NOTE: All your answers MUST include relevant legislation and/or cases and show any relevant calculations.
QUESTION 1
Paris is an accountant for an international accountancy firm based in Vancouver. He has investments in Vanuatu comprising of his own home, a rental property, shares in local companies and cash deposits in high interest bearing bank accounts. On 1 February 2018, Paris was transferred to the firm’s Sydney office on a temporary three-month secondment. The purpose of the secondment was to establish networks with existing Australian clients that have indicated the possibility of investing in Vancouver. During the secondment period, Paris remained an employee of the Vancouver office and his salary was paid into his Vancouver bank account. While Paris’s intention was to return to Vancouver at the conclusion of his secondment, he sought and was successfully offered a permanent position in Brisbane. In early June 2018, he became an employee of the Sydney office. His relocation involved purchasing an apartment in the Sydney suburb of Annandale, renting out his own home in Vancouver and transferring a sum of cash to a high interest bearing bank account in an Australian bank.
Required: Discuss whether Paris is a resident for tax purposes and what income would be subject to taxation in Australia.
(5 marks)
QUESTION 2
Determine whether the following benefits are fringe benefits or exempt fringe benefits and, where applicable, the relevant category of fringe benefit. Provide reasons for your answer:
(a) Payment to employee for the estimated cost of the employee’s mobile phone bill as the employee sometimes has to use the mobile phone for work purposes.
(b) Provision of accommodation at the family home to a child who is over 21 and works in the family business.
(c) Payment of employee’s superannuation contribution by the employer to a complying superannuation fund.
(d) Loan by XYZ Ltd to one of its directors, Rupert, who is also a shareholder in the company. The company’s rules do not permit loans to directors.
(e) Payment of taxi fare by employer for employee to travel home after working late.
(f) Chocolates sent to a sick employee. The flowers cost $75.
(g) Provision of a car for an employee’s private use, including payment of all fuel costs by the employer.
(h) Provision of sandwiches at a lunchtime seminar held at the employer’s premises.
(i) Provision of an all-expenses-paid holiday to an employee who has had to work every weekend for the last six months.
(j) Provision of laptop computers to an employee who regularly attends clients’ premises.
Required: Discuss whether or not these payments are subject to FBT.
(5 marks)
QUESTION 3
After entering into a management agreement two years ago for the purpose of starting a business in alpaca breeding next year, Georgie paid $5,250 by cheque to ACME, whose business was transferring embryos from stud alpacas to ordinary breeding alpacas. Under the agreement she was guaranteed six offspring in the next two years.
If the venture failed, ACME remained liable to supply the offspring from another source. Having paid her fees for Year 2, she did not receive any subsequent notification that the implants in her recipient alpacas were successful. She did not follow up after the implantation notices to find out whether any of her alpacas were pregnant. Nor did she enquire whether her alpacas had been implanted a second time as contemplated by the terms of the Management Agreement, which provided that each recipient alpaca would be implanted once in each of the 12-month contractual periods. She said that she had spoken to her accountant who told her things were progressing, but slower than anticipated.
After paying her Year 2 Fees in June, Georgie heard nothing specific from ACME except by way of newsletters containing general information. She made no attempt to contact ACME in the current year about extending the lease on her recipient alpacas. She said she was going through a very difficult time. Her 12-month-old child had contracted a serious illness and she had to focus on looking after him.
Required: Discuss whether Georgie is carrying on a business for income tax purposes.
(5 marks)
QUESTION 4
Your client is an investor and antique collector. You have ascertained that she is not carrying on a business. Your client provides the following information of sales of various assets during the current tax year. Based on this information, determine your client’s net capital gain or net capital loss for the year ended 30 June of the current tax year.
(a)
Block of vacant land.
On 3 June of the current tax year your client signed a contract to sell a block of vacant land for $320,000. She acquired this land in January 2001 for $100,000 and incurred $20,000 in local council, water and sewerage rates and land taxes during her period of ownership of the land. The contract of sale stipulates that a deposit of $20,000 is payable to her when the contract of sale is signed and the balance is payable on 3 January of the next tax year, when the change of ownership will be registered.
(b)
Shares.
Your client has a substantial share portfolio which she has acquired over many years. She sold the following shares in the relevant year of income:
(i) 1,000 Common Bank Ltd shares acquired in 2001 for $15 per share and sold on 4 July of the current tax year for $47 per share. She incurred $550 in brokerage fees on the sale and $750 in stamp duty costs on purchase.
(ii) 2,500 shares in PHB Iron Ore Ltd. These shares were also acquired in 2001 for $12 per share and sold on 14 February of the current tax year for $25 per share. She incurred $1,000 in brokerage fees on the sale and $1,500 in stamp duty costs on purchase
Required: Based on this information, determine your client’s net capital gain or net capital loss for the year ended 30 June of the current tax year.
(5 marks)