MLC 703: PRINCIPLES OF INCOME TAX LAW

INSTRUCTIONS

Please note that the following will not form part of the word count:

? References, including statute and cases;
? Diagrams;
? Tables;
? Calculations.

You must complete all parts of the assignment - three (3) questions. Please complete the various parts of the assignment separately ie start each new question a new page. You should allocate the appropriate amount of words to the various questions in accordance with the recommendations in the box provided at the commencement of each new question. There is a strict word limit of 3,000 words for this assignment.

For the three (3) questions in the assignment you will be required to go beyond the study materials for this unit and you will be expected to conduct your own research of cases and other academic material upon which you should base your answer.

You are encouraged to use headings for purposes of clarity and presentation of your assignment. It is however, essential that your assignment is written in full sentences and not ‘dot/bullet point’ format. If you use any equations in solving the problem question please make sure that you cite the correct sections of the relevant legislation and that you outline your entire working.

You must begin each question separately. It is however essential that you place your name and student number and the question number on each question which you complete.

Regarding referencing, you will find the Australian Guide to Legal Citation (AGLC) style of referencing in the following web site:

http://www.law.unimelb.edu.au/files/dmfile/FinalOnlinePDF-2012Reprint.pdf

Please note that this AGLC style is intended for Law students and although it is preferred that you follow it, marks will not be deducted for not citing cases etc exactly as described. In other words, whilst you must reference, you can choose to use other referencing styles (ie not necessarily the AGLC style) if you wish.

SUBMISSION: You must submit both an electronic version of your assignment in addition to submitting a hard copy of your assignment. The electronic copy of your assignment and the hard copy of your assignment must be identical. If there are any differences between your electronic assignment and your hard copy assignment your electronic assignment will be marked.

Extensions to the due date are not granted lightly, as this will disrupt the marking process, and is unfair to most students who have complied with the submission deadline. In other words, extensions are seldom given – they are only granted in the most exceptional unforeseeable circumstances. If you are experiencing serious and exceptional circumstances that are beyond your control at least three working days prior to the due date to negotiate an extension. When considering the granting of extensions the fact that students have had several weeks to complete the assignments prior to the due date will be taken into account.

Late Submissions: If you submit an assignment late (with no extension granted/none applied for), 10% of your mark will be deducted per calendar day from the due date (eg for a 40 mark assignment, each day an assignment is late will result in a penalty of 4 marks being deducted).

Once assignments have been marked and feedback provided, no further assignment can be accepted.

The assignments must be completed individually and in the following style and format:

Assignment Style:
Font: Times New Roman or Arial;
Font size: 11 or 12 point;
Line spacing: 1.5 line spacing or Double spacing;
Format: Assignments are to be presented/submitted in MS Word format only.

Please note in the interests of equity to all students, academic staff will not be able to provide any assistance with the questions in this case study.

DUE DATE: 11:59pm Monday 15 September 2014
QUESTION 1:

THIS QUESTION IS WORTH 5% OF YOUR OVERALL MARK FOR THIS UNIT. ALLOCATE APPROXIMATELY 500 WORDS (MAXIMUM) IN ANSWERING IT

On 1 July 2010, Suzette sold the farm she had purchased 25 years earlier and moved to the north coast of New South Wales where she rented a house, intending to retire. She also purchased a hectare of land on the waterfront. She soon became bored with nothing much to do in retirement. In order to more fully provide funds for her retirement and by way of investment, Suzette had much consultation with, and subsequently commissioned a builder in October 2012 to design and build eight townhouses on the land she owned on the waterfront. Suzette also consulted her accountant at this time and asked him to provide details of the expected rental return from the lease of seven of the units, as she intended to live in one of them.

The units were completed in May 2013. Suzette was successful in leasing five of the units on a short-term basis. In October 2013 she successfully applied to have each of the units changed to ‘strata titles’ and by the end of December 2013, four of the units had been sold. With the proceeds Suzette purchased an adjoining block of land, with the intention of building more units.

Required:
Advise Suzette of the income tax implications of the above transactions (ignore any Capital Gains Tax implications).

QUESTION 2:
PROBLEM QUESTION

THIS QUESTION IS WORTH 15% OF YOUR OVERALL MARK FOR THIS UNIT SO YOU SHOULD ALLOCATE APPROXIMATELY 1,000 WORDS (MAXIMUM) IN ANSWERING IT

Thang purchased an investment property in Perth during February 2006 for $200,000. He paid stamp duty of $10,000 at that time. He had no trouble finding tenants for the property. In August 2013 Thang required a new tenant for the property. Because of strong demand for rental housing, Thang was able to get a new tenant to pay him a lump sum ‘up front’ amount of $2,000 (in addition to the annual rental) for entering into a 12 month lease. However, in January 2014 the tenant wanted to be released early from this lease. The tenant and Thang agreed that the lease would be terminated early in exchange for the tenant giving Thang $3,000. On May 3, 2014 Thang entered into a contract to sell this property for $700,000; this sale was settled in June 2014.

Thang also enjoyed being a businessman. As a result, during September 2006, Thang purchased 100% of the shares in a company called Hong Pty Ltd for $2 million. Hong Pty Ltd owned and operates a pillow-manufacturing factory.

In February 2014 Thang sold his shares in Hong Pty Ltd for $4 million. At this time Hong Pty Ltd’s assets were as follows:
• Pillow manufacturing plant and factory $2,500,000
• Goodwill $1,500,000
Annual turnover for the company has been consistently around $2.5m per year for a number of years.

In June 2014, Thang (who was aged 53 at the time) purchased Julian Pty Ltd, for $350,000. The assets of Julian Pty Ltd were as follows:
• a Bed and Breakfast accommodation $290,000
• a 10 % share in Investment property $60,000
At the time of the sale of Hong Pty Ltd, Thang and his spouse held the following assets (other than the shares in Hong Pty Ltd):
Thang
Car (used 50% for his business) $50,000
Property in Melbourne (Thang lives in this property) $850,000
Investment Property in Perth $700,000
Superannuation $1,450,000

Thang’s spouse
Investment Property in Sydney $600,000

Required:
For all transactions in this question discuss only the Capital Gains Tax implications.

Refer to all of the relevant sections of legislation, cases and any other scholarly material when providing advice to Thang. Advise Thang on:
• Any Capital Gains Tax liabilities for him in relation to his activities;
• Specifically, make sure that your discussion includes advice on whether Thang can take advantage of the small business concessions to reduce the amount of tax payable on the sale of Hong Pty Ltd.

QUESTION 3:
POLICY BASED ESSAY QUESTION

POLICY BASED ESSAY QUESTION: THIS IS WORTH 20% OF YOUR OVERALL MARK FOR THE UNIT SO YOU SHOULD ALLOCATE APPROXIMATELY 1,500 WORDS (MAXIMUM) IN ANSWERING IT

The Australian government recently enacted laws in its 2014 Budget to reform the Family Payment system that is currently in place. Reforms have also been applied to eligible income support recipients in relation to the Education Entry Payment.


Required:

Discuss both of the following:
i) Explain what the law was regarding the Family Payment system and Education Entry Payment prior to the changes put forward, and the nature of the abovementioned changes. Your explanation should indicate when these new measures will begin and cease (if applicable).

ii) From a policy perspective, consider whether it is desirable to implement these changes. Please consider this in the context of fairness, efficiency, equality, protection of government revenue and any other relevant considerations.