Question 1 (25 Marks)

Aussie Ltd is an Australian subsidiary company of Meranti Ltd. Meranti Ltd manufactures furniture manufactures high quality furniture at a much lower cost and export it to Aussie Ltd. Aussie Ltd has been very successful and enjoyed huge sales volume. This has drastically affected the Australian furniture manufacturers and had threatened the local employment market.

In the current income year, the Australian Government imposed a high import duty on the annual sales of all imported furniture by Aussie Ltd that is sold in Australia (assume that this import duty did not previously exist). The import duty that was imposed affected the sales of furniture by Aussie Ltd. Aussie Ltd immediately spent $2 million in advertising campaign in the Australian media to attack the import duty, demanding it to be repealed. The company also sought the Australian public to petition the parliament in this regard, to preserve the freedom of choice so that they could enjoy high quality furniture at low cost. The amount of advertising amounted to eight times of the company’s normal advertising expenditure. Resulting from the drop in furniture sales, Aussie Ltd had to pay a $1 million redundancy payment to 50 of its employees.

Required

Discuss the tax implications for Aussie Ltd. You are required to cite the relevant case law, tax rulings and legislations.

Question 2 (10 marks)

James proposed to purchase a block of five flats he intended to rent to tenants. Before the purchase he contracted with a building inspector to assess the building and advise what expenditure would be required. The inspector advised that $20,000 would be required for plumbing, roofing and painting. The building was purchased on 1 September 2016. The plumbing, roofing and painting work was finished and the first tenant commenced on 1 October 2016.Shortly after the first tenants moved in, a section of the upstairs floor collapsed and James was advised the building was infested with termites and it would be necessary to spend $50,000 to have the ceiling/flooring replaced. James decided to use steel and specially treated timber material to ensure there were no further problems. The work was completed on 1 February 2017. James paid $2,000 to a pest control company to treat the remaining parts of the building as a preventive measure against termite infestation.

Required :

Advise James on the tax implications of the expenses incurred.  You are required to cite the relevant case laws and legislations.

Rationale

This assessment task covers Topics 2 to 12 and has been designed to ensure that you are engaging with the subject content on a regular basis and to assess your ability to:

• gather and integrate your knowledge on the Australian taxation system;
• describe and access the Australian regulatory taxation system;
• interpret legislation to compute taxable income and allowable deductions to determine taxation liabilities;
• investigate in depth the cases, rulings and legislation that are fundamental to taxation law;
• demonstrate your ability to apply that knowledge to a hypothetical, practical situation;
• exercise critical and reflective judgment;
• demonstrate your ability to conduct research using provided materials as well as other legal resources; and
• develop your written skills

Question 1

Question 1 requires you to identify issues relating to the principles of taxation on deductible
expenses of the taxpayer.  You are then required to identify and apply the relevant legal principles
and critically evaluate them.

Question 2

Question 2 requires you to address the principles related to both general and statutory deductions.
This question is designed to test your understanding of the principles relating to capital expenses and
deductions.

Marking criteria
In assessing your assignment the marker will expect you to:

• present an essay that is readable and coherent;
• use appropriate language, correct spelling and grammar;
• identify and analyse relevant issues;
• explain and apply relevant cases, rulings and legislation;
• reach a sound and well-reasoned conclusion;
• use appropriate referencing; and
• demonstrate time management skills.