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(Solved) ACCG 924 Session 1 2017 (Word limit 1,500 words) Case Study (25%) The case study will potentially cover lecture topics 2 to 7 and related tutorial...


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ACCG 924 Session 1 2017
(Word limit 1,500 words) Case Study (25%) The case study will potentially cover lecture topics 2 to 7 and related tutorial
questions, and is due to be lodged via turnitin and ilearn by 5pm 5 May 2017.
YOUR CASE STUDY MUST BE TYPED. NO HAND WRITTEN SUBMISSIONS WILL BE
ACCEPTED. The case study requires students to provide a detailed analysis of a fact situation
below applying the taxation laws to arrive at a conclusion. Guidelines to marking the
case study will be provided on ilearn after the case study marks are returned to
students. No extensions will be granted. There will be a deduction of 10% of the total available
mark from the total awarded mark for each 24 hour period or part thereof that the
submission is late (for example, 25 hours late in submission – 20% penalty). This
penalty does not apply for cases in which an application for disruption of studies is
made and approved. No submission will be accepted after solutions have been
posted. Part A (12 marks)
Gringo Ltd (known as “Gringo”) is a resident Australian company that supplies office equipment to
businesses and private individuals in Sydney. Gringo has two equal shareholders – Amy and her
husband Ben – who hold 50 issued shares each in the company. Amy and Ben acquired their shares
for an issue price of $300 per share on 1 January 2008 when Gringo was incorporated.
The business of Gringo was initially carried on from leased premises. On 1 January 2012 Gringo
purchased the leased premises which included an administration office, a warehouse and an
adjoining car park for customers. Initially Gringo considered the purchase of only the warehouse for
$800,000, but then decided to purchase the administration office, the warehouse and the car park
for $2 million.
Gringo was required to borrow $950,000 on 1 January 2012 to purchase the business premises.
Interest on the 12-year loan was 10% and there was an upfront establishment fee of $3,000. In March 2012, Gringo found out that the plumbing and electrical systems in the administration
office needed repairing and spent $30,000 to rectify the problems. In January 2013, Gringo paid a
builder $80,000 to add two rooms to the administration office. The driveway leading to the car park
had to be repaired in 2014 at a cost of $18,000 because tree roots were damaging it.
In December 2015, a violent hail storm caused damage to some parts of the warehouse roof. Gringo
decided to replace the entire roof at a cost of $45,000 and added insulation and air conditioning at a
cost of $30,000. The storm also damaged a large sign advertising the business and it cost Gringo
$2,000 to get it working again.
Gringo purchased some equipment on 1 July 2013 that would be used solely to move goods around
the warehouse. The equipment cost $44,000 (GST inclusive) and Gringo is entitled to claim an input
tax credit for the GST included in the purchase price. Gringo claimed a capital allowance for the
vehicle for 2013/14, 2014/15 and 2015/16, using the prime cost method and basing the calculation
on an effective life of five years. On 1 July 2016, Gringo sold the equipment for $12,000 to the
brother of Amy, one of the Gringo shareholders. The market value of the equipment at the time was
$28,000.
Gringo decided to relocate its business to New Zealand from 30 June 2017 and, as a result, on 1 May
2017 entered into a contract to sell the business premises for $3.8 million. Legal fees associated with
the sale were $12,000 and other selling costs amounted to $8,000.
Required:
1. Based on the information provided and assuming Gringo had a carry forward capital loss
of $30,000 at 30 June 2016, explain and calculate the net capital gain or capital loss to be
included in Gringo’s assessable income for 2016/17 as a result of the sale of the business
premises (7 marks).
2. Explain whether the interest on the loan and the establishment fee are deductible for
Gringo (2 marks).
3. Explain and calculate the tax consequences for Gringo when the equipment used to move
goods around the warehouse is sold for $12,000 on 1 July 2016 (3 marks).
You must support your answers with legal sources (legislation, rulings or cases). If you have
insufficient information and need to make assumptions, those assumptions must be reasonable
and must be stated. Part B (7 marks)
Amy incurred a number of expenses in 2016/17 and is hoping for a tax deduction to reduce her tax
liability. She received salary of $120,000 from Gringo during the year.
Amy’s expenditure during 2016/17 was as follows:
1. $2,500 on fees and materials for a university course studying Indonesian – she thinks this
will be useful for expanding the Gringo business
2. $1,300 income tax for the 2015/16 income year – she received her notice of assessment on
1 December 2016 and was liable to pay $1,300 within 30 days
3. $230 interest paid to the bank when she had to borrow money to pay her income tax bill
4. $280 on a briefcase that she uses when she is working for Gringo
5. $800 on a donation to the Labor Party before the State election
6. $698 expenses associated with an office that she sets aside in her home for carrying out
work activities in the evening and at the weekend (on work days she works in her office at
the Gringo premises) – the expenses relate to a portion of the interest on her home loan,
electricity and depreciation of furniture and office equipment
7. $650 for meals when she goes to university classes in the evening
Required:
For each of these items of expenditure above, explain whether a deduction would be allowed.
(1 mark for each item)
You must support your answers with legal sources (legislation, rulings or cases). If you have
insufficient information and need to make assumptions, those assumptions must be reasonable
and must be stated. Part C (6 marks)
Amy and Ben moved to New Zealand on 1 July 2017 when the Gringo business was relocated and
their intention was to stay there indefinitely. The assets that they still owned when they moved on 1
July 2017 were their shares in Gringo, 2,000 Commonwealth Bank shares, their family home in
Sydney and two cars.
The plan was that they would primarily be based in New Zealand and would each be paid a salary as
employees of Gringo. Amy would, however, work for Gringo for four months each year in Sydney
because of the need to maintain close links with customers and to make new business contacts.
Required:
1. Explain the capital gains tax consequences for Amy and Ben when they move to New
Zealand. Include in your explanation any choices Amy and Ben can make that would
change the CGT consequences of their move. (4 marks)
2. Explain how the salaries earned by Amy and Ben would be taxed after they move to New
Zealand. (2 marks)
You must support your answers with legal sources (legislation, rulings or cases). If you have
insufficient information and need to make assumptions, those assumptions must be reasonable
and must be stated.

 


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