i have assignment of taxation law based on Australian law...

Case Study Two

Steve Smooth operates a management consulting business in downtown Brisbane as a sole practitioner. His clients are large businesses prepared to pay premium fees for Steve’s expert advice and ideas on all aspects of business. During the 2015 income year, Steve incurred the expenses listed below in the operation of his business.

Dining Expenses:

 Steve regularly conducts business meetings with current and potential clients over

lunch or dinner and spent $40,000 on fine dining restaurant meals for himself and clients during the year. Steve’s records indicate that 30% of the total expenses incurred related to his own personal meals, 30% related to current clients and 40% related to potential clients. His expenses also included taxi fares for himself and his clients on these occasions. The taxi fares amounted to $12,500. Advise Steve whether he can claim a tax deduction for these expenses.

Legal Fees

 About five years ago Steve purchased a licence to exclusively sell a particular human resource management software package in Brisbane as part of his consulting services. At the time he invested $15,000 in purchasing the licence which was for 6 years with an option to renew. Due to the popularity of the software, the developer wants to amend the terms of the contract to restrict Steve’s licence to a certain number of sales rather than exclusivity for a particular area. This would be in exchange for a lump sum payment. The sale of this software accounts for approximately 20% of Steve’s total revenue, but notwithstanding this, he is not keen to change the terms of his licence. He has

therefore incurred $14,000 in legal fees during the 2015 income year in

negotiating with the developer. As at 30 June 2015, the matter is still ongoing, but Steve is hopeful for an outcome in his favour.

Conference Attendance:

 Steve travelled to a management conference in Las Vegas during the year. He

travelled with his wife Sally. Sally is a teacher and does not have any involvement in the business. While in the Las Vegas, Steve and Sally attended the four day conference and then boarded a tour which took them all over the East Coast of the United States. The tour was for 7 nights. Their expenses were as follows:

o Airfares $1,900 each

o Hotel – Las Vegas three nights $1,800

o Tour – all inclusive $8,000 each

o Meals during conference $1,000 each

o Return airport transfers $100 each trip (2 trips)

Maintenance

 During the year, Steve repainted the entire interior of his business premises at a

cost of $11,000. The interior was last painted eight years ago and the old colour scheme did not match the new business branding and logo which was launched the previous year. Although the paintwork was generally in a fair condition, in several places and particularly in the reception area, the paintwork was peeling, scuffed and chipped.

 Steve installed new blinds on all windows in the premises at a cost of $9,000.

Previously the windows were covered with curtains which were approximately eight years old.

Letter of Advice:

Provide advice to Steve as to the deductibility (or not) of each of the above

transactions for the 2015 income tax year in the form of a Client Letter of Advice. Your letter of advice should be written in language suitable for the audience and highlight Steve’s likely ability of claiming tax deductions along with any requests for further information you would need to come to a conclusion. You should also submit a brief summary of the law/legal principles you have used to write your letter as a separate page. This is where you would make reference to all relevant legislation, case law principles and rulings in approaching this question. Please consult the marking criteria for further information.

Case Study Three

Devi is a resident of Australia for tax purposes and has informed you of the following transactions which occurred during the income year ended 30 June 2015. Devi also informs you that he has unused carried forward capital losses from the 2012 year of

$3,000. This loss relates to the sale of land. Additionally he has an $800 carried forward capital loss from the 2014 income year in relation to the sale of painting.

Shares

Devi’s father passed away in October 2014 leaving him a parcel of 30,000 shares in a

listed company that he acquired over his lifetime. Devi’s father had acquired the shares in the following way:

In February 2015, Devi sold all of the shares at $11.00 per share. He incurred brokerage fees of 2% of the proceeds at the time of sale. At the time of his father’s death in October 2014, the shares had a market value of $7.50

House

Devi purchased a rental property on 1 August 1992 for $240,000 and incurred stamp

duty and legal expenses of $6,200 in total at the date of purchase. He rented the property out to tenants up until 1 July 2000 when he decided to move into the property himself and commenced using it as his main residence. He paid $63,000 to put a covered outdoor entertaining area onto the rear of the house on 1 July 2006. He entered into a contract to sell the property on 1 June 2015 for $510,000 with settlement to take place on 18 July 2015. The house was used as a main residence by Devi between 1 July 2006 and 1 June 2015 when the property was sold. Interest paid on the property amounted to $6,000 during the period when the property was rented to tenants and $11,000 during the period it was a main residence.

Caravan

Devi sold his caravan (mobile home) for $290,000 on 9 February 2015. Devi had

purchased it on 9 February 2010 for $350,000. Devi used the caravan primarily for family holidays.

Required:

Advise Devi as to the capital gain/loss incurred for each of the above separate

transactions. Additionally, advise Devi of his net capital gain included in assessable income for the income year ended 30 June 2015 (if any) based on your conclusions. Assume that Devi wishes to minimise his gain wherever possible. Perform calculations of any relevant capital gains and support all conclusions with legislation and/or cases.

TOTAL (out of 100)

Description of Performance Standards;

HD – the student has shown a very high level of demonstrated ability in relation to the stated criteria by covering

all valid points in a clear and succinct manner. The student may have also demonstrated an ability to think beyond the facts and recognise the broader implications of the facts, missing facts or alternate arguments.

A – The student has show a high level of demonstrated ability in relation to the stated criteria by either covering all valid points or by covering the majority of valid points in a clear and succinct manner. The student may have very briefly or occasionally shown ability at the HD level.

B - The student has show a good level of demonstrated ability in relation to the stated criteria by covering most of the valid points. The student may have made some minor incorrect statements or missed some minor points.

C - The student has show a satisfactory level of demonstrated ability in relation to the stated criteria by covering the main valid points. The student may have made a number of minor incorrect statements but did make incorrect statements in relation to major points.

F - The student has not shown a satisfactory level of demonstrated ability in relation to the stated criteria by missing some main points or by making incorrect statements in relation to major points.

Little Attempt – The student has not addressed or attempted to address this criterion.

END OF ASSIGNMENT