Problem solving question

Task

Question 1

Amber owned and operated a boutique chocolate shop in Sydney that she purchased for $240,000 in August 2010. The purchase price consisted of equipment and stock worth $110,000 and the balance being goodwill. Following the birth of her child, Amber decided to sell the shop in February 2018 for $440,000 of which $280,000 was attributed to goodwill.

Amber was also required to sign a contract restricting her from opening another similar business within a 20km radius for the next 5 years. She received an additional sum of $50,000 for this contract.

Due to their expanding family, Amber and her husband purchased a four bedroom home in the outer suburbs of Sydney in June 2018. The purchase was partly funded by the sale of the business but also by the sale of Amber's one bedroom inner-city apartment. Amber had lived in the apartment since she inherited it from her Uncle in October 2013. He had purchased it in September 1992 for $180,000 and lived in it until he died. At the time of his death the apartment was valued at $390,000. Amber signed a contract for the sale of the apartment in May 2018 for $550,000 and settlement took place in July 2018.

Required

Advise Amber of the taxation consequences of these transactions. You are not required to calculate any capital gains or losses. (20 marks)

Question 2

Jamie is a real estate agent working for 'Houses R Us' real estate. As part of his employment contract, Jamie receives a base salary of $50,000 per annum plus 10% of the agency's commission on sold properties where he has had a direct connection with the sale. He is also provided with a car, a Toyota Kluger costing $48,000. He is not required to contribute to the running costs of the car which total $13,500 per year and is allowed to use the car outside of work hours and on weekends.

Jamie's salary package also includes a laptop which cost $2,300 and a mobile phone costing $1,200 per year. His employer also reimburses his annual professional subscription of $550 and provides him with an entertainment allowance of $2,000 per year.

Jamie was also lucky enough to achieve the highest sales for the previous six month period and was rewarded with a high tech home entertainment system worth $4,800.

'Houses R Us' also offer their staff loans of up to $100,000 towards purchasing their own house at a rate of 4% per annum. Jamie is considering taking up this offer to purchase his first home.

Required

Advise Jamie and 'Houses R Us' of the taxation and FBT consequences of these transactions. You are not required to calculate any FBT liability.

Rationale

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This assessment task will assess the following learning outcome/s:

• be able to identify and explain the rules of law relating to taxation law topics covered in the subject.
• be able demonstrate a capacity to engage in legal research.
• be able to use legal research skills to apply the law to legal problems relating to taxation so as to reach a solution.
• be able to analyse legal rules so as to differentiate between possible outcomes to the legal issues arising from novel fact situations.

Covering topics 5 to 11, this assignment has been designed to ensure that students are able to identify and apply legislation, rulings and case law to the issues identified as well as demonstrate the ability to analyse the issues fully and apply this knowledge to a hypothetical, practical situation.

Marking criteria and standards

In assessing your assignment the marker will expect you to:

• present an essay that is readable and coherent;
• use appropriate language, correct spelling and grammar;
• identify and analyse relevant issues;
• explain and apply relevant cases, rulings and legislation;
• reach a sound and well-reasoned conclusion;
• use appropriate referencing; and
• demonstrate time management skills.

The following criteria will form the basis of assignment of marks for the problem solving question.