This assignment consists of two (2) parts. Part A consists of a problem solving scenario (1,000 words) and Part B is a research assignment (3,000 words). You must complete both Part A and Part B. Pay careful attention to the marking criteria at the end of each Part.
Part A - 3000 words
Ragco Ltd is a major importer of clothing which it retails through its clothing outlets in Australia. It holds a number of import quotas which enable it to import clothing from the Indian sub-continent. Ragco Ltd is going through a major business restructure and in the process has sold three of its import quotas, making a substantial profit. More funding is needed for the restructure so Ragco enters into a contractual arrangement whereby shares in Ragco's subsidiaries are sold to an associated company Bomba Ltd for $40,000,000. Ragco then decides to on lend this money to another subsidiary Dixie Ltd, which agrees to pay interest to Ragco. Later on Ragco assigns the right to receive these interest payments to a finance company (Bonzacash Ltd) in return for a lump sum payment of $25,000,000.
Ragco and Bonzacash are not connected either through shareholding, directors or through prior business dealings. In other words the foregoing transaction is at arm's length and not interlocked or interrelated in any way. So Bonzacash's agreement to take the assignment of the unpaid interest instalments was done purely on a commercial arm's length basis.
The ATO has assessed Ragco under s6-5 of ITAA 1997 on the basis that the lump sum payment of $25,000,000 is income according to ordinary concepts.
Advise Ragco whether the ATO's action is warranted. In your answer you are to ignore any capital gains tax consequences. Please address relevant case law in your answer.
Description of Performance Standards;
HD - the student has shown a very high level of demonstrated ability in relation to the stated criteria by covering all valid points in a clear and succinct manner. The student may have also demonstrated an ability to think beyond the facts and recognise the broader implications of the facts, missing facts or alternate arguments.
A - The student has shown a high level of demonstrated ability in relation to the stated criteria by either covering all valid points or by covering the majority of valid points in a clear and succinct manner. The student may have very briefly or occasionally shown ability at the HD level.
B - The student has shown a good level of demonstrated ability in relation to the stated criteria by covering most of the valid points. The student may have made some minor incorrect statements or missed some minor points.
C - The student has shown a satisfactory level of demonstrated ability in relation to the stated criteria by covering the main valid points. The student may have made a number of minor incorrect statements but did not make incorrect statements in relation to major points.
F - The student has not shown a satisfactory level of demonstrated ability in relation to the stated criteria by missing some main points or by making incorrect statements in relation to major points.
Little Attempt - The student has not addressed or attempted to address this criterion.
Part B - 3,000 words
You are required to prepare a written research assignment that addresses one of the provided topics below. The purpose of the task is for you to demonstrate high level critical reflection and analytical reasoning skills in the context of the application of Australian taxation law and taxation law policy. You must undertake academic research which demonstrates the following:
- An in-depth your understanding of how the specific tax law applies,
- The policy context of the law and if relevant how other jurisdictions deal with similar issues,
- Critical reflection as to whether the law achieves its stated purpose, aligns with principles of good tax policy or could be improved/amended. These critical reflections should be supported by the research you have undertaken as well as your own independent thought.
Topic Choices
1. CGT Discount for Foreign Residents - discuss and critically evaluate the policy reasons for the removal of the CGT discount for foreign tax residents. You should include a discussion of the policy objectives and your evaluation of whether the removal will achieve these policy objectives.
2. Negative Gearing - discuss and critically evaluate the extent to which tax deductible negative gearing impacts upon savings and investment decisions. Your paper should clearly outline what is meant by negative gearing from a tax perspective and how the Australian tax system treats negatively geared investments. You should include an evaluation of whether negative gearing from a tax perspective should be removed. (Please ensure that you concentrate on this issue from a tax perspective and do not get side-tracked on a discussion of the property market.)
3. Deductions - discuss and critically evaluate the extent to which Australia's deduction regime satisfies the principles of a good tax system (specifically simplicity and fairness). You may like to compare and contrast this with the deduction system in New Zealand.
4. CGT Small Business Concessions - discuss and critically evaluate the Small Business CGT Concession regime in Australia. You should include a discussion of the overall policy objectives and your evaluation of whether regime currently meets these objectives or whether further amendments are necessary.
5. Division 7A (treatment of private company loans) - discuss and critically evaluate Division 7A as a specific anti-avoidance provision. You should include a discussion of the overall policy objectives and your evaluation of whether the Division currently meets these objectives or whether further amendments are necessary.
6. Part IVA Amendments - The general anti-avoidance provisions were recently amended. Discuss and critically evaluate the policy reason for these amendments and whether they are likely to meet these objectives or not.