TAXATION 1 TASK This problem solving assessment task has two components, Part A and Part B. Each part has a different submission date. The Part A response is to be based on the data provided below...

1 answer below »
PART (B) IS THE ASSIGNMENT QUESTIONREAD PART (A) BEFORE WRITE BECAUSE PART B IS LINKED WITH PART A AND DATA.ITS CASE STUDY


TAXATION 1 TASK This problem solving assessment task has two components, Part A and Part B. 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. Question (DATA) On March 1 2012 Philip inherited a property in inner Sydney at 151 Temple Street from his Aunt. The property had been used for commercial purposes but as the area was central to his job as an interior designer he decided to move in immediately and renovate to convert to residential accommodation. The property was valued by the Aunt’s deceased estate at $370,000. Philip borrowed $100,000 on 1 April 2012 at fixed interest of 5.5% per annum payable over twenty years to finance the renovation. In September 2014 Philip married Kim, a plumber, and they resided in the now completely renovated property, paying out the loan early on 1 April 2016. On 1 July 2017 they purchased jointly an adjacent property, 153-155 Temple Street, for $850,000, which was significantly larger with the view to develop it into two residential properties. They purchased this property using savings of $30,000 and a loan of $960,000 (legal and other costs to purchase were $40,000 and the balance was borrowed to finance the first stage of the renovation) and using the equity in the renovated property at 151 Temple Street which was valued to obtain the loan at $800,000, as further collateral. They again opted for a fixed interest rate, 4.7% per annum with the loan maturing in 30 years. They continued to live in the original property until they had completed the first phase of the renovation at 153 Temple on 1 August 2019. The renovation had come in on budget at a cost of $100,000. They were so pleased with the renovation and the larger residence it offered they decided to move from the original property on 1 August 2019 and rented 151 Temple for $759 per week to a cousin from 7 August 2019. The rental payment was approximately 10% below market in exchange for the cousin providing labour for the renovation of the remaining property. Despite the rental income they are concerned that the next phase of the renovation is taking too long and are considering selling a property to raise funds quickly to complete the work. A local real estate agent has indicated 151 Temple St could be sold for $1 million and the more recently renovated 153 Temple St would sell for $1.3 million. Required · Advise Philip and Kim of the tax implications of selling either property and any amount that would be included in the calculation of taxable income by Philip and Kim (you are NOT required to calculate any possible tax payable). 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 PART (A) Issue: The Issue is whether or not there is any Capital Gains Tax implications to Philip And Kim, the tax payers given and the amount that will be inclusive in the income pertaining to the taxes concerning the tax payers, on the sale of either of the property (Sydney 151 Temple Street or Sydney 153 Temple Street), given that: (a). The Property situated at Sydney 151 Temple Street was acquired by Philip from his aunt. The property before being passed to Philip was used as a commercial property and Philip converted the same into his residential property. Philip after acquiring interest in the property has incurred expenditure through renovations in the property. This property was not his current place of dwelling. (b). The Property situated at Sydney 153 Temple Street was acquired by Philip on 1st July, 2017. He spends some amount in renovating the property and this property was his residential dwelling currently. Law: As per Section 104-10 of The Income Tax Assessment Act, 1997, A Capital Gain Event occurs if we dispose a Capital Gain Asset. Further, Disposal of a Capital Gain Assets is effective in occurring whenever there happens to be a change in the ownership. Suppose it’s from you to some other owner happening because there is some kind of act or some event or something by operation relating to the law. However, the change pertaining to the ownership does not take place when an individual stop being the legal owner pertaining to the asset. However, he/she should continue in being its beneficial owner. There can be a situation when one can be merely because of some change in the trustee. This sheds light on the time that leads to the event that takes place in accordance to the contract pertaining to the disposal. When there happens to be no contract, then the change pertaining to the ownership takes place. Accordingly, the Capital gain appears to be calculated in terms of the capital proceeds that happens to be more than that of the cost base relating to the assets. As per Section 40-185 of The Income Tax Assessment Act, 1997, It is effective in computing relating to the cost, effective concerning the Depreciating asset. It was effective concerning the passing relating to the beneficiary. This is effective concerning the matters relating to the cost concerning the asset. This happens to be effective concerning the market value pertaining to the asset. There happens to exist matters starting to holding on to reduce by any means of capital gain. As per Section 115-10 of The Income Tax Assessment Act, 1997, this happens to be discount capital gain, there capital gain must be accordingly made by: (a) happens to be an individual; or (b) there exists complying superannuation entity; or (c) pertaining to trust; or (d) concerning the discount pertaining to the capital gain ousting out of a CAPITAL GAIN TAX event. This happens to be in respect of asset CAPITAL GAIN TAX pertaining to the complying superannuation/FHSA asset. As per Section 115-15 of The Income Tax Assessment Act, 1997, To be a discount capital gain: (a) happens to be a cost base relating to the calculation concerning without reference pertaining to the indexation at any time; or (b) concerning the capital gain happening to arise under CAPITAL GAIN TAX event K7—usage of the cost relating to the concerned depreciating asset. As per Section 115-25 of The Income Tax Assessment Act, 1997, To be a discount capital gain, the capital gain must result from a CAPITAL GAIN TAX event happening to a CAPITAL GAIN TAX asset to be acquired in relation to the entity concerning the capital made in gaining in terms of least 12 months concerning the event pertaining to the CAPITAL GAIN TAX. As per Section 116-20 of The Income Tax Assessment Act, 1997, The capital proceeds from a Capital Gain tax of (a) money that has been received, in relation to the event happening; and (b) also the market value relating to any other property that have received, or something that are entitled to receive, in relation to the event happening. As per Section 118-110 of The Income Tax Assessment Act, 1997, A capital gain or capital loss you make from a CAPITAL GAIN TAX event that happens in relation to a CAPITAL GAIN TAX asset that happens to exist as the dwelling relating to the interest in ownership that happens to be disregarded accordingly (a). When you happen to exist as an individual (b). There exist you in your dwelling pertaining to your main residence that happens to be straight in relation to your ownership period and (c). this interest does not even pass at your own accord in you being a beneficiary in, as well as you do not acquire this being a trustee pertaining to the estate in relation to that of a deceased person. As per Section 118-115 of The Income Tax Assessment Act, 1997, this is inclusive of home unit or a flat (i) an equitable or legal interest relating to a stratum unit thriving in it or (ii) a right or a license for occupying it or (iii) having a share in the company that happens to own an equitable or a legal interest concerning the land on which the home unit or the flat has been erected that gives the person the right for occupying it. As per Section 118-120 of The Income Tax Assessment Act, 1997, this is a Subdivision that is effective for the land that happens to be adjacent in relation to the dwelling begetting to the CAPITAL GAIN TAX event. It might happen in relation to the land or maybe the interest of ownership in it. This might be applicable to the extent concerning your usage of the land for domestic or private purposes in accordance to the dwelling though if it were a dwelling. However, the maximum area concerning the land happens to be covered by any kind of exemption. It involves the inclusion of the area relating to the land which is the core foundation of the dwelling) is 2 hectares. Along with this a home unit or a flat, this Subdivision can also be applicable to a garage. This might be inclusive of the storeroom as well as other structure that can be in association with it (along with the same CAPITAL GAIN TAX event there exists the structure or maybe the ownership interest with actually in it) plausible if it were a dwelling. It still applies to the extent that can be put to usage for the structure that can be primarily ascertained for the domestic purposes as well as private purposes concerning the flat or home unit. As per Section 118-125 of The Income Tax Assessment Act, 1997, ownership period pertaining to a dwelling. This is the period that might take place on or after 20th September in the year 1985 with the ownership interest in (a) along with this the dwelling or (b) the land (that has been acquired on or after 20th September 1985) the base of which the dwelling is later built. As per Section 118-130 of The Income Tax Assessment Act, 1997, Having an ownership interest in land or a dwelling if: (a) pertaining to the land—that can have an equitable or a legal interest in it or the right for occupying it; or (b) for a dwelling that is not a home unit or a flat—which have had an equitable or a legal interest in the land pertaining to which it is erected. This might be also inclusive of the license or right to occupy it; or As per Section 118-135 of The Income Tax Assessment Act, 1997, if a dwelling turns out to be your main residence with the time of it being the first ever practicable place for moving into it after you have finally acquired your ownership interest in it. Accordingly, the dwelling is treated in relation to your main residence from the time you have acquired the interest until it actually became the main residence. As per Section 118-140
Answered Same DaySep 20, 2021

Answer To: TAXATION 1 TASK This problem solving assessment task has two components, Part A and Part B. Each...

Riddhi answered on Sep 26 2021
129 Votes
ANSWER PART (A)
Issue:
The Issue is to determine the tax obligation, of Philip and Kim reviewing the tax ruling based on the available information regarding salary of Philip and business income of Kim, considering sale of Property 155 Temple street.
Law:
As per Section 8-1 of The Income Tax Assessment Act, 19
97, Section8-1 of the Income Tax Act 1997 deals with allowable deduction from assessable income. As per section 8-1 deduction for an expense is allowable in the event of any outgoings or loss that is causally related to gaining assessable income or assist in earning revenue that is assessable as income. The section also clarifies that deduction for some expenses are not allowable if the outgoings or loss is in the nature of capital expenditure or the outgoing or loss is incurred in relation to an income that is exempt in nature or non-assessable in nature.
Section 8-1 of Income tax assessment Act 1997 overviews the allowability of the deductions. As per the section expense is allowable as deduction if there is an outgoing or loss relating to the assessable income. Sec 8-1 of the income tax Act deals with the meaning of the word incurred in the outgoing or loss and the timing of deduction. This section outlines that in most cases deduction of expenses is allowed when the amount is spent on the expenses and not when a provision or future liability arises. The timing of deduction of expenses for a future obligation will be allowed in future when the actual payment for expense is made. Deduction for any kind of provision is not allowable unless in few cases where there are exceptions.
In the case of Inhand Revenue, commissioner v Mitsubishi motors where the deduction for warranty was allowed because the liability of the said warranty belonged to the same financial year. In the case law of Nilsen development Pty Ltd V FC of 144 CLR at 624, it had been clarified that a liability on the present day should exist to claim deduction. Liability should also not be contingent in nature.
As per Section 6 and Section 10-5 of The Income Tax Assessment Act, 1997, Assessable income means the income that is ordinary and statutory in nature. Assessable income excludes exempt income. The meaning of ordinary income is income as definable in the ordinary concept. Statutory income is the income that is not included in the definition of ordinary income but are still liable for taxation. Assessable value is also defined as any inflow or income received by an individual that is not in the nature of exempt or nonassessable shall be the income considered as assessable income.
As per Section 22 of The Income Tax Assessment Act, 1997, In case of reimbursement if the reimbursement of car expenses or other expenses are subject to fringe benefit tax, the same shall be included in the assessable income as per Sec 22. Since, there is a reimbursement of the expenses by the employer and there is no outgoing or loss to the employee, the said expense shall not be allowed as deduction in the income act 1997.
As per Section 9.5 of The Income Tax Assessment Act, 1997, Taxable income means the assessable income less deductions. Taxable...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here