TAXATION LAW

TAXATION LAW

Instructions:
This assignment is to be submitted by the due date in both soft-copy (Safeassign – Bb) and hard copy.
The assignment is to be submitted in accordance with
assessment policy stated in the Subject Outline and Student
Handbook
It is the responsibility of the student submitting the work to ensure
that the work is in fact his/her own work. Ensure that when
incorporating the works of others into your submission that it
appropriately acknowledged.

Maximum marks: 20 (20%)

Assignment 1: You should attempt both parts to this assignment
Note: you should incorporate all sections of the various Acts/regulations
where appropriate.

Part 1: Case study

Periwinkle Pty Ltd (Periwinkle) is a bathtub manufacturer which sells bathtubs directly to
the public. On 1 May 2013, Periwinkle provided one of its employees, Emma, with a car
as Emma does a lot of travelling for work purposes. However, Emma’s usage of the car is
not  restricted  to  work  only.  Periwinkle  purchased  the  car  on  that  date  for  $33,000
(including GST).

For the period 1 May 2013 to 31 March 2014, Emma travelled 10,000 kilometres in the
car  and  incurred  expenses  of  $550  (including  GST)  on  minor  repairs  that  have  been
reimbursed by Periwinkle. The car was not used for 10 days when Emma was interstate
and  the  car  was  parked  at  the  airport  and  for  another  five  days  when  the  car  was
scheduled for annual repairs.

On 1 September 2013, Periwinkle provided Emma with a loan of $500,000 at an interest
rate of 4.45%. Emma used $450,000 of the loan to purchase a holiday home and lent the
remaining $50,000 to her husband (interest free) to purchase shares in Telstra. Interest
on  a  loan  to  purchase  private  assets  is  not  deductible  while  interest  on  a  loan  to
purchase income-producing assets is deductible.
During the year, Emma purchased a bathtub manufactured by Periwinkle for $1300. The
bathtub only cost Periwinkle $700 to manufacture and is sold to the general public for
$2,600.

(a)  Advise  Periwinkle  of  its  FBT  consequences  arising  out  of  the  above  information,
including calculation of any FBT liability, for the year ending 31 March 2014. You may
assume that Periwinkle would be  entitled to input tax credits in relation to any GST-inclusive acquisitions.

(b)  How would your answer to (a)  differ if Emma used  the $50,000  to  purchase the
shares herself, instead of lending it to her husband?
( 12 Marks)

Part 2: Question

An extract of the asset register of Alpha Pty Ltd (‘Alpha’) for the 2012-13 income year is
as follows:

Asset  Cost  Opening
Adjustable
Value
Method  Effective
Life
Decline  in
Value  for
This Period
Closing
Adjustable
Value
Desktop
Computer
1,350  1,350  Diminishing
Value
3 years  450  900
Furniture  5,000  3,000  Prime Cost  10 years  500  2,500
Filing
Cabinets
1,200  1,080  Prime Cost  10 years  120  960

All depreciable assets are for 100% business use and Alpha uses a low-value pool for all
eligible  assets.  The  closing  value  of  the  low-value  pool  at  30  June  2013  was  $5,300.
Alpha purchased a printer on 5 June 2014 for $700.
Advise Alpha of the income tax consequences arising out of the above information for
the 2013-14 income year.               ( 8 Marks)

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