Question 1

Background

Luke Warm is an electrician who acts as a sole trader. In the year ended 30 June 2012, Luke received the following benefits:

1. Rent-free business accommodation worth $100 from his landlord.
2. Tickets for the rugby league grand final worth $50 from one of his customers who operates a newsagency.
3. Free light switches worth $150 from a supplier, of which he will use 80% to service his customers and 20% in his private residence.
Required

Calculate Luke's assessable income (if any) in relation to items 1-3 above. Quote relevant legislation (you must be specific) and show all workings for each item.

Question 2

On 1 January 2012, Daisy Chain, a resident passive investor, borrowed $900,000 (at 10% interest per annum) and invested the funds as follows:

1. $200,000 was used to acquire shares that pay unfranked dividends. $20,000 of interest was paid in advance on 1 January 2012 for the next 12 months.

2. $250,000 was used to refinance the outstanding loan on her investment property with another bank (interest incurred to 30 June 2012 was $12,500).

3. $50,000 to build a home office (interest incurred to 30 June 2012 was $2,500).

4. $400,000 to acquire some gold bullion which will be held for 10 years and then hopefully sold for a capital gain (interest incurred to 30 June 2012 was $20,000).Daisy Chain also paid $5,000 general interest charge (GIC) (incurred to 30 June 2012) to the Australian Taxation Office.

Required

Identify whether the interest is deductible in the year ended 30 June 2012 in relation to the items above. Quote relevant legislation (apart from s. 8-1 ITAA 1997), cases or tax rulings for each item and very briefly explain your answer (a few words will suffice).

Question 3

Tax Ties Pty Ltd (Tax Ties), a provider of tax advice, provided the following benefits during the year ended 31 March 2012:

1. A digital camera worth $600 was provided to Frank Tie, who owns 20% the company and who retired six years ago.
2. Beers and pizzas served in the office for staff each Friday night.
3. Working lunches (sandwiches) provided each day to staff who consumed their lunches at a park close to the office while discussing business matters.
4. Interest-free loan totalling $100,000 provided to a director of Tax Ties who used the loan to buy a boat for his family.
5. Interest-free loan totalling $200,000 given to the Tax Ties director's non-working spouse used to acquire shares that pay franked dividends.
6. Desktop computer worth $5,000 given to the finance manager who uses it at home solely for business purposes.
7. Laptop computer given to the marketing manager who uses it 70% for business purposes.
8. Tax advice worth $800 provided to the accounting manager's newly graduated, non-working daughter.
9. A gift voucher worth $250 given to the receptionist for winning the ‘employee of the year' award.
10. $18,000 on a Christmas party for 64 staff members at a local restaurant, through reimbursing each staff member for their cost.

Tax Ties uses the actual method for determining its fringe benefits tax (FBT) liability in relation to meal entertainment benefits.

Required

Identify whether items 1-10 give rise to taxable fringe benefits and if so, what type of benefit. Quote relevant legislation for any possible key exclusion, reduction or in-house valuation concession (whether or not they actually apply) and briefly explain your answer (a sentence or two will suffice).

Question 4

Jack Hammer (a sole trader) sold his accountancy business on 30 June 2012. The capital proceeds attributable to the internally generated goodwill are $2,000,000 (the rest of his business assets were matched by compensating liabilities and were sold at their cost base). Jack started the business in 1988 and he now plans to work for the purchaser. Jack's cost base for the goodwill is nil. Jack is 57 years old. Apart from a share portfolio worth $3,500,000, Jack's other assets are a vintage car (worth $100,000) which Jack uses for personal enjoyment, his family home (worth $1,000,000) which has been used exclusively as a home, and his superannuation fund (worth $300,000).

Required

(a) Outline whether Jack passes the maximum net asset value test in s. 152-15. Identify all inclusions and exclusions with brief justification (you must quote specific legislation).

(b) Briefly justify whether Jack can obtain the 15-year exemption in s. 152-105.

(c) Assuming that Jack cannot obtain the 15-year exemption and ignoring the small business rollover concession, calculate Jack's minimum net capital gain on the sale of his business. Do not explain your answer. Do not quote legislation.