Five years ago Bruce purchases 10 hectares of land for $1 million in an area that was ripe
for subdivision. At the time of purchase he intended to get planning permission from the
local council to develop the land by subdivisions and then resell it at a profit, but instead
he leased it for grazing horses. Three years ago Bruce attempted to get planning
permission to subdivide his 10 hectares, but it proved very difficult, and finally in March
of the current tax year the local council refused permission to subdivide. Bruce
reluctantly sold the land in May for $3 million.
What are the tax consequences of Bruce’s sale?
1. Define CGT Asset in relation to s100.25 SAB
2. Bruce sold the land and it was a capital gain? This is assessable income
and will be taxed at income tax rates TRE s100.35
Was the land a capital gain ?
A capital gain is a net capital gain . it takes into account where your appropriate
loses either of the current year or bought forward . Capital gain is a part of
assessable income and therefore taxed at income tax rates
Working out your assessable income
Most income received is assessable income (including foreign income )
Assessable income – allowable deductions = Taxable income (the amount you
pay tax on).
Generally when calculating assessable income in your business you must
include amounts you earn in the ordinary period of your business , in this
circumstance the date which the property was acquired and the date the property
was sold has to be mentioned for tax purpose . In this situation the land was
given for lease , therefore the period it was leased needs to be mentioned
You may make a capital gain or loss when you sell or otherwise dispose of a
rental property ( unless its acquired before CGT started on 20 September 1985)
Taking this case into consideration the land was bought after 1985
3. Asset must be acquired after the 20th of september 1985 TRE
4. Is the asset Exempt? SAB
5. CGT event in respect of that asset (disposal: voluntary or involuntary)
6. Consequences of buying, should he pay tax on his ownership of the land
for the 5 years? (What to pay tax on) TRE
a. From leased land usage of horse grazing. Expenses such as council
rates and other interest can be added to the capital cost of the land
for purposes of working out if it was a capital gain/loss SAB
LEGL 300 TAXATION LAW
Assignment: Semester 1/2017
DUE DATE: FRIDAY 12 MAY 2017 5 PM
THIS IS AN INDIVIDUAL ASSIGNMENT
STUDENTS MUST CHOOSE ONE OF THE FOUR QUESTIONS TO ANSWER
THE ASSIGNMENT MUST BE LODGED THROUGH TURNITIN BY
1. Please answer all parts of the question
2. All work presented for assessment in this course must comply with the
format outlined in the University's Presentation of Academic Work
3. All essays must be accompanied by a signed official cover sheet ('Plagiarism
4. You MUST reference in the body of the essay every time you use information
from other people. This requires you to keep a track of where you are taking
information from and then writing the reference up. You should use the
Harvard/APA style; and use the University’s new Presentation of Academic
Work. The Library’s website also has a citation style guide site. If you plagiarise
(intentionally OR unintentionally) you will be given zero.
5. The assignment should be between 1,500 to 2000 words.
6. The assignment is worth 30%.
STUDENTS MUST CHOOSE ONE OF THE FOUR QUESTIONS TO COMPLETE
John Jones is employed in a part time capacity as lecturer in accounting at Central
University. His annual salary is $42,000 pa. Jones has arranged with his employer for
his salary to be paid on the 15th day of every month into his savings account with the
State Bank Ltd. Jones uses the savings account to meet household expenditure. Jones
also has a home mortgage loan with the State Bank.
Under a separate agreement with the bank Jones has arranged for a balance of $5,000
to be maintained in the savings account and any balance to be transferred to his
mortgage. He has also arranged for any interest on the savings account to be offset
against the mortgage interest. For the year ended 30 June 2017 $300 was offset.
Jones also runs a small practice providing accounting and taxation services to local
businesses. During 2016/17 he billed fees of $35,000 of which $30,000 has been
received. An amount of $3,000 was also received from outstanding accounts from the
2014/15 year. One of his clients is Travelco, a local motel. In March 2017 Travelco
provided Jones and his wife with free return air tickets to Bali. Equivalent fares would
Jones’s wife Joan is an IT expert. For several years John and Joan had been
developing software for an accounting package for use by small businesses. The
system, ‘J-Accounts’, has been licensed and is used by 175 local businesses at a cost
of $100 per year [$17,500]. A national software developer ‘Cashbooks’ has agreed to
pay the Joneses $25,000 in return for the exclusive rights to use the program for five
years after which time a new agreement for a further five years may be signed.
Jones has an interest in history, particularly commercial history. In 2005 he purchased
500 old share certificates from an acquaintance who practised in the area of insolvency
and liquidation. The total cost was $500. The certificates related to old companies that
had been liquidated during the 1930s depression. They were very elaborate and ornate
and Jones thought that framed they could be marketable as a decorative feature to
hang in the offices of accountants and solicitors. In February 2017 he happened to
mention the matter to Herman, a local decorator and picture framer. Herman suggested
that if properly framed, numbered, and if an inscription was added, they could sell for
$1000 each. The cost to Jones would be $100 per certificate. Herman agreed to sell the
items on a commission basis of 10%.
A local television station runs a quiz show called ‘Who Wants to be Rich?’ Contestants
are selected randomly from the local telephone directory. Jones was lucky enough to be
selected and he appeared on the show for five nights, answering every question and
becoming ‘Grand Champion’. He won $200,000 and a car valued at $30,000.
Advise John Jones of the tax consequences of the above receipts. You should discuss
what amounts would be included in his assessable income or, if any item is not
assessable income, why that is so. Your answer should include a discussion of the
Whether he return on a cash or accrual basis.
Whether particular amounts are ordinary income or statutory income
Under what sections of the Acts the particular amounts are assessable.
How the quiz show winnings are to be treated.
What are the tax consequences of the share certificate proposal, if he
was to proceed with the plan?
What case law is relevant to the issues raised?
Identify the types of taxes that apply to digital currencies (such as Bitcoin) in Australia at
the present time.
In your answer you should list relevant ATO Rulings/Determinations and discuss their
Allan and Betty were living and working in Melbourne. They decided on a ‘tree change’,
sold their Melbourne home and purchased a large country house on a 10 hectare block
in central Victoria. Betty works part-time as an accountant and Allan as a locum doctor.
Allan is popular with the elderly patients in the town and regularly is given home-made
cakes and scones, along with his fee. On one occasion he treated a local wine maker’s
dog for snake bite when the vet was unavailable and was given a dozen bottles of
Lonarch Brae Shiraz in appreciation. The wine had a retail value of $360.
Allan and Betty enjoy gardening. They plan to establish a few hectares of grape vines
and begin growing vegetables. They attend a continuing education course on organic
farming and find in their second year they have a surplus of produce. Betty started
making marmalade and relish using her mother’s recipes. Initially she gave them to
neighbours but they became so popular that she opened a stall at the Newtown
Growers Market held on the second Sunday of every month. Allan sold some of the
excess to a local supermarket and now regularly supplies three retailers with sweet
potatoes and pumpkin. They don’t keep records as they never intended to make a profit
but estimate that in a good month gross receipts could be $500 to $600.
Their neighbours have a citrus orchard and throughout the year vegetables are
swapped for oranges and mandarins. This seems like such a good idea Allan and Betty
decide to set up a ‘barter’ system in the area. To join the system a person must pay an
up-front, one-off fee of $50 to Allan and Betty as a charge for the keeping of
administrative records. Thereafter people register their goods or services to be bartered.
For example, Suzie is a retired hairdresser and will provide hairdressing services at her
home. No money changes hands. Suzie would receive a credit to her account of 15 to
20 ‘barts’ that she can exchange for goods or services of equal value from other
registered participants in the scheme (fruit, vegetables, child minding, lawn mowing
(a) Advise Allan of any income tax consequences of para 1, above.
(b) Citing relevant case law, explain how a hobby is to be distinguished from a
(c) Advise Allan and Betty of any income tax implications arising in paras 2 and 3
(d) Advise the participants in the barter scheme of any income tax implications.
On 1 October 2010 Alex purchased a large block of land near the beach at a cost of
$250,000 financed by an interest-only loan. Other costs in respect of the land purchase
Stamp duty 6,800
Legal costs of conveyance 2,500
Water rates – included in contract 380
Council rates – included in contract 900
Originally Alex’s intention was to hold the land as an investment but in 2016 he decided
to take unpaid leave from his employment and build a house on the block. The plan was
to engage building contractors and perform unskilled labouring himself. On completion
the house would be rented.
The following costs were incurred:
• 1 April 2016 Establishment fee for interest-only bank loan 1,500
• 2 April 2016 Development application fee to local Council 4,200
• 20 April 2016 Legal fees arising out of an appeal against the
• Council’s refusal of the development application 16,000
• 15 May 2016 Architectural fees 6,500
• May – July 2016 Building materials 120,000
• Building contractor’s payments 60,000
• Alex’s labour: based on Alex’s time at $25/hr over
• three months 13,000
The house was completed in September 2016 and rented out until 30 June 2017.
Interest paid over the period September 2016 to 30 June 2017 was $14,600. Total
interest paid however was $122,500.
On 15 July 2017 Alex obtained a qualified valuer’s appraisal of the property which put
the value of the land at $350,000 and the house $350,000. The valuation cost $4,000.
In October 2017 Alex sold the property to his cousin Matthew for $650,000.
1. Advise Alex whether the amount of $650,000 is ordinary income, assessable
under s6-5 or whether any amount is assessable under s15-15.
2. Assuming the proceeds of sale is not income by ordinary concepts (or s15-15
assessable), calculate the cost base of (a) the land and (b) the house for Capital
Gains Tax purposes. Explain what amounts are included and excluded. Cite
relevant provisions of the legislation.
3. Assume the cost base of the property is $600,000. Calculate the Capital Gain.
Cite relevant legislation,
Housing affordability is a goal of governments and opposition parties in Australia. A
topic of discussion in the media is whether negative gearing combined with the capital
gains tax discount (‘tax concessions’) increases speculative activity in the housing
market – to the disadvantage of the first home buyer.
Identify and evaluate key arguments both for and against retaining these tax
concessions if housing affordability is to be achieved.
In your response you must explain what is meant by negative gearing and how capital
gains arising from property investment are treated. You should refer to sections of
legislation, tax rulings and cases where relevant.
Jai is 50 years old, currently employed and planning to retire when he is 70. As part of
his plans for retirement Jai recently sold the large home he has lived in for many years –
planning to purchase a smaller home to live in and also an investment property.
After paying expenses associated with the sale and repaying his home loan Jai was left
with $200,000 cash. Jai has placed an offer of $200,000 with a real estate agent to
purchase a home which will be Jai’s principal place of residence. Jai has also placed an
offer of $150,000 to purchase an investment property to be used for rental income.
Jai does not have enough funds to complete the sales on both properties, but his bank
manager has approved a loan for the shortfall of $150,000 at an interest rate of 5% per
In order to prepare loan documentation, the bank manager needs to know whether Jai
a) use the $200,000 cash to pay for his new home and use the borrowed funds of
$150,000 to purchase the investment property;
b) use $150,000 of the cash to pay for the investment property and then pay for his new
home with the remaining $50,000 cash and the borrowed funds of $150,000; or
c) pay for his new home by using $100,000 of the cash and $100,000 of the borrowed
funds; and pay for the investment property by using the remaining $100,000 cash and
the balance of the borrowed funds ($50,000).
Assume Jai’s goal is to take advantage of negative gearing opportunities and receive
the most favourable tax treatment. Advise Jai which of the three options – a), b) or c) would best achieve this goal. Give reasons for your answer.
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