LAW303 Introduction to Taxation Law

Task:

Question 1 – Income from Business

After entering into a management agreement two years ago for the purpose of starting a business in cattle breeding next year, Georgina paid $5,250 by cheque to ACM, whose business was transferring embryos from stud cows to ordinary breeding cows. Under the agreement she was guaranteed six calves in the next two years.

If the venture failed, ACM remained liable to supply the calves from another source. Having paid her fees for Year 2, she did not receive any subsequent notification that the implants in her recipient cows were successful. She did not follow up after the implantation notices to find out whether any of her cows were pregnant. Nor did she enquire whether her cows had been implanted a second time as contemplated by the terms of the Management Agreement, which provided that each recipient cow would be implanted once in each of the 12-month contractual periods. She said that she had spoken to her accountant who told her things were progressing, but slower than anticipated. After paying her Year 2 Fees in June, Georgina heard nothing specific from ACM except by way of newsletters containing general information. She made no attempt to contact ACM in the current year about extending the lease on her recipient cows. She said she was going through a very difficult time. Her 12-month-old child had contracted a serious illness and she had to focus on looking after him.

Required

Is Georgina carrying on business?

Question 2 – Capital Gains Tax 

Anita is a client of yours. To fund her career as an artist Anita sold some of her art collection by other artists. It consisted of:

(a) An antique ceramic bowl purchased in February 1985 for $4,000. She sold the bowl on 1 December of the current tax year for $12,000.

(b) A sculpture purchased in December 1993 for $5,500. She sold the sculpture on 1 January of the current tax year for $6,000.

(c) A bronze figure purchased in October 1987 for $14,000. She sold the bronze figure on 20 March of the current tax year for $13,000.

(d) A painting purchased in March 1987 for $470. She sold the painting on 1 July of the current tax year for $5,000.

Required

Consider the CGT consequences of the above transactions.

Question 3– Tax Accounting 

Your client is a small IT consulting business consisting of a husband and wife as the principals and two employees. From the time the business was established, 1 July 2010, it has been accounting for tax purposes on a cash basis. For the current financial year your client has decided to account on an accruals basis as the size of the business is increasing. As at 30 June it has $40,000, which was paid to it from the previous financial year and this amount was not included in its assessable income for that year.

Required

1. Must it be included in the current financial year?

2. Would your answer be different if your client had deliberately told the customer not to pay its account for $40,000until after 30 June?

Question 4 – Taxation of Trust

Critically discuss why are discretionary trusts popular as a structure to protect assets and used extensively in estate planning?