Assignment - ACC304 Taxation Law – Assessment 3 Subject...

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Assignment - ACC304 Taxation Law – Assessment 3

Subject Code:	ACC304
Subject Name:	Taxation law
Assessment Title:	Individual assignment assessment 3
Weighting:	20%
Due Date:	Sunday 11.30pm AEST of week 9

Elwood Blues and his wife request that you provide them with tax advice in the form of a singlebusiness letteraddressing the following taxation issue that they have raised. Please use 11⁄2 line spacing. The letter should not exceed 500 words.

Please reference the appropriate law (ITAA), cases and Taxation Rulings in your letter.This is worth marks.Do not quote using hyperlinks to websites as no marks will be awarded. Do not quote text book paragraphs.

There is no need to provide a reference list at the end of the letter.

Elwood Blues address: Unit 52

246 Queen Street Brisbane, QLD, 4000.

Elwood Blues is one of your new clients. Elwood has the following questions and he requires your analysis and advice as to the application of the law.

ACC304 Assignment

Assessment 3

1

Part 1

Starting a new life, Elwood arrived in Australia on 1 July 2017 with his wife and two children. Elwood and his family have been transferred to Australia for a minimum of 3-years. Elwood likes the low interest environment and purchases a home. He moves in immediately. He registers the telephone and electricity in his name. On 1 January 2018, he adds a new kitchen to the home at a cost of $20,000.

Inda, his wife started part-time employment as a sales manager. The children settle happily into the local school. Elwood rents out their former home in the United States and the rent is paid into an American account he can access from Australia.

Elwood joins the local gym and becomes a member of the local Chess club. He attends regular meeting and is appointed President after a short period of time.

Inda is asked to work from home 2 days per week as the company is closing their Brisbane office. The company can no longer afford the commercial rent. Inda agrees reluctantly as she loved the work atmosphere.

Required

Elwood and Inda request that you provide them with tax advice in relation to their residency for taxation purposes. Students should quote legislation, appropriate rulings and cases. Marks will be awarded for the format of your business letter and appropriate use of language.

Part 2a – Tax Return Information

Jake Smith is an Australian resident and also one of your clients. Jake has the following events during the year.

During the entire 2018 income year, Jake worked for MD & A Architects. Jake was provided with his PAYG Payment Summary for the period 1 July 2017 to 30 June 2018. Gross salary was $86,000. Payg tax withheld was $19,820.

Jake uses his car for work. Jake was reimbursed for 6,000 kilometers travelled during the year at 75 cents per kilometer. PAYG withholding of $1,500 was deducted during the year.

Jake earns interest of $100 during the year (gross). Jake did not provide the bank with his tax file number.

Jake received an unfranked divided of $3,500 on 18 June 2018. Jake participated in a dividend reinvestment scheme so that he received an additional 198 shares in the company.

Jake purchased 1,000 ANZ bank share on 1 March 2015 at $22 each. Brokerage costs on purchase were $50. Jake sold 500 ANZ bank shares on 1 June 2018 for $24 each. Brokerage costs on sale were $55.

On 12 May 2018, Jake sold his “cricket bat” collection. This consisted of 5 cricket bats that were signed by famous people. The great “Sahin Tendulkar” has signed one of the bats. Ricky pointing had signed one of the bats which was worth considerably less than

ACC304 Assignment

Assessment 3

2

the bat signed by Tendulkar. Jake purchased the bats between 1999 and 2004 for a total cost of $2,600. He sells the entire collection for $900.

Jake failed to keep a log book but wishes to claim his Mazda 3 motor car if possible. Jake’s diary notes indicate he travelled 7,420 kilometers. Total car expenses including depreciation are $6,200. He estimates (has a guess) that his business percentage is 95 percent. Jake does not have a second motor car.

Jake owns a mobile phone which he uses for work. His mobile telephone call costs for the 2018 income year totalled $1,400. Jake estimates that 60% of these calls were work- related. Jake failed to keep his receipts and can’t provide any material documentation.

On 1 May 2018, Jake paid the invoice which he received from his previous tax agent for the preparation and lodgement of his income tax return for last year. The tax agent's fee was $400.

Jake is not married and does not have health cover.

Advise Jake as to the tax implications of each of these 10 items and the impact it will have on his tax return. Students should quote sections of law where appropriate.

In addition, students should calculate Taxable income only (showing brief workings).700 words (1 paragraph on each item)

Part 2b – Negative Gearing

Jake while talking to a friend (Max) at a party is informed about a topic called “negative gearing”. Tax advantages were discussed so Jake is seeking your advice. He was also told about potential changes should there be a change in Government.In your own words, explain “negative gearing” to Jake and the potential changes that may occur.In your own words,students should discuss the potential tax benefits for someone earning $100 k per year.

300 words

Pulkit · Accepted Answer

Part 1-
To
Mr. & Mrs. Elwood Blues 
Unit 52
246 Queen Street
Brisbane, QLD, 4000.
Subject: Advisory regarding your residency status for the purpose of taxation
Dear Sir/Madam
According to the Australian income tax act the primary test of the tax residency is called resides test. If a person resides in the Australia then there is no need to give further residency test and he/ she is a resident for the purpose of Australian Income tax.
The Taxation ruling TR 98/17 which deals in the residency status of the individual entering in the Australia along with the Taxation Ruling IT 2650 Income tax: residency — permanent place of abode outside Australia provides the interpretation of the commissioner on the word ‘ resides’ within the definition of the resident in the Income Tax Assessment Act , 1936 sub section 6(1).
This ruling applies to the individuals arrive Australia which includes:
· Migrants ( as defined in  the taxation ruling IT 2681)
· Academically studying or teaching in the Australia.
· Visitors on holidays
· Workers for the pre-determined employment contract. 
Also this ruling does not apply to the Australian resident returning to the home country after the temporary employment or stay in the overseas.
The term resident defined in the sub section 6(1) of the Australian income tax assessment act 1936 is as follows:
· This section applies to the individual other than companies which includes a person :
· Having the permanent establishment/home in the Australia to satisfy the domicile test or,
· The presence of an individual in the Australia for more than 183 days in the continuously or in the breaks or,
· A commonwealth government employees working at the Australia post overseas are treated as the Australian resident.
If an individual satisfy any one of the above condition then he/ she will be considered as the resident of the Australia for the purpose of income tax. Once the person qualified to be the resident of the Australia for the purpose of income tax then he has to declare all the income earned by him during the year in the annual return filing of income tax. The exemption benefit is also granted to the individual up to the basic exemption limit also get the benefit of the Double tax avoidance agreement on the income earned by him from around abroad.
In our case Elwood you and your family have been transferred to Australia for a minimum of 3-years. You are arrived in the Australia on 1 July 2017 and stay for whole the year this will satisfy one of the residency test which is to stay more than 183 days in the Australia also you have bought the home in the Australia this will lead to defined that you have now permanent establishment in the Australia. 
As you are satisfy two out of the three condition of being a resident for the purpose of income tax for the year ended 30 June 2018. Therefore your income is assessed as a resident of the Australia and able to get the benefit of basic tax exemption limit. Further also the rental income earned by you from the USA is also to be declared in the Australian income tax return and availed the benefit of the DTAA.
In case you need any further assistance. Feel free to contact us.
Thanks and Regards
Part 2a – Tax Return Information
	Computation of the taxable income of Jake
	
	
	Particulars
	Taxable Income 
	PAYG Credit Available
	Gross salary
	 $           86,000.00 
	 $                       19,820.00 
	Reimbursement of use of own car in work
	 
	 $                          1,500.00 
	Interest from bank
	 $                 100.00 
	 $                                       -   
	Dividend Received Un-franked
	 $             3,500.00 
	 $                                       -   
	Additional 198 shares
	 $                          -   
	 $                                       -   
	Capital gain from shares 
	 $                 447.

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Assignment - ACC304 Taxation Law – Assessment 3 Subject Code: ACC304 Subject Name: Taxation law Assessment Title: Individual assignment assessment 3 Weighting: 20% Due Date: Sunday 11.30pm AEST of...

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