TABL2751 Tutorial Questions

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2751

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Law

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Apr 3, 2024

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WEEK 1: TUTORIAL QUESTIONS QUESTION 1  The Full High Court was hearing this case o The Federal Court already heard this case in which her appeal was rejected o QUESTION 2 1. The primary sources of taxation law are through state law and case law 2. ATO Rulings, Determinations and Guidelines should be used as supplementary material to primary sources of taxation. They are also simply interpretations of the law and legally binding only on the ATO 3. You calculate tax liability through 7 steps and can be found in the ITAA97 s4-10(3) o Taxable Income * Rate – Tax Offset 4. You can calculate taxable income through ITAA97 s4-15 o Taxable Income = Assessable Income - Deductions 5. Assessable Income is Ordinary and Statutory Income  ITAA97 s6-1 a. Statutory Income are things like capital gains 6. Doctrine of Precedent  Lower courts must follow the higher courts’ decisions 7. A social good is something that benefits the largest number of people in the largest possible way like air whilst a merit good is a good that benefits not only the consumer but also the wider society e.g. education

QUESTION 3 Personal Taxable Income o 22000-4200 = 17800 Business Taxable Income o 170000-84000 = 86000 Total Taxable Income: = 103800  Tax Liability: 5092 + 0.325*(103800-45000) = 24202 Tax Offset:  1500 - (103800-90000)*0.03 = 1086 HELP Liability  7% * 103800 = 7266 Medicare Levy  2%*103800 = 2076  1%*103800 = 1038 Total Tax Liability: 24202-1086+7266+1038+2076 = 33496 QUESTION 4  QUESTION 5  A) Yes this is considered ordinary income because a salary is firstly realised gains, has sufficient nexus with the earning activity which her role as a chief accountant for a company. Similarly, a salary indicates that she receives this monetary compensation periodically and regularly  B) o Taxable Income: 220000 o Medicare Levy: 2%*220000 = 4400 o HELP Deb: 220000*10% = 22000  Thus HELP debt is 8500 o Tax Liability: 51667 + 0.45*(220000-180000) = 69667 o Total Tax Liability = 69667 + 8500 + 4400 = 82567 QUESTION 6  Because assessable income is less than deductions, we have a loss and thus we do not have a taxable income  Tax Loss would be 2500  Deductions – Taxable Income – Net Exempt Income

o 22500-18000-2000 = 2500 QUESTION 8 Question is looking for capital vs income  Compensation: 100,000  Contract: 15% of operations  Potential Revenue Lost: 150000 Material Facts:  Taking up 15% of the manufacturing capacity, 100K compensation, and lost potential revenue of 150K  Capital vs Income NEED TO ASK IF IT AFFECTS THE PROFIT MAKING STRUCTURE IS KEPT INTACT, THEN IT IS CONSIDERED INCOME Compensation paid or when profit making structure is impacted  15% is not significant  The compensation in this case is a substitute for income However, if for example the contract cancellation caused the business to go bankrupt, then the cancellation would be considered capital. In this scenario, it is likely that the company will be able to continue operations and not be significantly affected despite the contract being cancelled.

WEEK 2 TUTORIAL QUESTIONS QUESTION 1 Under ITAA97 s6-1, assessable income has two components, namely ordinary income and statutory income. Philip’s wages during the specified period of $9600 are considered ordinary income through personal exertion (his labour). Furthermore, the payments were of a regular nature and directly related to his employment. In addition, Phillip was also provided tips of around $30 to $50 each shift. The amount assumed totally for his tips was 3200. The nature of voluntary payments must be addressed to determine its classification as ordinary income. Since the tips are directly related to his performance as a waiter, the voluntary payment is not considered simply a “mere gift” and thus will be considered ordinary income Tax ruling 95-11  tips from hospitality are ordinary income Think of Scott vs FCT Phillip received a bonus by his employer of $500. This was due to his superior performance for the month and whilst this was a one off payment, lacking regularity and reoccurrence, its nature as a bonus directly related to his work will render it to be considered ordinary income. Phillip received a non-transferrable $200 gift voucher to the UNSW bookshop due to receiving the highest mark in the subject of “advanced taxation”. Although this is not considered a windfall gain, the prize was a result of his skill and hard work. Parallels can be drawn when considering how prizes can be won by athletes and other sport persons. Whilst in the Stone vs FCT case, the prize for winning a Javelin throw contest could be considered ordinary income due to her nature of being in the “business of sport”, Phillip is not in the business of studying and the prize is unlikely to be reoccurring. Thus, the prize won by Phillip is not considered ordinary income. Phillip’s youth allowance of $2400 would be considered ordinary income because it is on a reoccurring and regular basis, in which he utilises for expenditure and consumption Similar to his wages from his waiter job, the 80,000 earned from his salary as a graduate accountant will also be considered ordinary income from personal exertion. However, since Philip operates on a cash basis, his taxable income will only include the $33,000 received by June 30, 2023. His superannuation fund contribution by his employer of 8000 will not be considered ordinary income but rather treated as income to be taxed under the superannuation fund  taxed in the hands of the superfund  money goes directly into superfund and taxed at 15%  According to ITAA97 s6-5 o The wages of 9600 are considered ordinary income o Tips of 3200 are ordinary income o Prize/Bonus of 500 is considered ordinary income according to ITAA97 s15-75  According to ITAA97 s6-15 o The prize of 200 is not considered ordinary income  Under ITAA97 52-15, o Youth allowance is not considered ordinary income and is exempt from taxation  Under s6-5, o His salary of 33,000 Is considered ordinary income  Under

Assessable Income: $48,700 QUESTION 2  Purchases property for 300k  Borrows 280k at 7% Cyril borrows 280,000  expense  deduction Annual payment of $5000 for the right to locate windmills is considered ordinary income under ordinary precepts of annuities  not royalties because they are not paid on a per usage basis 800K is not considered income to Cyril but rather to the company. 120K is considered ordinary income Cancellation of contract: Considered income because the cancellation of contract would not drastically affect the operation of the business  would be taxed on the individual to Cyril due to constructive receipts QUESTION 3  Income from resident occupancy fees  Subsidy of $470,000  Cash from tenant 10,500 due to repair One of the issues: Is Holmes carrying on a business?  The question does not say that Holmes is non-profit so it is likely that it is for profit o Has occupancy fees o In the business of nursing home Weekly subsidy  The subsidies are income because if they were not in the business of nursing homes, they would not be receiving the subsidy  They are also operating in the structure of a business Cash from tenant  15-25  considered ordinary income because the entity paid the 10,500 amount for failing to comply with a lease obligation to make repair to the premises. CLASS DISCUSSION QUESTIONS QUESTION 1  If it was a membership  generally revenue is unearned revenue  Small businesses are unlikely to have debtors and thus would be on cash basis  If you have circulating capital, creditors, debtors, machinery, rotating stock  accrual basis  Sole practitioners are generally on a cash basis e.g. café QUESTION 2

1. Cash Basis: 492K 2. Accruals Basis: 500K QUESTION 3  Cash prize won in a lottery lacks commercial element and relies on good luck and fortune  Cash prize won in an art competition by a professional artist would be considered an ordinary income and is engaged in the business of a “professional artist”  so joining an art competition would be considered in relation to their income producing and business activities o Parallels to Stones case.  A house provided to a security guard rent free, which is situated on the employer’s premises is not considered ordinary income but rather a fringe benefit o Section 15-2 o 21-A WEEK 3 TUTORIAL QUESTIONS  Capital Gains Discount: o Individuals: 50% o Companies: None o Superfunds: 1/3  33.33%  There are 13 CGT events o Event starts on the date of contract  If no contract  the d ate of the change in ownership  Must apply discounts at the VERY END when you do the method statement (step 3)  When doing questions o Find capital gain/loss o Exemptions o Discounts QUESTION 1 For the following sections, all references are directed towards the ITAA97 Act. House:  Mr and Mrs Smith has sold their primary place of residence for $820,000 on 1 st March 2023. Under s108-5, this property is considered a CTG asset and the transaction a CTG A1 disposal event under s104-10. The property was not utilised to generate income and the house was the primary place of residence for the Smith family up until the point of sale. Thus, under s118-110, the house will be exempt to capital gains tax. o S108-7 – Joint Ownership o S110-35 – Incidental Costs  Capital Proceeds: $820,000 – s116-20  PAY ATTENTION TO “AND, OR” IN THE LEGISLATION o Cost Base: $200,000 s110-25  Cost base o Incidental Costs:  $2000 + $10,000 + $20,000 = $32,000  Total Capital Gains: $820,000 - $232,000 = $588,000

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