HI6028 Taxation Theory, Practice and Law T2 2018
HI6028 Taxation Theory, Practice
& Law
T2 2018 Individual Assignment
(2500 words)
Due date: Week 10
Maximum marks: 20 (20%)
Instructions:
This assignment is to be submitted by the due date in soft-copy
only (Safe assign – Blackboard).
The assignment is to be submitted in accordance with
assessment policy stated in the Subject Outline and Student
Handbook.
It is the responsibility of the student submitting the work to
ensure that the work is in fact his/her own work. Ensure that
when incorporating the works of others into your submission
that it is appropriately acknowledged.
HI6028 Taxation Theory, Practice and Law T2 2018
Question 1 (10 marks)
You are working as a tax consultant in Mayfield, NSW. 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:
(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) Antique bed. On 12 November of the current tax year your client had an antique
four-poster Louis XIV bed stolen from her house. She recently had the bed valued
for insurance purposes and the market value at 31 October of the current tax year
was $25,000. She purchased the bed for $3,500 on 21 July 1986. Although the
furniture was in very good condition, the bed needed alterations to allow for the
installation of an innerspring mattress. These alterations significantly increased the
value of the bed, and cost $1,500. She paid for the alterations on 29 October 1986.
On 13 November of the current tax year she lodged a claim with her insurance
company seeking to recover her loss. On 16 January of the current tax year her
insurance company advised her that the antique bed had not been a specified item
on her insurance policy. Therefore, the maximum amount she would be paid under
her household contents policy was $11,000. This amount was paid to her on 21
January of the current tax year.
(c) Painting. Your client acquired a painting by a well-known Australian artist on 2 May
1985 for $2,000. The painting had significantly risen in value due to the death of the
artist. She sold the painting for $125,000 at an art auction on 3 April of the current
tax year.
(d) 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
(iii) 1,200 shares in Young Kids Learning Ltd. These shares were acquired in 2005
for $5 per share and sold on 14 February of the current tax year for $0.50 per
share. She incurred $100 in brokerage fees on the sale and $500 in stamp duty
costs on purchase.
(iv) 10,000 shares in Share Build Ltd. These shares were acquired on 5 July of the
current tax year for $1 per share and sold on 22 January of the current tax year
for $2.50 per share. She incurred $900 in brokerage fees on the sale and
$1,100 in stamp duty costs on purchase.
(e) Violin. Your client also has an interest in collecting musical instruments. She plays
the violin very well and has several violins in her collection, all of which she plays on
HI6028 Taxation Theory, Practice and Law T2 2018
a regular basis. On 1 May of the current tax year she sold one of these violins for
$12,000 to neighbor who is in the Queensland Symphony Orchestra. The violin cost
her $5,500 when she acquired it on 1 June 1999.
Your client also has a total of $8,500 in capital losses carried forward from the previous
tax year, $1,500 of which are attributable to a loss on the sale of a piece of sculpture
which she sold in April of the previous year.
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.
Question 2 (10 marks)
Rapid-Heat Pty Ltd (Rapid-Heat) is an Electric Heaters manufacturer which sells Electric
Heaters directly to the public. On 1 May 2017, Rapid-Heat provided one of its employees;
Jasmine, with a car as Jasmine does a lot of travelling for work purposes. However,
Jasmine's usage of the car is not restricted to work only. Rapid-Heat purchased the car on
that date for $33,000 (including GST).
For the period 1 May 2017 to 31 March 2018, Jasmine travelled 10,000 km in the car and
incurred expenses of $550 (including GST) on minor repairs that have been reimbursed by
Rapid-Heat. The car was not used for 10 days when Jasmine was interstate and the car was
parked at the airport and for another five days when the car was scheduled for annual
repairs.
On 1 September 2017, Rapid-Heat provided Jasmine with a loan of $500,000 at an interest
rate of 4.25%. Jasmine used $450,000 of the loan to purchase a holiday home and lent the
remaining $50,000 to her husband (interest free) to purchase shares in Telstra. Interest on a
loan to purchase private assets is not deductible while interest on a loan to purchase
income-producing assets is deductible.
During the year, Jasmine purchased an Electric Heaters manufactured by Rapid-Heat for
$1,300. The Electric Heaters only cost Rapid-Heat $700 to manufacture and is sold to the
general public for $2,600.
Required:
(a) Advise Rapid-Heat of its FBT consequences arising out of the above information,
including calculation of any FBT liability, for the year ending 31 March 2018. You may
assume that Rapid-Heat would be entitled to input tax credits in relation to any GSTinclusive
acquisitions.
(b) How would your answer to (a) differ if Jasmine used the $50,000 to purchase the shares
herself, instead of lending it to her husband?