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BLAW30002 Taxation Law
Examination paper is to remain in the examination room. Copy of paper to be held by the Library. Instructions to Students:
1. This exam is worth 70% of your final mark in this subject and contains 2 questions. Question 1 is worth 35 marks and Question 2 is worth 35 marks. 2. You should attempt to answer ALL questions in the examination paper. 3. Where a question has more than one part, you should attempt to answer all parts of the question 4. You must write your answer with BLUE or BLACK PEN only. 5. You may make notes during the reading time, but NOT on the examination script books. 6. You must provide appropriate reasons and references for your answer. If you require any additional information, state what that information is, why it is required and how it is relevant to your analysis. Instructions to Invigilators
1. Students may make notes during the reading period elsewhere than in the script books. Authorised Materials
-Students may have unrestricted access to any hard copy printed or written materials from the beginning of reading time. -Students may use an “approved calculator” during this exam. -Students may not access any electronic materials, including electronic dictionaries. BLAW 30002 2019 Final Examination Page 2 of 3 Question 1 (35 marks)
Rodrigo is a wine maker. He is a Chilean citizen and has a winery in Santiago, Chile. Rodrigo recently discovered a new method of bottling wine that significantly reduces costs without compromising the quality of the wine. His expertise is highly sought after by wine makers all over the world.
Rodrigo decided to take a one-year break from his winery to travel the world and share his wine bottling expertise with other wine makers. Given the many different wine regions in Australia, Rodrigo travelled to Australia more than 10 times between 1 July 2018 and 30 June 2019. He stayed in Australia for at least 3 weeks each time, at one particular location for each visit. He never visited the same place twice. Rodrigo stayed in hotels during his time in Australia and most of his time while in Australia was spent advising wine makers regarding bottling techniques. He also took the opportunity whenever he could to see a little bit of the country as Rodrigo had never been to Australia before July 2018.
Rodrigo did not have any friends before visiting Australia, but he found the people he met friendly and he made many friends during his time in Australia. Rodrigo’s family are all in Chile and he has his family home there. Rodrigo did open a bank account in Australia as he found it easier to receive payments for his services in Australia to an Australian bank account, rather than his account in Chile.
Although Rodrigo did not intend to stay in Australia on a long-term basis when he first started his visits, the friendliness of the people and the beauty of the wine regions made him consider staying on a more permanent basis. More importantly, he received a very lucrative job offer to move to Australia and his family were happy to move with him. In July 2019, Rodrigo moved to Australia permanently.
Rodrigo’s Australian employer is Big Wines Pty Ltd (“BW”). BW is a large wine producer with sales of approximately $10 million each year. Rodrigo has agreed the following salary package with BW:
1. Salary of $300,000 per year; 2. Travel allowance of $10,000 per year. The allowance is provided to Rodrigo so that he and his family can visit different parts of Australia on holiday. The allowance can only be used on domestic airfares with Qantas and Rodrigo must provide BW with the invoices for the airfares to receive the allowance. For the period 1 July 2019 to 31 March 2020, Rodrigo received $7,700 of the allowance; and 3. Loan of $10,000 at an interest rate of 4.37%. The loan was provided on 1 September 2019 for a period of one month. On 30 September 2019, BW informed Rodrigo that he only had to repay half the loan. Rodrigo paid BW $5,000 on 30 September 2019.
Required:
(a) Advise Rodrigo as to whether he would be considered a resident of Australia for income tax purposes for the year ended 30 June 2019. You may assume that Rodrigo is not a ‘temporary resident’ under subdivision 768-R of ITAA97 and that he is not an Australian citizen or permanent resident. You may also assume that Rodrigo is not a member of a relevant superannuation fund. (15 marks)
(b) Advise BW as to its Fringe Benefits Tax (FBT) consequences (including calculation of any FBT liability) for the year ending 31 March 2020 arising out of the above information. You may assume that the relevant legislation is the same as at 31 October 2019 and that BW has not provided benefits to other employees. (18 marks)
(c) Advise Rodrigo as to his assessable income consequences arising in relation to his salary package. You may assume that Rodrigo is an Australian tax resident at this time. (2 marks)
THIS IS THE END OF QUESTION ONE BLAW 30002 2019 Final Examination Page 3 of 3 Question 2 (35 marks)
Solar Energy Now Pty Ltd (“SEN”) is a private company incorporated in Victoria, Australia. The company was incorporated in January 2015 with four equal owners – John, Ringo, Paul and George. The four have been friends since they met in high school. The company’s business is the manufacture and installation of solar panels for new apartment buildings in Victoria. The company was successful in 2015 but following a downturn in the housing sector, SEN made significant tax losses in the years ended 30 June 2016 and 30 June 2017. Following the poor business results, John decided that he didn’t want to spend any more time on solar panels and decided to pursue his dream of making music. John sold his shares to Ringo on 1 July 2017. After a few months, Paul decided that he did not want to stay in the company without John and so he left the company to start his own solar energy company in the Northern Territory. Paul sold his shares to George on 1 January 2018. In 2019, SEN became profitable again due to the introduction of a new government subsidy scheme which boosted the demand for solar panels.
Ringo’s sister, Rachel, carries on her own business as a talent manager. She does not have an office as she usually meets her clients at their homes or offices. When she is not meeting clients, Rachel’s work can generally be done on her laptop and so she works at home, on her sofa. For the year ended 30 June 2019, Rachel incurred the following expenses:
1. $3,300 on travel to see her clients. Rachel generally travels from her home to see clients but sometimes travels directly from one client to another; 2. $5,000 on expenses such as rent, electricity and cleaning for her home; and 3. $1,100 on a new sofa for her home.
One of Rachel’s clients is John (who left SEN to pursue a music career). Rachel and John have been friends since high school and when John first left SEN to pursue a music career, Rachel did not charge him for her services as she believed in his talent. Slowly, John became more and more successful with Rachel as his manager. In 2019, John had a best-selling album and tour. He was so grateful for Rachel’s support and services that, in addition to her usual fee, John provided Rachel with one month’s use of his beach house for free. The beach house would usually be rented out for $35,000 per month. Rachel did not really want to use the beach house, but she did not want to offend John, so she stayed at the beach house between December and January. John also reimbursed Rachel for her expenses incurred in accompanying him to attend an awards ceremony in Los Angeles, USA ($34,477 on airfares and hotel charges).
Rachel wanted to look good at the awards ceremony and so she sold some shares which she owned to buy a Chanel dress and accessories (total cost $18,888). The shares had been purchased for $2,000 in 2010 and Rachel sold them for $22,000 in January 2019.
Required:
(a) Advise SEN as to whether it can use the 2016 and 2017 tax losses as a deduction in the year ended 30 June 2019. (8 marks)
(b) Advise Rachel as to her income tax consequences arising out of the above information. You may assume that Rachel is an Australian resident for income tax purposes. (27 marks)