BX3112 SP 22 Taxation Law – University of Australia

Question 1
Alice had the following transactions during 2016/17:
1. August 2016 – Alice sold her car for $26,000. She had paid $35,000 for it in June 2015.
2. February 2017 – Alice gifted her son some shares in Optus. She had bought them in December 1995 for $75,000 and, when she gave them away, their market value was $50,000.
3. March 2017 – Alice sold some Qantas shares for $100,000. She had acquired them in June 2015 for $60,000.
4. June 2017 – Alice was dismissed from her job and agreed to sign a restrictive covenant that she would not compete with her ex-employer for 3 years for which she received $50,000.
Calculate Alice’s net capital gain/capital loss in tax year 2016/17. Give reasons to support your work.
[7 marks]

Question 2
Anne and Brian established a florist in partnership on 1 July 2016. In the 2016/17 year, gross receipts amounted to $250,000 and outgoings included the following:
Business costs            $100,000
Salary paid to Anne under the agreement           $40,000
Interest on a capital contribution by Anne (as agreed)           $10,000
Interest on commercial loan by Brian to the partnership           $20,000

The partnership agreement provides that the partners are to share the residue of profits after expenses (including all those set out above) equally.
Calculate the net income of the partnership for tax year 2016/17 and each partner’s share of the net income of the partnership and their assessable income (you may assume that they have no income other than what they receive through the partnership).
[4 marks]
Question 3
The Luke Family Trust is a discretionary trust pursuant to which the family’s solicitor settled $1 on Neal Pty Ltd as trustee for the trust. Mr Luke then gifted a number of properties located both in Australia and the Cayman Islands to the trust.
For the last tax year the trust has derived net income of $50,000 in rental profits, $25,000 of which was sourced from the overseas properties (and not taxed there as there is no income tax in the Cayman Islands).
The trustee determines to allocate the net income of $50,000 as follows:

•  $10,000 to Mr Luke who is a resident of Australia (and who has no other
  income);
•  $25,000 to his wife Pauline who resides in the Cayman Islands; and
•  $416 to their 15-year-old daughter Jane; and
•  $5,000 applied to pay for their 18-year-old insane son’s (Frank) medical
  expenses (Frank also receives $20,000 pa from another trust).

The trustee retains the balance for reinvestment.
Who is assessable on the income of the trust estate? Indicate, where relevant, any entitlement to credits.
[7 marks]

Question 4
Bruce received a $100,000 bona fide redundancy payment in 2017/18 after 10 years and 11 months service with the same employer. How will the payment be taxed?
[2 marks]