Pensioners Tax Offset – Paradigm Films Case Study Taxation Assignment Help

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QUESTION

Part A

Megan Marvel was a senior executive working for Paradigm Films, an international film production company. In this role, she earns a salary of $250,000 per annum. In 2018, Megan received an Academy Award (‘Oscar’) for her work in directing a film. She received a gold statue worth $20,000. She had to sign a contract agreeing not to sell the statue.

Five years ago, Megan was unhappy with her career with Paradigm Films and started to think about changing her career. She decided to leave the company. She had significant savings and wanted to see if she could make her name as an independent film producer. When she left her job, Megan entered into a contract with Paradigm Films where she agreed that she would not work in the film industry for 2 years in return for a payment of $500,000.

Megan’s investment portfolio comprises of the following:

Asset    Acquisition Date   Acquisition Price Notes

Vineyard    24 June 2010      $200,000

• Property is a 10 hectare (ha) vineyard with a house and farm buildings near Hall.

She spends a lot of time at her vineyard near Hall, mainly on the weekends. She owns a house in Yarralumla that is her main residence. The vineyard has a house, several farm buildings, and the land where the grapes are growing. She is a member of the local winemakers’ association and attends lectures on growing grapes for commercial use. She employs two students on a part-time basis to help her look after the vines. After a couple of years, Megan realised that she was harvesting a significant quantity of grapes. Megan started selling her grapes to local winemakers in the area. She keeps records of her income and expenses. For the last two years, Megan’s revenue from selling the grapes averaged $100,000 per year.

Recently, Megan was approached by a property developer. The developer advised her to redevelop the farm buildings into 25 townhouses. The farm buildings were located in a separate area to the vineyard and her house, so she decided to subdivide the property into two 5 ha lots of equal size (Lot A and Lot B).

Lot A had the house and vineyard, which she retained for her personal use. Lot B had the buildings that would be redeveloped into 25 townhouses. The cost of the subdivision was $20,000 for Lot A and $50,000 for Lot B. She engaged a builder to build the 25 townhouses on Lot B and worked closely with him on the design of each townhouse. At the time the development commenced, the market value of Lot A was $500,000 and $250,000 for Lot B. The construction costs for the townhouses built on Lot B was $25m. Shortly after completion, Megan sold the 25 townhouses built on Lot B for $37.5m on 30 June 2018.

Part B

Paul is a doctor employed at John James Hospital at Deakin (the Hospital), where he earns $175,000 per annum. He is also employed as a part-time lecturer in pathology at the ANU Medical School in Canberra (the University), earning $65,000 per year. Paul lives in Red Hill.

On the days that Paul works at the University, he travels from his home to the Hospital, and then from the Hospital directly to the University, and then back home. He incurs bus fares of $2,000 in undertaking this travel in the 2017-18 year.

Paul is interested in developing his skills as a doctor so that he can apply for promotion at the University. In February 2018, he travels to the USA to attend an intensive 3-month postgraduate course in pathology at Columbia University in New York. He stays an additional month and takes a course in creative writing offered by Columbia University. He incurs travel and accommodation costs of $10,000.

Paul’s investment portfolio comprises the following:

Asset                      Acquisition Date Acquisition            Price Notes

Investment property (in Brisbane)    15 May 2014                      $280,000

• Legal fees of $10,000 and stamp duty of $20,000 paid on acquisition.

Investment Property in Brisbane Paul decided to sell his investment property in Brisbane. Before he sold the house he undertook the following:

(a) Floor coverings were worn and he replaced them at a cost of $10,000. The original covering was wooden floorboards which he replaced with high-quality cork tiles that were sound resistant;

(b) Replastering and repainting a wall which had been damaged due to a leak costing $2,000;

He sold the Brisbane property on 30 June 2018 to his sister for $400,000. The market value of the property was $500,000. He incurred legal fees of $5,000 and paid sales commission of $12,000 on the sale.

Question 3.1

What is the basic income tax payable for an Australian resident individual with taxable income for the 2018–19 income year of:

(a) $15,000?

(b) $40,000?

(c) $100,000?

(d) $300,000?

Answer

(a) Taxable income is below the $18,200 tax-free threshold; therefore no tax is payable.

(b) First $18,200 ? no tax payable.

$18,201 to $37,000 = $18,800 x 19% = $3,572

$37,001 – $40,000 = $3,000 x 32.5% = $975

Therefore basic income tax payable = $4,547

(c) First $18,200 ? no tax payable.

$18,201 – $37,000 = $18,800 x 19% = $3,572

$37,001 to $90,000 = $53,000 x 32.5% = $17,225

$90,001 – $100,000 = $10,000 x 37% = $3,700

Therefore basic income tax payable = $24,497

(d) First $18,200 ? no tax payable

$18,201 – $37,000 = $18,800 x 19% = $3,572

$37,001 to $90,000 = $53,000 x 32.5% = $17,225

$90,001 – $180,000 = $90,000 x 37% = $33,300

$180,001 – $300,000 = $120,000 x 45% = $54,000

Therefore basic income tax payable = $108,097

Question 3.2

What is the basic income tax payable for a foreign resident individual with taxable Australian income for the 2018–19 income year of:

(a) $15,000?

(b) $40,000?

(c) $100,000?

(d) $300,000?

Answer

(a) Tax payable = $15,000 x 32.5% = $4,875 (no tax free threshold for foreign residents).

(b) Tax payable = $40,000 x 32.5% = $13,000 (no tax free threshold for foreign residents).

(c) Tax payable = ($90,000 x 32.5%) + ($10,000 x 37%) = $29,250 + 3,700 = $32,950

(d) Tax payable = ($90,000 x 32.5%) + ($90,000 x 37%) + ($120,000 x 45%) = $29,250 + $33,300 + $54,000 = $116,550

Question 3.3

Calculate the Medicare levy payable (if any) for the year ending 30 June 2019 on the following amounts for a single Australian resident taxpayer who is not entitled to the seniors and pensioners tax offset (assume the same “threshold amount” and “phase-in limit” as for the 2017-18 income year):

(a) $15,000

(b) $23,000

(c) $40,000

Question 3.4

Calculate the Medicare levy surcharge payable (if any) on the following taxable income amounts for a single Australian resident taxpayer who does not have private health insurance for the entire income year.

(a) $50,000

(b) $100,000

Question 3.5

Following on from 3.4, calculate the Medicare levy surcharge payable if the individual had private health insurance for 300 days in the income year.

Question 3.6

Rani is an Australian resident for tax purposes. She has assessable income of $50,000. She has deductions of $10,000 and franking credit tax offsets of $300. What is Rani’s tax payable for the 2018–19 income year?

Question 3.7

Acme Pty Ltd has determined that its assessable income for the year is $100,000 and it has deductions of $30,000. What is Acme’s tax payable for the 2018–19 income year? Assume that Acme‘s turnover is in excess of $50 million.

Question 3.8

Jacqueline is an Australian resident for income tax purposes. She has taxable income of $77,000.  She has been provided with a receipt for an expense in the amount of $1,000.  This expense will constitute a deduction.  How much tax will Jacqueline save for the 2018–19 income year?

Question 3.9

Following on from 3.8, Jacqueline has a HELP debt of $25,000.  How much of the HELP debt would she be required to repay for the 2018–19 income year?

Question 4.0

Using the general principles discussed in this chapter, discuss whether the following are likely to be “ordinary” income:

(a) Salary received by an employee.

(b) Compensation received by an injured worker for loss of salary because he was unable to work for four weeks.

(c) A Christmas present received by a daughter from her mother.

(d) Proceeds from selling the copyright to a book. The recipient was an employee accountant who wrote a novel in her spare time over a number of years.

(e) Proceeds from selling the copyright to a book, where the recipient is in the business of writing books and selling his copyright.

(f

) Profit realized on the sale of shares that have been held for a number of years, primarily for their capital growth.

(g) Unemployment benefits from the Government to an unemployed person.

Question 4.1

Look up some English dictionary definitions of “income”. In what respects are these definitions of income similar to what tax law regards as “ordinary income”? Why is there a similarity?

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