Question

PART A

Your line manager, Ahmed, has sent you the following email late on Wednesday just as you are about to finalise your timesheet and head to a monthly tax-update webinar:

From: Ahmed

Sent: Wednesday, 16 September 2020, 3:58PM

Subject: URGENT: Lisa Eastwood meeting scheduled, task assigned

Good afternoon,

I have just spoken with Lisa Eastwood (new client) over her tax position for the current tax year. I will be getting further documentation tomorrow; however, I need you to examine my notes below and determine the tax consequences arising from her various activities. Lisa has recently moved to Melbourne from Darwin, after being appointed as Regional Manager at the company, Dial Before You Dig.

Lisa’s Darwin Home

Lisa sold her home in Darwin (contract date September 2019, settlement December 2019), receiving $1,220,000 at settlement. This is after legal fees ($12,000), advertising ($2,000) and real estate commissions ($25,000) were deducted.

• Records indicate that Lisa purchased the property in 2002 (contract date January, settlement March) for $653,000. Legal fees, commissions and advertising of $8,000 were also incurred.
• Lisa moved in within 6 months, selling her former residence during that time.
• Over the ownership period, Lisa rented the property for three years beginning December 2010, with $65,000 of $120,000 in non-capital costs claimed against rental income. The property was valued at $890,000 at the time it began being rented.

Sculpture

Lisa gave a sculpture, valued at $18,900, to her friend in June 2020. The sculpture was purchased for $480 in December 2000 and repaired in March 2016 for $1,250.

Vase

When Lisa was playing with her cat in September 2019, the cat accidentally knocked over and broke a vase given to her by her grandmother in September 2018 (worth $6,100 at that time). The vase dated back to the Australian gold rush (circa 1850's) and, after undertaking some research, she discovered it was currently worth approximately $27,000. Lisa did not have insurance for the item.

Cryptocurrency

Lisa converted cryptocurrency into $27,200 Australian dollars in October 2019. To complete the transaction, she incurred $950 in transaction fees. Therefore, Lisa received $26,250 in cash. Lisa had acquired the cryptocurrency in September 2018 for $9,200 Australian dollars.

Shares

Lisa sold shares she held in a construction company in March 2020 for $182,000. She had purchased the shares for $37,200 in December 1986.

Lisa has indicated that she has carried forward losses from prior years of $180,000 relating to a prior disposal of shares and land.

We will have a meeting first thing Monday morning, so please complete your analysis by the end of Friday so I can review her circumstances over the weekend.

Regards,

Ahmed.

Senior Accountant

M&M Tax Accountants

Required: You are required to calculate Lisa’s Net Capital Gain (loss) for the year ending 30 June 2020 based on the above information provided. In doing so, you must present an accurate and complete analysis.

Please complete the following subset of SIX questions to complete this part.

(This part is worth 12 Marks: 1+1+2+2+3+3= 12 marks)

A.1 Determine the taxable capital gain (loss) on the sale of the home. Briefly justify your answer/show all workings. (1 Mark)

A.2 Determine the taxable capital gain (loss) on the sale of the Sculpture. Briefly justify your answer/show all workings. (1 Mark)

A.3 Determine the taxable capital gain (loss) on the sale of the Vase. Briefly justify your answer/show all workings.

A.4 Determine the taxable capital gain (loss) on the sale of the Cryptocurrency. Briefly justify your answer/show all workings.

A.5 Determine the capital gain on the sale of the Shares. Briefly justify your answer/show all workings.

A.6 Determine the Net Capital Gain and/or Loss for Lisa. Briefly justify your answer/show all workings.

Hint: it is recommended you use a table format to present your answer.

PART B

On Thursday, Ahmed sends you the following email with further information on Lisa’s circumstances.

From: Ahmed

Sent: Thursday, 17 September 2020, 11:23AM

Subject: Lisa Eastwood – additional information

Good morning,

Lisa has sent through the following information. Can you pull this together with what you have examined already so we can have a tax estimate ready to go.

• Wages (Melbourne employment) - $125,000 net wages, PAYG withheld of $43,000 plus a bonus of $5,000 was paid.
• Wages (Darwin employment) - $25,000 net wages, PAYG withheld of $1,500
• Interest income $1,000
• Allowable general deductions $3,300
• Allowable specific deductions $1,000
• Lisa is single with no private health insurance.
• Lisa has no reportable fringe benefits or reportable superannuation contributions.

Again, I need this by the end of Friday.

Ahmed.

Senior Accountant

M&M Tax Accountants

Required: You are required to calculate Lisa’s taxable income and net tax payable for the year ending 30 June 2020 based on the above information provided, as well as the information in Part A of this assessment task. In doing so, you must present an accurate and complete analysis.

Please complete the following subset of FIVE questions to complete this part.

(This part is worth 8 marks: 3+1.5+1+1+1.5 = 8 marks)

B.1 Calculate Lisa’s Taxable Income. Show all workings.

Hint: You can use the following format:

Ordinary Income	$X
Statutory Income	$X
Total Assessable Income	$X
General Deductions	$X
Specific Deductions	$X
Total Allowable Deductions	$X
Taxable Income	$X

B.2 Calculate Lisa’s Basic Tax Payable. Show all workings. (1.5 Marks)

B.3 Calculate Lisa’s Medicare Levy. Show all workings. (1 Mark)

B.4 Calculate Lisa’s Medicare Levy Surcharge. Show all workings. (1 Mark)

B.5 Calculate Lisa’s Net Tax Payable. Show all workings. (1.5 Marks)

PART C

On Friday, Ahmed sends you a final email with some points of clarification on Lisa’s circumstances previously determined.

From: Ahmed

Sent: Friday, 18 September 2020, 1:12PM

Subject: URGENT: Lisa Eastwood – possible clarification

Hey!

Unfortunately, Lisa has just called. Her earlier details may be incorrect. Lisa will confirm on Monday the exact details; however, can you review the impact on her position if instead of renting the property for three years, it was rented for eight year.

Apologies for the short notice on this one.

Ahmed.

Senior Accountant

M&M Tax Accountants

Required: Re-examine your analysis in Part A and B and explain the impact of the change of circumstances. In doing so, you must present an accurate and complete analysis.

Please complete the following subset of FOUR questions to complete this part.

(This part is worth 10 marks: 4+2+1+3= 10 marks)

C.1 Re-assess the taxable capital gain (loss) on the sale of the home on the basis that Lisa rented the home for a period of eight years. Briefly justify your answer/show all workings.

C.2 Re-calculate Lisa’s Net Capital Gain. Briefly justify your answer/show all workings.

Hint: Copy, paste and edit your previously prepared response.

C.3 Re-calculate Lisa’s Taxable Income. Show all workings. (1 Mark)

Hint: Copy, paste and edit your previously prepared outline.

C.4 Re-calculate Lisa’s Net Tax Payable. Show all workings.

Answer 1

1. captal gain(loss) on sale of house.

Option 1: Long term capital gain without indexation (as index value differ from country to country)

Sale considration. Dec 2019. $1220000

Less cost of acquisition. $ 653000

Capital gain. $ 567000

Note: 1 expenses incurred on sales are allowed to deduct which is already deducted from sale value.

2 expenses incurred before the purchase of property is not allowed to part of cost except the registration expenses.

3 rental receipts are not the part of capital gains. It is taxable under house property income of respective year.

Option 2 taking index value (indian index 2001-2002 is 100 and 2019-2020 is 289)

Sale considration. $1220000

Less cost of acquisition

$653000*289/100. $ 1887170

long term capital loss. $ 667170