QUESTION 1
Bill Smith carries on the business of repairing motor vehicles and restoring old cars and motor cycles as a sole trader. He has assets in the business such as the building, plant and equipment and goodwill that he has owned for 10 years with a value of $1,500.000. His business has an aggregate annual turnover of $2,643,557 for the 2011-2012 financial year. Bill has sold his business and wants to take advantage of the CGT small business concessions. The capital gain made by Bill is $886,000. Bill is 66 years of age and he intends to retire. Does he qualify for the CGT concessions and if so, what concessions will apply.
QUESTION 2
Jenny Lee is a self employed business person. She borrowed $100,000 from the ANZ Bank on 1 November 2012 to pay superannuation contributions for herself – $24,000 and for her employees – $76,000. Interest on the four year loan amounted to $10,000 per annum from 1 November 2012 and the borrowing costs associated with the loan were $2,000. Jenny is aged 46 years. The contributions have been made to a complying superannuation fund. What deductions make (if any) can Jenny claim in the 2012-2013 financial year?
QUESTION 3
On 16 November 2012, Garry Wong received an amended income tax assessment notice dated 10 November 2012 for the 2011-2012 financial year disallowing a claim for overseas travel expenses of $16,000. He asks your advice as to what he should do about disputing the amended assessment as he strongly believes that he has a valid claim and within what time must he lodge his intention to dispute the amended assessment. What is the process?
QUESTION 4
Mary Phillips operates a small hotel in Canberra catering for overseas travellers. The hotel offers a free pick up service from the airport using their own mini bus. Mr Lee arrives from Singapore and uses the free bus service. During his stay he purchases breakfast and pays for some sandwiches that are prepared for his lunch which he intends to eat by the lake. Mr Lee requests gourmet sandwiches and a bottle of wine. When it comes time for Mr Lee to check out of the hotel he only has Singapore dollars and asks to exchange the currency to Australian dollars with which he pays the bill. He is so happy with the service that he gives Mary a large tip. Identify which of the above transactions are taxable, GST-free or input taxed supplies and why? Is GST payable of the full amount of each supply?
QUESTION 5
Peter Gow is an investment adviser with BZK Limited, a large financial planning group in Sydney that have funds under management of $260 million. He has advised the Board of Directors that they should sell the fund?s 1 million shares in BHP which will result in a profit of $12 million to the company. The Board agrees and on 14 May 2012 the shares are sold. Peter also notices that the 4 million Telstra shares have not performed as well as expected and that they currently show a loss to the group of $16 million. The Board agree that the shares should be sold due to their lack of performance and on 16 June 2012 the Telstra shares are sold. In November 2012, Peter notices that a number of stockbrokers from the large banks are now recommending that Telstra shares are a ?buy? and an excellent investment due to solid growth projections in the future. Peter now recommends to the Board that 4 million Telstra shares be bought. The Board agrees and on 19 September 2012 the shares were acquired. The auditors for BZK have just completed the accounts for the company and have advised the Board that their actions in selling both the BHP and Telstra shares prior to 30 June may constitute tax avoidance under Part IVA. Provide Peter with advice as to BZK?s position.
QUESTION 6
Your client, William Brown is about to establish his own engineering consulting business in Canberra and he needs advice as to how he should structure the business and minimise income tax and any other taxes. He is married and his wife works part-time and he has two children, Greg aged 19 years and at university and a daughter Elizabeth, aged 16 years. He is concerned about being sued for negligence as he is unable to buy more than $45 million of insurance and yet some of his projects are worth more than $100 million. He has been told by a friend of his that he should set up the business as a trust and also have a service trust so that he can split some of the income with his wife and children. He has no idea what this all means and he has been advised by his solicitor that he could be engaged in tax avoidance with trusts being used. Advise William as to how trusts work and how they provide protection if sued for negligence by a client.
QUESTION 7
Matrix Investments Limited is an Australian public company that invests in many foreign companies either directly or indirectly. It receives the following income from foreign investments during the 2012 ? 2013 financial year.
1. it owns 100% of the shares in Beta Limited, a US incorporated company and it receives a dividend of AUD 4 million
2. it owns 8% of the shares in Alfa Limited, a UK company involved in selling software in Europe. Alfa limited pays a dividend of AUD750, 000 net after deducting withholding tax of AUD250, 000
3. a branch office of Matrix Limited in France earns commission income of AUD 7 million
4. Investments in US treasury bonds yield interest income of AUD 6,500.000.
Advise Matrix Limited as to how each item of income will be treated for tax purposes in Australia.
QUESTION 8
The ?Lee Family Superannuation Fund?, a self managed complying superannuation fund, has the following transactions and financial information in relation to its operations in the 2012?13 year of income:
(a) It sold shares for $600,000 which it had purchased for $450,000 in June 1985.
(b) It sold shares for $250,000 which it had purchased for $80,000 in March 1984.
(c) It sold shares for $40,000 which it had purchased in May 2006 for $48,000.
(d) It sold shares for $530,000 which it had purchased over the previous nine months for $320,000.
(e) The fund received fully franked dividends of $29,000 and interest from bonds and term deposits of $28,000.
(f) The fund received $22,000 commercial property rent of which related deductions were $8,000.
(g) The fund paid accounting fees of $8,000 which included the audit and tax return.
(h) The fund paid $220,000 for a painting by Aurthur Boyd.
(i) Employer contributions to the fund were $35,000 and employee contributions were $100,000 representing non-concessional contributions.
Based on the information supplied, determine the taxable income and income tax liability of the superannuation fund for the 2012?13 financial year. Valuations under s 295-90 at items (a) and (b) are $470,000 and $95,000 respectively. The fund is registered for GST and the items listed above have not been adjusted to exclude GST.
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