BUSN 9122- PERSPECTIVES ON TAXATION LAW

ASSIGNMENT – Semester 1, June 2019

This Assignment consists of seven (7) questions and all 7 questions must be answered.

The assignment is marked out of 40 marks and is worth 30% of your final grade in this
subject.

QUESTION: 1
The Labor Party, in opposition, currently has a policy, as a major part of its election strategy,
to deny a refund of any excess franking credits (the tax credits attached to franked dividends)
as it claims this tax concession favours wealthy investors. The Liberal government rejects
this approach and has said, if it wins the next election, that it will retain the current refund of
excess franking credit policy as it is mainly retirees and superannuation funds that would be
affected by the Labor party’s proposed rules.
Required:
What is the justification for the Labor Party approach? Which policy do you prefer?
Please provide a reason to support your view.
4 marks
QUESTION: 2
Required:
Discuss the meaning of the term ‘charity’ in the context of tax law? Why is it relevant
for the purposes of the Income Tax Assessment Act 1997?
5 marks

QUESTION: 3
In 1982, Fred, a lawyer who lived and worked in Adelaide, purchased a 30-acre parcel of
rural land on the outskirts of the city for $150,000. From that time until recently Fred used the
property as a ‘hobby farm’ for growing fruit trees and as a ‘weekend retreat’ for relaxation.
Recently, the surrounding area to the land has become more developed and so Fred’s
property has increased in value. Fred has run into financial problems of late as a result of a
malpractice lawsuit against him and as such Fred is desperate for some money and so is
considering selling the property.

Required:
(1) Advise Fred if he would have to include any amount in to his assessable
income if he sold this property for $2 million?
(2) Would your answer be different if Fred had decided to subdivide the property
three years ago into 30 one-acre allotments and if he had also arranged for the
construction of roads and buildings and arranged to sell these allotments
gradually over a period of one year?
7 marks
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QUESTION: 4
Required:

Can interest expenses be claimed as a deduction before income has been derived
from an income producing activity such as an investment or business? Explain

3 marks
QUESTION: 5
Fungo Pty Ltd manufactures golf balls. On 1 January 2014, Fungo Pty Ltd purchased a new
machine for $1m which it uses to produce golf balls. The effective life of this machine is
estimated to be 10 years. Subsequently, on 1 January 2019, as a result of new technology,
a better machine became available and Fungo Pty Ltd decided to sell the original machine
for $300,000 and purchase this new better machine for $1.4m. The effective life of the new
machine is estimated to be 6 years. All amounts shown are exclusive of GST. Assume that
Fungo Pty Ltd is not eligible to use the Small Business Entity system.

Required:
What are the tax consequences of these arrangements under Division 40 ITAA97?
How would your answer change if Fungo Pty Ltd was entitled to use the Small
Business Entity system from 1 January 2014 to the present time and these two
machines were the only depreciable assets held by Fungo Pty Ltd?
8 marks

QUESTION: 6
A dance hall has been used for the last 15 years but the owner recognises that the ceiling
condition is in poor shape and so he contemplates whether he should ‘fix up’ the ceiling so
that the dance hall can be used fully again or whether he should replace the whole ceiling
with a different but better material.

The new ceiling, in addition to enhancing the appearance of the hall, also improves the
acoustics.

The owner decides to replace the old ceiling with a new one and the builders, at the
conclusion of the work, hand an invoice over to the owner for full payment for the work for the
amount of $240,000.

Required:
Discuss the amount, if any, is allowable as a tax deduction for income tax purposes.
Your answer must be supported by legislative and case law authority
8 marks
QUESTION: 7
A car is purchased for $48,400 (including GST) on 1 April 2018. The car was available for
private use for all of FBT year ending 31 March 2019, except for the month of February 2019
when the car was garaged at work whilst the employee was overseas on holidays. For the
FBT year ending 31 March 2019 the car travelled 25,000 kilometres and the employee paid
the employer $4,000 (including GST) as his contribution to meet the running costs for the
car.

The total operating costs for the car (including the deemed depreciation and interest) for the
year ending 31 March 2019 were $15,000. This figure is before any employee
reimbursement for the running costs.
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The business use percentage has been calculated to be 60%.

Required:
Which method should this employer use to calculate the fringe benefits tax liability for
this car for the FBT year ended 31 March 2019? Calculate the fringe benefits tax
liability for this employer for this car fringe benefit for the FBT year ended 31 March
2019.
5 marks