Capital gain

1. The assignment is worth 40% of the assessment in this course. 2. The assignment has 2 questions, each worth 20 marks. 3. You must submit your assignment before 4. 00pm on Thursday, 12 September 2013. 4. Students must submit their assignment electronically via the Turnitin link [LAWS7012 | 2013 – Semester 2] in the Assignment Submission folder in the Assessment area of the course website in Blackboard. Online assignments do not require a separate cover sheet.

Refer to documentation in the Assignment Submission folder on the naming requirements of the assignment file. 5. There is no prescribed word limit for this assignment and no penalties will be applied for students who exceed the suggested word limit. As a guide, your assignment could be completed under 3,000 words. 6. Students must retain a hard copy of their submitted work. 7. Review Sections 5. 3, 5. 5 & 6. 1 of the Course Profile for information on assessment procedures.

In particular, note: “Where a non-examination item of assessment (including essays, assignments, take-home tests, etc) is not submitted by the due date and time, a penalty will be levied at the rate of 10% of the marks available for the assessment item per day (or part thereof) that the assessment is overdue. LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 Assessment submitted more than 5 days after the due date will receive zero marks. For full details, students should refer to the Law School policy on Late Submission of Assessment & Absences from Mid-Semester Examinations.

Extensions for non-examination items of assessment will only be considered in respect of illness or other certified medical condition. Applications for extension shall be made by lodging the Application for Extension of Assessment / Special Mid-Semester Examination form (and supporting documentation) with the Law School Office prior to the due date for assessment unless the illness or other medical condition is such that the student cannot reasonably be expected to have applied prior to the due date.

Students who are granted an extension beyond the due date for assessment items must submit their assessment to the Law School Office, NOT the BEL Faculty Collaborative Learning Centre. ” The Business Taxation Assignment examines a student’s ability to conduct research into taxation issues and to provide advice to a client. The assignment will also examine an understanding of statutory income, in particular the capital gains tax provisions of the Income Tax Assessment Act 1997.

Question 1 and Question 2a require students to clearly identify the relevant tax issues, reference all applicable sections of the Income Tax Assessment Act 1936 and/or the Income Tax Assessment Act 1997, related tax cases and/or rulings of the Australian Taxation Office. A suggested format to answer Question 1 and Questions 2a is the traditional ILAC approach:1. Identify the relevant issue(s) 2. State the relevant law 3. Apply the relevant law to the facts provided 4. Reach a conclusion based on the application of the law to the facts.

Students can review past year examples of Business Taxation assignments in the Assessment folder of the course website. These examples demonstrate some of the better formats used to present answers, however they do not necessarily contain the correct answer. 2|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 Question 1 | 20 Marks Based on the information below determine which receipts, if any, are assessable income for your client for the year ended 30 June 2013.

You answer should include exact dollar amounts and where applicable any relevant rates of taxation that will be applied to this income. Calculations of tax payable are not required. Your answer should reference all applicable sections of the Income Tax Assessment Act 1936 and/or the Income Tax Assessment Act 1997, related cases and/ or rulings of the Australian Taxation Office and detail any relevant calculations. Your client is an Australian resident and was a pilot for Virtual Airlines International (VAI).

He commenced employment with VAI in 1990. Pursuant to the Civil Aviation Act 1988, your client held an air transport licence and a Class 1 medical certificate. Your client’s employment contract with VAI stated he must maintain his air transport licence and that VAI will maintain a loss of licence insurance on his behalf. This loss of licence insurance provided pilots employed by VAI with a lump sum capital benefit if a pilot’s air transport licence was cancelled due to medical reasons.

The amount of the capital benefit was determined by reference to a pilot’s age and their rank. The benefit was paid to enable a pilot who had lost their licence for medical reasons to navigate the difficult financial times ahead and establish a new career, as their employment with VAI was most often terminated, unless they can be redeployed to other non-flying duties. In early 2012 your client developed symptoms of an illness known as intermittent entrapment of the femoral nerve, which was formally diagnosed on 10 June 2012.

On 15 June 2012 your client received a letter from the Civil Aviation Safety Authority stating that his Class 1 medical certificate had been cancelled. Unable to continue flying, your client applied to use his remaining sick leave and long service leave entitlements. As a result of losing his air transport licence, your client’s employment with VAI was terminated on 1 September 2012. On 1 July 2012 your client lodged an application with VAI’s insurer for a loss of licence payment.

After supplying the relevant documentation and signing a Deed of Release 3|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 indemnifying VAI and its insurer from any further claims as a result of losing his air transport licence, your client received a $250,000 payment from the insurer on 30 September 2012. Your client also received $30,000 of long service leave payments from VAI between 1 July 2012 and 1 September 2012. You have ascertained that $3,000 of this long service leave payment relates to employment prior to 18 August 1993.

Your client also maintained his own Loss of Income insurance policy with Unreal Insurance Ltd. When your client’s employment with VAI was terminated he made an application for payment under this policy. Between 1 October 2012 and 31 December 2012 Unreal Insurance paid your client a total of $60,000 and the policy was then cancelled. You have verified your client received no other forms of income to 30 June 2013. Question 2a | 10 Marks Based on the information below determine which receipts, if any, are assessable income for your client for the year ended 30 June 2013.

Your answer should reference all applicable sections of the Income Tax Assessment Act 1936 and/or the Income Tax Assessment Act 1997, related cases and/ or rulings of the Australian Taxation Office and detail any relevant calculations. Your client is an Australian resident and is a self-employed inventor. In 2009 your client embarks upon a business venture to exploit, by means of licensing rights for royalty income or manufacture of machines for sale, certain machine designs he had invented.

He conducted his business from a small warehouse on an industrial estate in Brisbane. In early 2013, after encountering some difficulties in fully developing his designs, your client entered into an agreement with We Build Them Pty Ltd to provide his expertise and knowhow to a newly formed company Magnificent Machines Pty Ltd (MMPL). Your client was paid $100,000 in cash and allocated a 20% share of MMPL. The market value of these shares was $150,000 when they were allocated to your client. 4|Page.

LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 We Build Them Pty Ltd retains the remaining 80% share of MMPL. To provide this know-how to MMPL it was necessary to legally transfer ownership of existing prototypes and manufacturing drawings for some of the machines. Your client also produced drawings and assisted in developing prototypes for the remaining machine where no drawings or prototypes existed. You have concluded that by signing this agreement with We Build Them Pty Ltd, represented a real abandonment of your clients inventing business.

When the existing prototypes were moved from his warehouse to premises belonging to MMPL, your client rented the space to a commercial enterprise, receiving $10,000 in rent to 30 June 2013. Question 2b | 10 Marks Your client is a wealthy investor and property owner. Your client provides you with information (as detailed below) on various transactions between 1 July 2012 and 30 June 2013. Many of these transactions were undertaken to raise funds for the purchase of a large industrial complex, which is to be finalised in October 2013.

Your client seeks advice as to what amount(s), if any, must be returned as assessable income for the year ended 30 June 2013. In particular, you are required to discuss the capital gains tax consequences of these transactions and determine your client’s net capital gain or net capital loss, if any, for the year ended 30 June 2013. Your advice should include all calculations and references to applicable sections of the Income Tax Assessment Act 1997. 5|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 ? Block of vacant land | On 3 June 2013 your client signs a contract to sell a block of vacant land for $650,000.

Your client acquired this land in January 2001 for $300,000 and incurred $50,000 in local council, water and sewerage rates and land taxes during their period of ownership. The contract of sale stipulates that a deposit of $65,000 is payable when the contract of sale is signed on 3 June, with the remaining $585,000 payable on 3 January 2014 when the change of ownership will be registered. ? Warehouse | On 30 April 1985 your client acquired a large parcel of vacant land at Rocklea, a suburb in Brisbane with a significant number of commercial buildings.

The purchase price was $180,000 and your client incurs $2,000 in legal fees and $18,000 in stamp duty when purchasing the land. In April 2000 your client signs a contract for the construction of a large warehouse on the land. The final construction cost was $1,200,000. The warehouse is used to house your client’s extensive motor vehicle collection. Your client sells the warehouse for $2,000,000 in October 2012. At the time of sale an independent valuation revealed the land component of the sale price was $920,000.

During the period of ownership your client paid $100,000 in rates and land taxes and $80,000 to insure the warehouse against flood and fire damage. ? Shares | Your client has a substantial share portfolio acquired over many years. Your client sells the following shares. a. 30,000 shares in E-Sales Ltd. These shares were acquired in March 1995 for $1. 20 a share and sold on 1 February 2013 for $5. 25 a share. Your client incurs $1,500 in brokerage fees on the sale and $2,000 in stamp duty costs on purchase. 6|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 ?

Boat | Your client owned a luxury motor cruiser that was moored at the Manly Yacht Club. The vessel was used for off shore fishing trips and cruising the waters of Moreton Bay. Your client purchased the vessel in late 2006 for $140,000 and sells the vessel on 1 June 2013 to a local boat broker for $90,000. Your client paid $25,000 in mooring fees to the Manly Yacht club during their period of ownership and also incurred $20,000 in repairs and maintenance costs. ? Dining Table | Your client acquires a large, hand crafted, English oak dining table for $8,000 in April 2001.

The table is very old, having been constructed sometime during 1910. Your client auctions the table in April 2013 and it sells for a record price of $50,000. Your client also pays $2,000 in auction fees. During your client’s period of ownership they paid $3,000 to insure the table against loss or damage. ? Your client also has a significant capital loss carried forward from the 2011-2012 tax year. These losses total $108,000 and relate to losses from the sale of shares during the 2008 Global Financial Crisis. ? You can assume your client is not an eligible Small Business Entity.

Therefore the Small Business CGT concessions do not apply to any capital gains made in the year of income. ? You can also assume your client is not carrying on a business as a share trader. 7|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 Marking Guide for the Assignment In marking the assignment answers will be graded on the criteria listed below. Submitted assignments must be of a professional standard. When awarding a mark for each question, consideration will be given to the standard of presentation. A professional presentation contains no spelling, grammatical or formatting errors.

Assignments will be marked online and made available to students before the end of the semester. Question 1 | The general criteria for Question 1 are as follows: 1-2 Answer demonstrates a fundamental misunderstanding of the taxation issues contained in this assignment and does not answer the questions asked. Answer is partially incomplete; it includes a correct approach to the taxation issues and would be acceptable if the answer was completed. Answer includes a correct interpretation of some the relevant taxation issues.

The answer contains insufficient referencing to the relevant provisions of the Income Tax Assessment Acts, or the answer contains insufficient identification of any relevant cases and/or Australian Taxation Office rulings. Answer includes a correct interpretation of most of the taxation issues. The answer contains sufficient referencing to the relevant provisions of the Income Tax Assessment Acts and the answer contains some identification of relevant taxation cases and/or Australian Taxation Office rulings. Answer includes a correct interpretation of all of the taxation issues.

The answer contains all pertinent referencing to the relevant provisions of the Income Tax Assessment Acts, relevant taxation cases and/or Australian Taxation Office rulings. 3-7 8-14 15-18 19-20 8|Page LAWS7012 Business Taxation | Assignment | Semester 2 - 2013 Question 2 | The general criteria for each part Question 2 are as follows: 1 Answer demonstrates a fundamental misunderstanding of the taxation issues contained in this assignment and does not answer the questions asked. Answer is partially incomplete or it includes a partially correct interpretation of the taxation issues.

Issues associated with capital gains tax contain calculation errors. For example: ? It fails to correctly calculate most of the relevant capital gains and or capital losses. ? It fails to correctly calculate some of the relevant capital gains and fails to determine the correct overall net capital gain or capital loss for the current tax year. The answer only references some of the relevant sections of the Income Tax Assessment Act. The answer contains insufficient identification of any relevant cases and/or Australian Taxation Office rulings 5-7 Answer includes a correct interpretation of some the taxation issues.

Issues associated with capital gains tax contain calculation errors. For example: ? It fails to correctly calculate some of the relevant capital gains and or capital losses but uses the correct approach to calculate an overall net capital gain or capital loss for the current tax year. The answer also references most of the relevant sections of the Income Tax Assessment Act. The answer contains identification of some relevant cases and/or Australian Taxation Office rulings 8-9 Answer includes a correct interpretation of most of the taxation issues.

Issues associated with capital gains tax contain minor calculation errors. For example: ? It correctly calculates all of the relevant capital gains and or capital losses but fails to correctly calculate the overall net capital gain or capital loss for the current tax year. ? It fails to correctly calculate one of the relevant capital gains and or capital losses, however it uses the correct approach to calculate an overall net capital gain or capital loss for the current tax year. The answer also references all or most of the relevant sections of the Income Tax Assessment Act.

The answer contains identification of most of the relevant cases and/or Australian Taxation Office rulings. 10 Answer includes a correct interpretation of all of the taxation issues. Issues associated with capital gains tax correctly calculate all of the relevant capital gains and or capital losses. It determines the correct overall net capital gain or capital loss for the current tax year. The answer also references all the relevant sections of the Income Tax Assessment Act. The answer contains identification of all of the relevant cases and/or Australian Taxation Office rulings. 2-4 9|Page.