QUESTION 1:
On 1 July 2010, Suzette sold the farm she had purchased 25 years earlier and moved to the north coast of New South Wales where she rented a house, intending to retire. She also purchased a hectare of land on the waterfront. She soon became bored with nothing much to do in retirement. In order to more fully provide funds for her retirement and by way of investment, Suzette had much consultation with, and subsequently commissioned a builder in October 2012 to design and build eight townhouses on the land she owned on the waterfront. Suzette also consulted her accountant at this time and asked him to provide details of the expected rental return from the lease of seven of the units, as she intended to live in one of them.
The units were completed in May 2013. Suzette was successful in leasing five of the units on a short-term basis. In October 2013 she successfully applied to have each of the units changed to ‘strata titles' and by the end of December 2013, four of the units had been sold. With the proceeds Suzette purchased an adjoining block of land, with the intention of building more units.
Required:
Advise Suzette of the income tax implications of the above transactions (ignore any Capital Gains Tax implications).
QUESTION 2:
Thang purchased an investment property in Perth during February 2006 for $200,000. He paid stamp duty of $10,000 at that time. He had no trouble finding tenants for the property. In August 2013 Thang required a new tenant for the property. Because of strong demand for rental housing, Thang was able to get a new tenant to pay him a lump sum ‘up front' amount of $2,000 (in addition to the annual rental) for entering into a 12 month lease. However, in January 2014 the tenant wanted to be released early from this lease. The tenant and Thang agreed that the lease would be terminated early in exchange for the tenant giving Thang $3,000. On May 3, 2014 Thang entered into a contract to sell this property for $700,000; this sale was settled in June 2014.
Thang also enjoyed being a businessman. As a result, during September 2006, Thang purchased 100% of the shares in a company called Hong Pty Ltd for $2 million. Hong Pty Ltd owned and operates a pillow-manufacturing factory.
In February 2014 Thang sold his shares in Hong Pty Ltd for $4 million. At this time Hong Pty Ltd's assets were as follows:
- Pillow manufacturing plant and factory $2,500,000
- Goodwill $1,500,000
Annual turnover for the company has been consistently around $2.5m per year for a number of years.
In June 2014, Thang (who was aged 53 at the time) purchased Julian Pty Ltd, for $350,000. The assets of Julian Pty Ltd were as follows:
- a Bed and Breakfast accommodation $290,000
- a 10 % share in Investment property $60,000
At the time of the sale of Hong Pty Ltd, Thang and his spouse held the following assets (other than the shares in Hong Pty Ltd):
Thang
Car (used 50% for his business) $50,000
Property in Melbourne (Thang lives in this property) $850,000
Investment Property in Perth $700,000
Superannuation $1,450,000
Thang's spouse
Investment Property in Sydney $600,000
Required:
For all transactions in this question discuss only the Capital Gains Tax implications.
Refer to all of the relevant sections of legislation, cases and any other scholarly material when providing advice to Thang. Advise Thang on:
• Any Capital Gains Tax liabilities for him in relation to his activities;
• Specifically, make sure that your discussion includes advice on whether Thang can take advantage of the small business concessions to reduce the amount of tax payable on the sale of Hong Pty Ltd.
QUESTION 3:
POLICY BASED ESSAY QUESTION
The Australian government recently enacted laws in its 2014 Budget to reform the Family Payment system that is currently in place. Reforms have also been applied to eligible income support recipients in relation to the Education Entry Payment.
Required:
Discuss both of the following:
i) Explain what the law was regarding the Family Payment system and Education Entry Payment prior to the changes put forward, and the nature of the abovementioned changes. Your explanation should indicate when these new measures will begin and cease (if applicable).
ii) From a policy perspective, consider whether it is desirable to implement these changes. Please consider this in the context of fairness, efficiency, equality, protection of government revenue and any other relevant considerations.