HI6028 Taxation Law Theory and Practice Trimester 1, 2018 Group Assignment Holmes Institute
RIP Pty Ltd is a resident private company carrying on the business of undertaker/funeral director. It operates out of premises comprising office facilities, a chapel and assembly area and professional rooms. Its other assets include a fleet of motor vehicles.
For the year ended 30 June 2016 the company reported a net profit of $2.45m. Its income arises from the provision of funeral services financed as follows:
From time-to-time amounts paid pursuant to the Easy Funeral Plan are not drawn upon. The clients might die abroad or remains not be recovered and no funeral service is provided. No refund issues arise.
At 30 June, the company transfers from Easy Funeral Plan amounts estimated to have arisen in connection with defaulting members (ie, members who have ceased making scheduled payments and who are not expected to make up arrears). These are credited to a ‘Forfeited Payments Account’ that has a balance at 30 June of $16,200.
[Note: it is necessary to refer to appropriate case law on the issues.]
Advise the company about the following:
[You must refer to appropriate sections of the legislation and relevant case law.]
HI6028 Taxation Theory, Practice & Law T2 2018 Individual Assignment Holmes Institute
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:
(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 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.
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.
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.
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