GANESH BAHADUR GAIRE ASSIGNEMNT- LAWS20023

Feedback sheet for LAWS20023 Assignment

Out Marks
CQ University Australia of

Question 1

Question 2
AUSTRALIAN 12

21
5

18

Question 3

Question 4
TAXATOIN LAW 6

6
3

Question 5(LAW20023) 15 11

TOTAL Marks outASSIGNEMNT

FIRST of 60 60 42 GAIRE
BY GANESH

% to be uploaded to Moodle 70

Divided by 2 to give marks out of 21

30 – Assignment weighting of
30
30%

GANESH BAHADUR GAIRE

9/8/2015

1
GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

ASSIGNMENT REQUEST ID: 67090

SUBMITTED BY: GAESH BAHADUR GAIRE SUBMITTED TO: MICHAEL BLISSENDEN

STUDENT ID: S0251931 LECTURERE/TUTOR

1. Answer:

a) In regard of Fast Ed car stock, three different valuation methods can be used. Based
on the s 70-35, taxpayers are required to value of trading stock on hand at the start of
the year and at the end of the year. Whereas the valuation of stock, under s 70-45 of
ITAA 1997, states that the stock on hand can be valued at cost, market selling value
and replacement value.

i) Cost method: Under cost method, determination of cost should be done based on
relevant account principles. Philip Morris Ltd v FCT (1979) 10 ATR 44 and
FCT v Kurts Development Ltd (1998) 39 ATR 493 suggest that if direct method
is not appropriate absorption cost method have to be applied to determine cost of

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

trading stock. Following three elements are considered to determine cost under
absorption cost method.
- Material cost: cost of material used to produce particular items of trading stock.
- Direct labour: relevant cost of direct labour on manufacturing process.
- Production overhead: production cost exclusive of material and labour costs.

ii) Market selling value: it refers to the market selling price on which Fast Ed could
sell trading stock in the market: Australasian Jam v FCT (1953) 88 CLR 23. Also,
Fast Ed can sell trading stock in the wholesale market but not in retail market. S 70-4
ITAA 1997 also mentioned that the market selling value can be different.

iii) Replacement Value: the replacement value of trading stock would be the amount
for which the Fast Ed can purchase car but not the amount that Fast Ed acquired car in
the retail market: Parfew Nominees Pty Ltd v FCT (1986) 17 ATR 1017. 3

b) The settlement of debt by Fast Ed of $ 18000 with Slick Sam is done by giving a car
costing $ 17,000. Under s 70-20 of ITAA 1997 both Silk Sam and Fast Ed are related;
the transaction seems to be non-arm’s length transaction. Therefore, considering
section the market value should be used for tax purpose. The value of trading stock is
$17000 given to Slick Sam to offset debt of $ 18000 though it has market value of $
19000. So that the market value of the car for tax purpose is $19000 which is
assessable income. 2

As the stock has been disposed of outside the ordinary course of business, Fast Ed will
be assessed on the market value of the car on the day of disposal ($19,000) s70-90
ITAA97

c) The car gifted to daughter costing $ 21000 (based on market value) was trading stock,
under s 70-90 (1). Fast Ed must include $21000 as an assessable income the market
value of the car on the day of disposal under s 6-5 of ITAA 1997. X 0
d) Goods taken from stock for personal use would come within the provisions of s70-
110 ITAA97. This section provides that if you stop holding an item as trading stock
but still own it, you are treated as if: a) just before it stopped being trading stock you
sold it to someone else for its cost, and b) you immediately bought it back for the

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

same amount. Consequently Fast Ed will have to treat the car as a disposal of stock
for $19,000.

e) The amount that Fast Ed has put to sell his Ford Hatchbacks is $18000 which is
drastically lower than the original selling price and cost price of $28000 and $ 22000
respectively. The lower price of ford hatchbacks due to new technology emerging in
the market Fast Ed may suffer loss of $4000 for each three Hatchbacks. Since he had
three hatchbacks in stock at 30th June he will bear the loss of $ 12000 and which is
subject to tax deduction specified under s 70-35 of ITAA 1997.
X 0

As the value of the hatchbacks is considered to be below cost, market selling value
or replacement cost due to special circumstances – (ie the launch of a new model),
Fast Ed may elect to value the trading stock at an amount which is reasonable per
s70-50 ITAA97.

Overall 5/12

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

Question no. 2: Answer

a) The personal exertion of $50,000 from employer is assessable based on the statutory
income or ordinary income: Moore house v Doonland (1955) 1 AII ER 93 and the s 6-
5 of ITAA 1997 supports it as ordinary income. Also, s 23L (1) of ITAA 1936 has
provision of fringe benefit tax x. Similarly, $10,000 also regarded as ordinary income
as specified under s 6-5 of ITAA 1997. Total assessable income for the year 2014/15
would be $60,000: Brent v FCT (1971) 125 CLR 418. 1

b) The amount is assessable as income under s 6-5 of ITAA 1997. The earning is
directly related to the operation as a TV advertisement winner of the year: Kelly v FCT
(1985) 16 ATR 478. The convertible problem into money of the prize can be resolved
by s 21 A of ITAA 1997 for valuation of the prize. 3

c) The amount unspent of $380 out of $500 would be assessable as it is an allowance

under s 15-2 of ITAA 1997. The section states that the statutory income from services and
employment is a part of allowance and therefore assessable. Moreover, s 8-1 of ITAA 1997
employee earning such allowances is deductible. 3

d) This case has controversy as whether the iphone worth of $1000 from client is to be
considered as ordinary income. Scott v FCT (1966) 117 CLR 514 and Hayes v FCT
(1956) 96 CLR 47 suggests that the iphone is received as a gift from the service provider and
if the motive is to exchange of services then it is most likely to be ordinary income and can be
assessed: FCT v Blake (1984) 15 ATR 1006 3

e) The damages paid during personal purpose are not considered as assessable unless it
is for business or related works: s 6-5 of ITAA 1997. The damages awarded of
$10,000 for personal injuries are not considered as assessable income though it is a
capital receipt and tax exemption: S 118-37 of ITAA 1997. 3

f) The capital gain from trading of shares is not considered as an assessable income and
not treated as ordinary income. The cost of taxpayer is $5 per share and the market
value comes out to be $7.50: Eisner v Macomber 252 US 189 (1920). The non realisation
of market value appreciation is not an ordinary income unless it is sold at the increased
market value. 2

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

g) The sale of stolen TV by the taxpayer is regarded as illegal activity and can be taxed.
The income is $10,000 from selling of television which does not prevent from being
assessed: Partridge v Mallandaine (1886) 2 TC 179 and Lindsay v IR Commrs (1932) 18
TC 43 3
h) Overall 18/21

Question 3: Answer:

As the income increase, the tax also increases. This provision is referred as progressive tax
where tax progresses from low to high. The high-income earners will be imposed more tax
than the people having low income. This tax is basically imposed on individual income taxes
such as wealth or property tax; sales tax. Income tax rate act 1986 suggests that the tax rate
will vary based on tax payers’ income types. Nonetheless, in Australia the resident and
foreign resident for tax purposes have a different tax rate, which is depicted below:

Tax rates for Australian resident individuals:

Taxable income Tax impose on this income

0-$18,200 Nil
$18,201-$37,000 19c for each $1over $18,200
$37,001-$80,000 $3,572 plus 32.5c for each $1 over $80,000
$80,001-$180,000 $17,547 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 45c for each $1 over $180,000

Note: The above rates do not include the Medicare levy.

Tax rate for foreign resident individuals:

Taxable income Tax rates

0 - $80,000 32.5c for each $1
$80,000 -$180,000 $26,000 plus 37c for each $1 over $80,000
$80,001 - $180,000 $63000 plus 45c for each $1 over $180,000

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

On the other hand, government applies general corporate tax rate of 30% of their taxable income,
either small amount of taxable income: 3 – too general

Question 4: Answer:

The issue is regarded as whether Charles is a resident of Australia or not for the income tax
year 2014/2015. To identify the residency of Australia, a Domicile test is necessary. To prove
section 10 of Domicile Act 1982 states that an individual should have intention to acquire a
domicile of choice. Charlie went to United States to gain some accounting experiences and he
bought a house to stay in US. At the same time house in Australia is sold even though the
contract to stay in Australia is extend for 12 months. Therefore, considering all the factors
associated, Charles cannot be an Australian resident for the years of 2014/2015 for income
tax purposes: FCT v Applegate (1979) 9 ATR 899.

Ruling TR 2650 has provision to test Domicile is given below:

a) The intention of Charles is to settle in US though he has extended for 12 months of

stay extension in Australia.
b) Sale of house in Australia indicates the Charles has no place to live in Australia.
c) Intentionally buying of apartment in US refers that his residency is outside Australia.
d) No family relation in Australia.

Considering the factors mentioned above, the provision that ATO has, Charles is not an
Australia resident and not subject for tax purpose for the year 2014/2015. 5

Question 5: Answer:

a) Evaluating the case, CGT event B 1 happens since Josh has given the right to use
and enjoyment of boat to Ben before the title of boat is transferred to Ben. Here, CGT
A 1 would happen on the 1 June 2015 as the ownership has already been transferred
though Ben has the right to use the boat. 3

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

b) CGT even C 1 takes place when the acquired assets of $50,000 on 1 st July 2009 is
destroyed by fire. S 104-20 (2) of ITAA 1997 would support this scenario as Mark
has no chance to receive compensation as he has no insurance. 3

c) Considering the case CGT even D2 happens since, Joe grants the option to purchase
his beach house in Bryon Bay. The advance payment is $2000 to make sure the
option agreement is performed before the actual agreement being finalised: s 104-
40(1). 3

d) The rule of partial exemption is considered to support the CGT event occurrence in
this case. John bought property of $250000 in 1 st July 2009 holding the property for 6
years. At first year he has leased the property then after he uses for his personal
purposes. Under S 118-18 of ITAA 1997, the gain from first year is not exempted.

Capital gain or loss amount x non main residence days/ days in ownership

= $150,000 * 365/ (6*365)

=$25,000

Hence, capital gain would be $25,000. Discount? 2

e) Based on s 118-105 of ITAA 1997, the house is related to CGT asset however, Steve has the
right to claim for main residence exemption if, S 118-100 of pt 3-1 of ITAA 1997, is taken
into account. At the same time, s 118-190 states that Steve cannot claim for full exemption
since house is used to produce income partially. X 0
f)

According to s118-192, the capital gain subject to the partial exemption for income
producing use will be $200,000 ($700,000 - $500,000) of which 20% will be subject
to CGT under s118-190(3). 50% CGT discount would apply as the asset has been
held for more than 12 months.
$200,000 X 20% = $40,000 X 50% discount = $20,000 Taxable gain.

Overall 11/15

References:

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931

GANESH BAHADUR GAIRE ASSIGNMENT- LAWS20023

- Australian Tax Office 2014, Capital Gain Tax.

https://www.ato.gov.au/General/Capital-gains-tax/CGT-exemptions,rollovers-and-
concessions/Exemptions

- Sadiq, K (2015), Principles of Taxation Law, 8th ed. Australia: Thomas Reuters (Professional)
Australia Limited.

BY: GANESH BAHADUR GAIRE STUDENT ID: S0251931