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Value: 20% Due Date: 19-May-2021 Return Date: 11-Jun-2021 Word limit: 1700 Group Assessment: No Submission method options: Alternative submission method TASK This is the second component of the problem solving assessment task. Your response to Part B should also consider relevant data provided in Part A and feedback provided in respect of Part A. Part B Question Bill decided not to sell the property opting instead use the apartment as a bed and breakfast following an increased interest in regional holidays. It was available for bookings from the beginning of February. He did however sell two paintings that had been hanging in the studio apartment. He had purchased them in 2009 for $700 each, he sold one for $450 and the other for $900. At the end of the current financial year the following activities had occurred. Bicycle business Sales $ 1,382,500 Purchases $ 1,078,000 Opening stock (1st July) $ 210,000 Closing stock ( 30 June) $ 240,000 Occupancy expenses( rates, electricity ets) $ 58,000 Wages $ 85,176 Travel( actual cost of work van) $ 23,500 Installation of fitting for new storage area $ 38,000 Painting of internal and external walls, excluding new storage space $ 25,000 Phone and internet store $ 6,000 Loan payment on 1 hectare property( includes interest on loan for year $4,752 $ 8,000 Wages expense includes: · superannuation for two employees; · payment to a part time retail assistant who works 20 hours per week at $25.50; · payment to his spouse who does cleaning, and occasionally works in the store for approximately 4 hours per week at $32.00 per hour; and · wage to Bill of $52,000. The wage to Bill and payment to his spouse are deposited into a joint account. From this joint account the following transactions occurred: Interest earned $27.00 Bed and Breakfast activities (30 days of bookings from February) Income $ 3,000 Provisions expense $ 900 Occupancy expenses $ 1,000 Expense relating to advertising online $ 300 Rental property in spouses name only (expenses paid from joint account) Income (net of agents fees) $ 19,874 Repairs to bathroom expenditure $ 570 Lawn upkeep expense $ 2,600 Loan Payments (includes interest on loan for year $11,550) $ 14400 Depreciation expense $ 1,000 Rates, Insurance and water fees $ 3,450 Bills spouse also worked as a part time nurse earning $47,000 with tax withheld of $6,604 and incurred $2,300 in employment related expenses such as uniform, professional subs and training costs. Bill has paid $35,700 PAYG installments. Required 1. Prepare a report explain what amounts would or would not be included in the calculation of the tax payable for Bill to be retained in a work file. (15 marks) 1. Prepare a draft letter to Bill advising the tax position. (5 marks) Both parts can be submitted in a single file. Ensure all calculations are clearly detailed (Total of 20 marks for Part B). RATIONALE This assessment task will assess the following learning outcome/s: · be able to identify and explain the rules of law relating to taxation law topics covered in the subject. · be able demonstrate a capacity to engage in legal research. · be able to use legal research skills to apply the law to legal problems relating to taxation so as to reach a solution. · be able to analyse legal rules so as to differentiate between possible outcomes to the legal issues arising from novel fact situations. Covering topics 6 to 11, this assignment has been designed to ensure that students are able to identify and apply legislation, rulings and case law to the issues identified as well as demonstrate the ability to analyse the issues fully and apply this knowledge to a hypothetical, practical situation and communicate to a diverse audience. Value: 15% Due Date: 19-Apr-2021 Length: 1800 words Group Assessment: No The major assessment task for this subject is designed to be submitted in two parts to enable you to benefit from feedback provided on Part A (Assessment task 2). Assessment tasks 2 and 3 relate to the tax affairs of Bill. The information presented in this first task will be relevant, to both Part A and Part B, along with the feedback provided when your submission is returned. PART A Bill owns and has operated a bicycle shop in a major regional town since 1 July 2011. He lives 15 minutes from town on 5 hectares with his spouse. The property is on two titles. The 4 hectare block has their home and was purchased in joint names. The adjacent 1 hectare has a large shed and workshop/studio apartment that existed when the blocks were purchased and in which they lived while building the house and was purchased only in Bill’s name. Both properties were purchased at the same time, on 1 November 2009, and the home was completed and they moved in on 1 December 2010. The annual gross turnover from the bicycle shop last year was $1,200,000 and he expects this to increase by around 10% in the current year. Each year he arranges for the storage of bicycles purchased, if required by customers, in the shed for pick up in the week before Christmas. Generally these start to be stored from July. In addition he has stored some second hand trade-in bikes acquired mostly in February to October which he drops off at the Mens’ Shed every month. These are reconditioned by the Mens’ Shed members and donated to charity. He has undertaken these activities since July 2015. During the current year he has undertaken an extension to the shop premises which was finished in April costing $200,000. This additional space will discontinue the need for storage away from the shop. This assignment has two parts, both must be submitted and your submission should adopt the ILAC decision model. Ensure you note relevant legislation, case law or other supporting information as well as any additional information you may require. The report should follow the style guide below. Each part has a different submission date. The Part A response is to be based on the data provided below under the heading Assessment item 2. Part A Question As a result of the additional storage space Bill is considering the option to sell the 1 hectare containing the shed and workshop/studio apartment. The property was purchased for $300,000 and Bill has made no improvements during the time he has held the property and while he borrowed 80% of the purchase price he has now repaid 60% of his borrowings. He neighbor who is a Real Estate Agent has indicated he believes he could sell the property for $500,000. Required Determine the tax consequences of the sale? (You are NOT required to calculate any possible tax payable but should provide some indication of the amount of any possible assessable component). Your advice is to take the form of a report (adopting ILAC style) which will form part of the client work papers and should include a recommendation based on the known facts provided above as well as identifying any additional information that should be requested prior to providing any advice to the client (15 marks) ANSWER 1. Executive Summary The report consists detailed analysis in respect of tax consequences of sale of 1 hectare land owned by Mr Bill which is adjacent to his main land used as main residence. While 1 hectare land is partially used for residence in initial time. Mr Bill operates his own bicycle shop in the town. He has his home spread in 4 hectare block along with an adjacent 1 hectare land having large shed and workshop/studio apartment. Mr Bill uses shed for the purpose of storage of bicycles required by customers. In current year, Mr Bill made an extension in the bicycle shop in order to make additional space for storage purposes. With this, he no more requires adjacent 1 hectare land; therefore, he considers an option to sell this part of land for $ 500,000. We are making analysis of aforesaid transactions with the help of relevant statutory provisions and judicial pronouncements to decide the nature of transaction of sale i.e. ordinary income by way of business receipts or statutory income by way of capital gain. Looking to the analysis, we recommend Mr Bill to consider sale of adjacent 1 hectare land as capital gains due to the fact that it attracts CGT event 1 for disposal of capital asset. The assessable income (capital gain) being $ 100,000 will attract tax of $19, 822 + 37% on excess over $87000 amounting to $24,632. 2. Issue The issue under consideration is whether the sale of adjacent 1 hectare property having a shed and studio apartment owned by Mr Bill will be in the nature of ordinary income or capital gain transaction attracting capital gain tax in Australian taxation system. The material facts relating to this issue are as follows: · Mr Bill operates his own bicycle shop in the town and had turnover of $ 1,320,000 in the current year. · He has his home in 4 hectare block which was purchased in joint name with his spouse and also owns an another adjacent 1 hectare land having large shed and workshop/studio apartment purchased in his own name. Both the properties were purchased on 1st November, 2009. · The adjacent 1 hectare land was purchased for $ 300,000 for which he took loan of $240,000. He repaid 60% of the borrowing amount and now, the remaining loan in current year is $ 96,000. · Every year, Mr Bill stores bicycles required by customers in the shed which gets picked up in a week before Christmas. · In the current year, he made an extension in the bicycle shop which cost him $200,000. This extension creates additional space for storage purposes. · Now, Mr Bill has additional storage space and therefore, he desires to sell adjacent 1 hectare land for $ 500,000. 3. Law Taxable income of a person in Australia is determined under Income Tax Assessment Act, 1997 (hereinafter referred to as ‘ITAA, 1997’). Section 4-5 of ITAA, 1997 provides that when deductions are subtracted from an assessable income of a taxpayer, the resultant figure is taxable income. Now, the assessable income has two elements, ordinary income (e.g. salary, business receipts, etc.) and statutory income (e.g. annuities, royalties, net capital gains, etc.). Deductions are also detailed out in division 8 of ITAA, 1997 dividing it into two categories namely, general deductions and specific deductions. Income tax rates are then, applied on taxable income and income tax is calculated for a financial year after reducing allowable tax offsets. Now, the first step is to identify the nature of income which arises from sale of land. Either, it can be ordinary income or statutory income (capital gain). Therefore, let us first understand the meaning