2010. They each own 25% of the shares in the company.
Sisterhood Investments Pty Ltd sells expensive clothing items to members of the public, earns rent from office buildings that the company rents out to tenants in Brisbane and Townsville, and receives dividends from a share investment in the Commonwealth Bank Ltd, Australia’s largest listed bank.
This is the taxable income calculation of Sisterhood Investments Pty Ltd (hereafter referred to as ‘SI’) for the 2023–2024 income year ending 30 June 2024:
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$
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Turnover from the sale of trading stock, income from business, s 6-5 ITAA97
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40,000,000
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Fully franked dividends received, Commonwealth Bank Ltd, s 44 ITAA36
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140,000
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Gross-up, being franking credits associated with dividends received from the Commonwealth Bank Ltd, s 207-20 ITAA97
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60,000
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Rent received from office building tenants, assessable income, s 6-5 ITAA97
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8,000,000
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Total assessable income
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48,200,000
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Less:
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Tax deductible expenses in relation to retail trading activities, s 8-1 ITAA97
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32,000,000
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Tax deductible expenses for the office building rental properties, s 8-1 ITAA97
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2,450,000
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Tax deductible capital allowances, div 40 ITAA97
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5,450,000
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Taxable income
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$8,300,000
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In addition, this is the other relevant information about SI for the period 1 July 2023 to 30 June 2024:
• The opening credit balance of SI’s franking account on 1 July 2023 totalled $345,000.
• During this 12-month period, SI made PAYG income tax instalment payments totalling $1,350,000.
• On 28 August 2023, SI paid its shareholders a fully franked dividend totalling $1,800,000.
• On 15 October 2023, SI received a tax refund of $495,000 in relation to its 2019–2020 income year after it successfully challenged an ATO decision to deny SI tax deductions for legal fees it incurred.
• On 14 February 2024, SI paid its shareholders dividends totalling $900,000 with franking credits of $240,000 attached.
Abigail comes to you for advice: She wants to know what the maximum amount of a fully franked dividend is that SI can pay shareholders on 30 June 2024 without incurring franking deficit tax. In preparing your detailed tax advice statement for Abigail, show all your calculations and provide reasons for your answers. In this problem set, there are no case law or sections and divisions from the Income Tax Assessment Act to reference. In relation to the franking account that you must prepare as part of your advice statement, use the following five-column layout:
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Date
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Transaction
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Debit
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Credit
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Balance
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Total marks for this problem set: 10 marks How many words can you expect to type up for your response? No more than 250 words. It is possible to prepare an excellent-quality response in about 230 words.
Problem Set 2
Ross Kirkwood is an Australian resident individual, aged 56. He has always been an Australian resident individual for income tax purposes. Ross is an award-winning freelance press photographer who won the Pulitzer Prize for news photography in 2020. Ross comes to you for advice: He wants to know what his taxable income is at the end of the 2023-2024 income year ending 30 June 2024.
In preparing your detailed tax advice statement for Ross:
• Ignore Goods and Services Tax (GST).
• Show all your calculations and provide reasons for your answer, referencing relevant sections and divisions of the Income Tax Assessment Acts listed in the relevant Topic Learning Plans. Do not include other references.
• Apply the criteria for preparing capital gains tax (CGT) responses as explained on pages 1-3 of the Topic 8 Learning Plan. Therefore, in preparing your responses, you must apply the CGT method statement described in the law.
• Ross wants to return the lowest possible capital gain in each case.
• On 30 June 2023, Ross had unapplied capital losses of $90,000 from the sale of a rental property in 2017, and unapplied losses of $12,000 from the sale of a piano in 2021. The piano was originally manufactured in 1890. Ross played the piano in his free time.
His taxable income from his business for the 2023-2024 income year, before taking into the information below, is $485,000. In addition:
• He sells a camera for $12,000 on 1 July 2023. He purchased the camera on 1 November 2021 for $18,000. Ross used the camera in his business from that day. The effective useful life of the camera is four years. Ross uses prime cost and applies div 40 ITAA97.
• He sells all 10,000 of his National Australia Bank Ltd shares on 30 June 2024 when the share price is $40 per share. Over his ownership period, Ross received dividends from the National Australian Bank Ltd every year, including fully franked dividends of 98 cents per share on 29 September 2023. His financial adviser, Fred Astaire, provides Ross with the following investment summary statement:
• He sells his four-bedroomed home in Greenslopes on 30 April 2024 for a selling price of $1.6 million. He pays a real estate agent commission of $38,400 for finding a buyer for his home.
Ross originally purchased the home for $350,000 on 1 February 2010 after accepting a job with a Brisbane-based newspaper. A Sydney-based newspaper previously employed him. He paid cash for this Greenslopes home because he sold his home in Sydney for a handsome profit. Ross moved into his Greenslopes home on 1 February 2010. Ross regularly went on work photo assignments overseas. Based on his work diary, from 1 February 2010 to 31 December 2018, he spent 748 days outside Australia on these short work assignments.
Ross then agreed with his employer that he would spend one year, from 1 January 2019, working in war-torn countries in Central Africa to photograph the impact of war on children. He rented out his home for the duration of this work assignment. Unfortunately, Ross was taken captive by a militant group before the end of this work assignment. The tenants extended their lease until Ross was finally released in March 2020. The tenants vacated the premises on 31 March 2020. Ross moved back into his home on the next day.
One of the photographs he took while being held captive won him the 2020 Pulitzer Prize for news photography. His new-found fame as a press photographer and his harrowing experience of being held captive by the militant group spurred Ross to resign from his job and commence working as a freelance photographer on 1 June 2020. He set up two rooms in his home as a studio and office for his new business. These rooms took up 35% of the floor space. He used the rooms for that purpose until the day he sold the home.
These are the other details of the home:
• The home is situated on a 2-acre block.
• He has never claimed any tax deductions in relation to the home.
• He paid a real estate buyer's advocate agent $3,500 for finding him the home in 2010. He used this agent because he did not have the time to fly to Brisbane to look for a home.
• He paid transfer duties of $5,000 when he purchased the home.
• He paid a solicitor $1,500 in legal fees when he purchased the home and $2,700 in legal fees when he sold the home.
• In 2015, he paid $23,000 to have an in-ground swimming pool built on the property.
• He paid a company $2,750 to have the home professionally staged with beautiful furniture to increase the marketability of the home when he put it on the market for sale.
Total marks for this problem set: 40 marks How many words can you expect to type up for your response? No more than 1,650 words. It is possible to prepare an excellent-quality response in about 1,500 words.
Present your responses for the detailed calculation of his taxable income in a table format like this:
Problem Set 3
Louisa James comes to you for advice: On 18 August 2023, she purchased a unit in a newly constructed unit complex from the developer as an investment property. She immediately advertised the unit for rent on that day.
Louisa wants to know the income tax implications of her decision to invest in the property at the end of the 2023–2024 income year ending 30 June 2024. Her clear instruction to you is:
• That she wants to claim the largest possible tax deductions as quickly and as early as possible.
• She wants you to use the ATO’s effective useful life of assets.
• She wants you to provide her with a detailed taxable income calculation, showing all your calculations and reasons for your answer, referencing relevant case law and sections and divisions of the Income Tax Assessment Acts listed in the relevant Topic Learning Plans. Do not include other references.
These are the facts that you must use in preparing a detailed calculation of the tax implications in relation to the property:
Before she made the decision to invest in this, her first investment property, she consulted a financial adviser who charged her $750 on 10 July 2023. The financial adviser explained the advantages and disadvantages of owning an investment property to Louisa. After seeking this financial advice, she decided to find a new development to invest in.
The developer sold the property to Louisa for $1.2 million. The breakdown of this purchase cost, as certified by the supervising architect, is as follows:
• Constructions costs = $1,150,000.
• Automatic garage doors = $14,600
• Carpets = $12,000.
• Ceiling fans = $1,750.
• Dishwasher = $1,250.
• Stove = $2,400.
• Window shutters = $18,000.
Louisa funded the purchase cost using a 20-year mortgage loan. She:
• Paid stamp duty on the mortgage totalling $450 on 18 August 2023.
• Incurred interest totalling $65,000 during the income year.
Louisa rented the property to a tenant from 1 September 2023:
• The tenant paid a rental bond totalling $1,600 to the Queensland Residential Tenancies Authority on 1 September 2023.
• Louisa received rent totalling $34,000 during the income year.
These are Louisa’s other expenses incurred during this income year:
• The tenants damage a wall when they move in. Louisa obtained two quotes from a builder, Derek’s Wall Repairs, to repair the damage. One for $2,500 with a tax invoice that includes an ABN. Another for $1,800 cash without a tax invoice. Louisa accepts and pays the lower quote in cash totalling $1,800. A month later, the tenant reimbursed her the full $1,800, opting not to use their rental bond for that purpose.
• She visited the rental property five times using her own car. She travelled a total of 200 kilometres on these trips. Louisa is aware of the cents per kilometre method under div 28
ITAA97.
• She pays the Brisbane City Council $2,000 in rates for the property. She makes one late rates payment and as a result, the Brisbane City Council charged her interest on the late payment totalling $38 that she also paid during this year.
• She pays the body corporate the following levies:
o Admin fund levies totalling $2,800.
o Sinking fund levies totalling $1,200.
o A special levy charged over two years (this year and the next year) to fund the construction of a swimming pool at the unit complex as part of the common property. This year’s levy that Louisa paid totals $3,000.
Total marks for this problem set: 20 marks How many words can you expect to type up for your response? No more than 600 words. It is possible to prepare an excellent-quality response in about 540 words.
Present your responses in a table format like this: