Required: Complete both assignments tasks 1 and 2. The final grade will be scaled to 20 marks. Refer task 1 for suggested word length. In grading task one examiners will focus on your referencing to case law, appropriate sections of the ITAA 1936 and ITAA 1997 and income tax rulings issued by the Australian Taxation Office. Section referencing is not required in respect of task 2. A list of references used to answer all assignment tasks should be attached to the assignment.
ASSIGNMENT TASK ONE
Phil was a High School teacher employed full time for 15 years but grew tired of the occupation. Realising he would need to develop other forms of income support he moved to a 40 hectare rural property in February 2003 about 50 kilometres away from Newcastle while continuing his employment as a full time teacher. He rented out his house in Newcastle at the time of the acquisition of the rural property.
Phil wanted to use this new property for what he regarded as primary production activities as his early childhood years had been on the family farm where he had acquired an understanding of the nature of primary production.
In April 2003 he planted oats and clover on the land using borrowed equipment and purchased fertilizer in the expectation that he would be able to graze some beef cattle on it, fatten and then sell them. Other much larger properties in the area were used for the same purpose. However Phil did not have any cattle and it was a year later before he purchased 10 cattle and in the meantime remained in his full time teaching position but enjoyed the lifestyle on the farm outside surburbia. He did sell some cattle (6) but in March 2005 and while he kept records of his small numbers of purchases and sales of cattle his neighbours in the industry of long standing said his farm was too small to make the venture profitable.
However in March 2006 he was offered redundancy from his full time public service position and decided also to sell his Newcastle home. He applied himself fulltime to his cattle grazing activities and with the cash flow from redundancy and sale of Newcastle house he purchased additional grazing land, farm equipment and more cattle on advice from other local cattle farmers as well as approaching the Department of Primary Industries to develop a plan based on expert advice. In addition his parents (now retired) lent him money to assist in the purchase of additional adjoining properties which increased his farm size from 40 hectares to 160 hectares. From March 2006 onwards he began going more frequently with neighbours to cattle sales and calculated that he could use the balance of his funds from redundancy, family and house sale to buy a further 20 hectares to allow herd size to double and produce a reasonable profit.
In the form of a professional correspondence (not exceeding 1600 words) advise Phil whether at 30 June 2011 he will be classed as carrying on a business of primary production for income tax purposes.
ASSIGNMENT TASK TWO
Bob Black is a 55 year old Australian resident for income tax purposes. Bob?s only dependant is his father who is 78 years old. His father?s only income is a Centrelink aged pension of $4,800 and interest on a bank account $250. Bob?s father passed away on 1 June, 2011.
On 15 October 2010 Bob was made redundant from his position as a Senior Lecturer in Environmental Science at Sydney University, NSW. He commenced employment with the University on 1 January 1997. On leaving the University, Bob was successful in obtaining employment with Golf World in Sydney commencing 1 February 2011. On 1 July 2010, Bob purchased a Brisbane rental property as sole owner.
Details of Bob?s receipts and payments for the year ended 30 June 2011 are as follows (all amounts are inclusive of GST where applicable):
Gross Salary ? University of Sydney (see note 1) $35,240
Gross Salary ? Golf World (see note 2) 80,000
Received Fully Franked Dividend 3,000
Received Unfranked Dividend 2,000
Net Interest Income from New Zealand 2,700
Honorarium for duties as President of the Golf Club 400
Bank Interest (net of $97 TFN tax deducted) 103
Legacy from his Uncle?s Estate 5,000
Insurance Lump Sum Compensation for damage to back 12,000
sustained in a car accident
Airfares and accommodation costs relating to the initial job interview
with Golf World. Job interview held in Canberra Head office $1,750
Annual subscription to Australian Geological Society 600
Purchase of equipment (see note 4) 3,695
Personal contribution to a superannuation fund (see note 5) 4,000
Other amounts ? all deductible under s8-1 1,200
Payments to a registered tax agent for preparing 2009/10 tax return 170
Payments to the ATO ? Additional tax on an amended assessment 400
Fine for late lodgement of 2009/10 tax return 760
a) Bob does not have adequate private health cover until 1 June 2011 when he signed with Medibank Private.
b) At 30 June 2011 Bob had a HELP debt of $14,100 relating to a History degree he completed for private purposes in 2009 at the University of NSW.
c) Bob commenced employment in his new job on 1 February 2011 as a representative selling golfing equipment with Golf World. He needed a car for the new job and on 1 February 2011, he purchased a new 2600cc car for $59,000. (No car was needed for his work prior to 1 February 2011). Between 1 February 2011 and 30 June 2011, Bob kept a log book for a 12 week period which revealed the following details:
Travel from office to shops which sell golf equipment and return 3071 km
Travel from office to distributor and return 265 km
Travel from home to office and return 3312 km
Travel for shopping and recreation 1507 km
Receipts and other records show the following running costs from 1 February 2011 to 30 June 2011:
Driver?s licence $ 90
Registration and car insurance 2590
Petrol (estimate, based on odometer records) 2640
Car washes 180
Parking meters near customer?s shop premises 120
Parking meters near his work on days when he only drove from home
to his office and stayed there working all day 450
Speeding fines when visiting customer?s shop premises 620
Membership of motoring organisation (NRMA) 180
Bridge Tolls on Sydney business trips (E-tag) 164
Interest paid on loan to acquire car 1840
Determine the maximum deduction available for car expenses for the year ended 30 June 2011. Use the ATO?s estimate of effective life and the diminishing value method to calculate decline in value. ?Business? kms were more than 5,000. Show all of the available substantiation methods in your answer.
You must use a separate schedule to show details of all of the available substantiation methods and then transfer the amount of car expenses to be claimed to his statement of taxable income.
d) Rental Schedule for Brisbane Investment Property
Please find below details for the house located in Brisbane which was tenanted for the whole of the financial year.
Bob Black, a resident taxpayer, purchased a house as an investment property on 1 July 2010. The house is located in Brisbane.
Purchase price of the property was $300,000 (see NOTE 1)
The previous owner provided a statement to Bob certifying that the property was constructed and completed on 1 January 1990 at a construction cost of $100,000. The house with in good repair except that the outside walls required complete repainting.
Bob recorded the following receipts and payments for the 2010/11 tax year in respect of the rental property.
Rent received (net of agents commission withheld $1,250) $23,750
Compensation from the Rental Bond Board for tenants who left and
did not pay the rent they owned (see NOTE 2) 1,300
Rent in advance from new tenants for the period 1/6/2011 to 31/8/2011 3,000
Reimbursement of lease preparation fee (partial only) 75
Insurance recovery for storm damage to roof 2,100
Mortgage repayments to Westpac – principal $ 4,500
– interest 25,500
Loan application fee to Westpac Bank for a 10 year mortgage…
Loan to buy the house ? paid on approval of the loan 1 July 2010 825
Council rates 2,400
Building insurance premiums 850 Payments to solicitors – for lease preparation fees 150
– to eject tenants for non payment of rent 375
Repairs ? to paint the outside walls of the house ? carried out on 10 July 2010 1,100
Repairs ? to fix storm damage to the roof ? carried out on 12 August 2010 1,600
Construction costs of brick room to store garbage bins and gardening
equipment ? carried out on 1 May 2011 6,000
Garden hose and attachments 165
Travel costs (see NOTE 3) 830
Pest control costs to eliminate a cockroach infestation 280
Other information for Rental Schedule
NOTE 1 ?
The purchase price of the property is broken up as follows:
Depreciating assets ? Carpet 5,000
Hot water system electric 1,200
Ceiling fans 1,600
Barbecue ? freestanding 1,400
Window blinds internal 8,000
Window curtains 6,000
Land and building 276,800
NOTE 2 ? The Rental Bond Board were only able to pay part of the money owed by the tenants. A further amount of $650 is outstanding. Bob is attempting to recover this amount by legal means.
NOTE 3 ? Bob lives in Sydney. Once during the year he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants. He also took the opportunity to take a holiday in Brisbane and see the sights. He estimates that 50% of his time was spent on matters related to the rental property. Costs were $130 for airfares and $700 for accommodation.
NOTE 4 ? Bob will use the Commissioners estimate of effective life for calculation of decline in value which can be found under ?Rental, Hiring and Real Estate Services; Residential property operators?.
1. Bob?s group certificate from the UIniversity of Sydney also showed the following details:
Gross Lump Sum Annual Leave paid $ 3,850
Gross Lump Sum Long Service Leave paid 11,125
Gross Bona Fide Redundancy 68,200
PAYG Deducted 21,000
Reportable Fringe Benefits 3,700
Reportable Employer Superannuation Contributions 9,000
2. Bob?s Group Certificate from Golf World showed Reportable Fringe Benefits $1,000 and Reportable Superannuation Contributions $3,000. PAYG deducted was $23,000.
3. The NZ gross interest was $3,000 (AUD equivalent) with $300 AUD tax deducted by the NZ taxation authorities.
4. During the year Bob acquired the following equipment:
1/8/10 Computer $2,500 effective life 5 years (used 70% for business)
1/11/10 I Pad $900 effective life 3 years (used 100% for business)
1/12/10 Calculator $295 effective life 3 years (used 100% for business)
5. Bob made the superannuation contribution of $4,000 to his employer superannuation fund on 20 June 2011 from his after tax salary.
(1) Prepare a Schedule to show details of all available substantiation methods for car expenses Bob is able to use and transfer the amount of car expenses to be claimed to his statement of taxable income.
(2) Prepare a Rental Schedule for the Brisbane investment property and transfer the net income/loss to his statement of taxable income.
(3) Calculate Bob?s minimum taxable income and net tax payable/refundable for year ended 30 June 2011. Use any available elections to minimise income tax.
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