PACC6006 Taxation Law
Case Study 2015
Required:Complete assignment tasks one and two inclusive. Limit your written response to task one to 500 words and task two to 750 words. In grading both tasks examiners will focus on your referencing to case law, appropriate sections of the ITAA 1936 and ITAA 1997 and income tax rulings issued by the Australian Taxation Office. A list of references used to answer both assignment tasks should be attached to the assignment.
Assignment Task One 10 marks
Hector Vector is a resident taxpayer who is a successful medical specialist with a practice in Newcastle West. On July 1, 2014 he borrowed $2,000,000 from NBN Bank and purchased a large parcel of vacant land in Newcastle located near the site of the planned University of Newcastle’s new campus. Hector intends to hold the land until construction of the campus is complete at which time he will construct a large motel style building to rent as student accommodation. He expects the building to accommodate up to 250 students and cost around $3,000,000. The building project is not expected to commence until 2017. Hector has not previously been involved in property development.
On 1 August 2014 Hector was approached by Margaret who owns a neighbouring earthmoving business regarding renting Hector’s vacant land to store earthmoving equipment. Hector agreed to rent the land for a period of two years for $100 per week. During the 2015 taxation year annual interest, council rates and insurance in respect of the land amounted to $245,000. Hector also paid $36,000 to a firm of architects to develop some preliminary plans for the proposed building. Receipts from Margaret for use of the land amounted to $4,700.
Required
In the form of a professional correspondence (not exceeding 500 words) advise Hector what payments relating to the land (if any) are allowable as an income tax deduction for the year ended 30 June 2015. Refer to case law, income tax rulings and sections of the Income Tax Assessment Acts.
Assignment Task Two15 marks
Mary-Anne Mayfield is a 25 year-old Australian citizen who has recently completed a Master’s degree in Accounting at the University of Swansea, Australia. She is single, born in Australia and has always lived with her parents at Pelican Flat, NSW.
Mary-Anne’s ambition is to pursue a career as a university academic however she has found her opportunities in Australia limited by the fact she does not have a PHD. After canvassing many international Universities she was successful in securing a six month teaching contract with the University of Great Britain based in Coventry, England. The University has advised they may consider a further 12 month extension to the contract provided they are satisfied with her performance. Mary-Anne has been granted a 12 month UK working visa and will apply for an extension to the visa if offered further work at the University. She left Australia on 1 March 2015 to commence her contract on 1 April 2015. Mary-Anne travelled to the UK on a one-way ticket and has left sufficient funds with her mother to pay for a return flight if she decides to return home. Mary-Anne is unsure of her actions if the UK contract is not extended. At that time she will make a decision to either apply for another teaching position in the UK or to commence PHD studies either in Australia or the UK.
Although Mary-Anne has few contacts in the UK she has keep in touch with Wendy, a UK resident she met on a recent holiday to Bali. Wendy lives near Coventry and has assisted Mary-Anne in securing a six-month lease on a one-bedroom apartment close to the University. She has also arranged for Mary-Anne to open an account with a UK bank to receive her University salary. Mary-Anne has few assets in Australia other than a $10,000 term deposit with the Bank of Blacksmiths and a motor vehicle valued at $15,000 (which will be garaged at her parent’s house until she decides her future). Mary-Anne intends to purchase a cheap car in the UK for transport.
Required
In the form of a professional correspondence (not exceeding 750 words) advise Mary-Anne whether at 30 June 2015 she will be classed as a resident of Australia for income tax purposes. Also advise Mary-Anne how her income will be assessed given both scenarios of her being deemed a resident and a non-resident. Calculations are not required. Ignore any consequences of the Double Tax Agreement between Australia and the UK.
