Calculate Rachel’s Capital Gain subject to Tax for the year ending 30 June 2020.

Australia

WORD COUNT: 1,500 – 2,500. THIS INCLUDES ALL FOOTNOTES AND REFERENCES. (10% margin under or over)

Citations: Harvard or AGLC referencing styles may be used, as long as you choose one style and use it consistently. (Maybe use Harvard since it’s easier https://libguides.cdu.edu.au/ld.php?content_id=40338940 )

Additional research IS required for this assignment.

UNIVERSITY PLAGIARISM POLICY

Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal article, the internet, or a previous essay you wrote or the assignment of a friend.

 

Case Study One –

Part A (15 Marks)

You are currently working as a graduate accountant and are provided with the following information from a client. The client, John, has the following income and expenses for the financial year ended 30 June 2020. John is employed as a manager for a local transport company.

Income

1,000.00	A wedding gift from his employer
25,000.00	Bonus received from his employer for successful completion of a large project
145,000.00	Salary received from her employer (including PAYG Withholding of $22,000)
3,000.00	Interest on Bank Deposits
10,000.00	John wins $10,000 at the race track (horses)
2,000.00	Exempt income from foreign service provided with respect to Army Reserves.
1,000.00	Received award from the Institute of Managers. To receive the award John simply had to attend the Institute of Managers final year-end dinners.

 

Expenses

800.00	John purchased work boots for $250, protective sunglasses for $250 and new dress shirt for $300 (which he also wears on the weekend)
400.00	Cost of meals and entertainment that his employer reimbursed him for
200.00	Taxi fares for travel to and from work when his car was being serviced
730.00	Membership fees, $530 relating to membership of institute of managers and $200 relating to membership fee for real estate institute
3,200.00	Rates on family home
900.00	Electricity for family home

 

John has two children and his spouse passed away two years ago. John does have private health insurance. In addition to the above John advises he does work from home as he attends to emails late night after dinner at least 4 nights a week, however he works from kitchen table as he does not have a separate office at home.

Required:

· Determine which Income and Expenses are assessable income or allowable deductions. Note you will need to cite legislative references, case law and tax rulings as applicable. Emphasis is on providing substantiation for you reasoning to include as assessable income or allowable deduction.

· Assume John is a resident for Australian taxation purposes, calculate his tax liability including any tax offsets and levies.

 

Part B (15 marks)

Rachel is your client and has come to you to prepare her tax return. During the 2019-20 financial year, she has disposed of the following assets:

(a) Rachel purchased a yacht in May 2017 from an auction warehouse for $25,000. Rachel has spent $35,000 on improvements to the yacht. In June 2020 Rachel sells the yacht for $45,000.

(b) Rachel purchased a vacant block of land in May 1991 for $250,000. In April 1998 Rachel subdivides the vacant block of land into two equal portions, both portions are valued at $200,000 each. In May 2020 Rachel sells one of the vacant blocks of land for $300,000

(c) Rachel acquired block of land for $80,000 on the 10th October 1978. On the 20th June 1990 Rachel builds a house on the same block of land for $550,000. In 10th May 2020 Rachel sales the house and the land for $850,000. During the period 20th June 1990 and 10th May 2020, the property was rented to an unrelated party

REQUIRED:

Calculate Rachel’s Capital Gain, subject to Tax for the year ending 30 June 2020. Provide justification for your calculations using legislation and case law.