ASSIGNMENT
This case study must be presented as an individual effort. The case study requires individual research using a range of tax resources. It is expected the student will survey the relevant literature, including decided cases, and select appropriate additional resources.
The case study is designed to incorporate uncertainty. The student is expected to develop a piece of work which is written advice for their client. It must therefore identify the facts and issues presented by each aspect of the case study, identify and apply the relevant legislation and/or case law, come to a conclusion and make a recommendation as to the most appropriate application of the relevant law to the circumstances to the client.
This assessment assesses your research skills, your ability to synthesise an original piece of work to specific content requirements and your ability to produce a comprehensible piece of advice which addresses the client's needs.
It also assesses your written communication skills. The ability to deliver a brief is an essential skill in the workplace. Clients may well approach advisors seeking a combination of specific information needs and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. It is therefore important to be able to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches to addressing the client's needs. Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.
Elwood Blues is an Australian resident for tax purposes and one of your best clients. Elwood has a varied portfolio and usually has a number of interesting questions to ask about the tax implications of various undertakings he has been involved in. This year is no different, Elwood has the following questions and he requires your analysis and advice as to the application of the law
Part 1- Starting a new business
Elwood has started a new business venture. He has started an international shipping company based in Singapore. There are 4 directors:
- Two are located in Singapore
- One is located in Monaco, and
- Elwood.
All the director's meetings are held in Singapore and the annual general meeting is held in Monaco. The company's main business is shipping containers between Sydney and Africa, via Singapore. The contracts are signed in Sydney on behalf of the company by Elwood.
The company has a rotating Managing Director with the role changing every three months between the directors. The shares are held only by the directors and are held in equal proportion.
Elwood would like to know:
Is the company a resident of Australia for tax purposes?
Part 2 - Sale of assets
Elwood has sold the following items
1. A car he bought 3 years ago for $65 000 and was used solely for his personal use was sold for $25 000. The book value of the car is $27500
2. Vacant land sold in June 2018 for $200,000 that had been bought by him on 21/3/1984 for $20,000. This is being paid in 10 instalments of $20 000, however the purchaser has declared bankruptcy and the last two instalments due next financial year will not be paid.
3. 10,000 shares in ABC Ltd sold in February 2017 for a total sale price of $175,000. Elwood bought all the shares for long term investment purposes during November and December 1994 at a total cost of $80,000.
4. An antique sold on 1 May 2018 for $15,000. Elwood bought the antique on 31 December 1989 at a cost of $5,000 for personal reasons.
5. Jewellery sold in July 2017 for $5,000. The jewellery was purchased for 29/09/09 for $20,000.
6. Shares in XYZ Ltd were sold on 1/10/2017 for $45000. These shares were purchased for long term investment purposes on 31/10/1998 for $41500.
7. Elwood has interests in many businesses. One particular business is a clothing store. This store imports a lot of clothing from overseas and is entitled to a concessional rate on the customs duty for a quota (a particular quantity) of protective clothing. However, this protective clothing was not selling well so Elwood sold the quota to another business for $50 000. The value of the quota at purchase 5 years ago was $25 000. Elwood also has to pay an annual fee of $5000 to renew the quota.
Advise Elwood as to the tax implications of each of these disposals and calculate any amounts required to be declared in his tax return.
Part 3 General deductions
Elwood is keenly promoting a car made in Fiji which runs on overproof alcohol. However, the Federal Government has decided this is undesirable and has imposed a new, strict limit on the number of cars which can be imported. Elwood is Fijian and is hopping mad about this. He has launched a media campaign, costing $175 000, attacking this restriction and demanding its removal claiming it is an unfair restriction on his business structure and is undermining freedom of product choice.
Elwood has borrowed a significant amount of money to set up the structure to import the cars, buy and fit out showrooms and provide the after sales support for the cars.
Elwood wishes to know whether the:
- interest on the loan, amounting to $250 000, will be deductible. He took the loan out after confirmation from both governments the importation could go ahead, however he did not have a showroom at this time. He acquired the showroom before the first cars arrived.
- costs of the media campaign are deductible.
Required:
This assignment is to be completed by individual students. All questions, must be attempted. The assignment must be submitted before the above due date to avoid any late penalties. Please make sure you follow the usual assignment presentation guidelines especially those relating to presentation of written work, late policy and academic integrity.
Please note that a word limit exists for all questions. Submissions that exceed the word count (50 words per question) by more than 10% will cease to be marked from the point at which that limit is exceeded.