Taxation Law

Question 1 (10 Marks)
Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the followin” rel=”nofollow”>ing remuneration package with ABC:
• salary of $300,000;
• Payment of Alan’s mobile phone bill ($220 per month, in” rel=”nofollow”>includin” rel=”nofollow”>ing GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan
uses the phone for work-related purposes only;
• Payment of Alan’s children’s school fees ($20,000 per year). The school fees are GST free.

ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (in” rel=”nofollow”>includin” rel=”nofollow”>ing GST).
At the end of the year ABC hosted a din” rel=”nofollow”>inner at a local Thai restaurant for all 20 employees and their partners. The total cost of the din” rel=”nofollow”>inner was $6,600 in” rel=”nofollow”>includin” rel=”nofollow”>ing GST.
(a) Advise ABC of its FBT consequences arisin” rel=”nofollow”>ing out of the above in” rel=”nofollow”>information, in” rel=”nofollow”>includin” rel=”nofollow”>ing calculation of any FBT liability, for the year endin” rel=”nofollow”>ing 31 March 2017. Assume that ABC would be entitled to
in” rel=”nofollow”>input tax credits in” rel=”nofollow”>in relation to any GST-in” rel=”nofollow”>inclusive acquisitions.
(b) How would your answer to (a) differ if ABC only had 5 employees?
(c) How would your answer to (a) differ if clients of ABC also attended the end-of-year din” rel=”nofollow”>inner?

Question 2 (10 marks)
Two years ago Peta purchased a house in” rel=”nofollow”>in Kew. This house had two old tennis courts down the back which were in” rel=”nofollow”>in poor condition. She purchased the property for two reasons:
• so that she and her family could live in” rel=”nofollow”>in the house; and
• so that she could build three units on the tennis courts and sell them at a profit.

In the current tax year the tennis club next door offered to buy the old tennis courts, but only if Peta first restored them to good condition. Peta decided to accept the club’s offer in” rel=”nofollow”>instead of
goin” rel=”nofollow”>ing ahead with her plan to build and sell units.
Peta spent $100,000 on preparin” rel=”nofollow”>ing the tennis courts for sale. This in” rel=”nofollow”>involved a great deal of work. Peta had to resurface the tennis courts and build new fences around them. She then sold the tennis
courts in” rel=”nofollow”>in the current tax year to the tennis club for $600,000.
Ignorin” rel=”nofollow”>ing capital gain” rel=”nofollow”>ins tax, discuss whether the receipt of $600,000 is ordin” rel=”nofollow”>inary in” rel=”nofollow”>income under s 6-5.

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