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The word limit for the examination is 3,000 words; you may decide how to allocate them. No bibliography/reference list is required. If you believe that insufficient information has been furnished to enable you to properly answer any question you must indicate what information is missing and why it was necessary. QUESTION 1Question 1 is worth 50 marks On 30 June 2010, on the occasion of John and David entering into a civilunion, the beneficial interest in all the shares in Worry Tyres Pty Ltd was transferred by Michael (John’s father) to John. Michael had acquired the shares in Worry Tyres Pty Ltd on incorporation. On 30 June2010 the shares in Worry Tyres Pty Ltd were worth $600,000 represented by: •a house worth $250,000 which had been acquired before 20 September1985; and •other assets worth $350,000 which had been acquired after 19 September 1985. The house had been let to a business for a rental of $1000 per week from 1 September 1996 to 1 May 2010. John and David occupied the house owned by Worry Tyres Pty Ltd as their main residence from 1 July 2010. The relationship between John and David broke down during 2015. On 31 March 2016 the Family Court agreed to a propertysettlement whereby Worry Tyres Pty Ltd would transfer to David the house it owned. On 31 March 2016 the market value of the house was $550,000. The other assets were now worth $600,000. On 30 March 2017 David sold
the house for $625,000. David used the house 90% as his main residence and the remaining 10% was let to a third party as a doctor’s surgery. David continues with his other business activities as a stockbroker until 1 July 2019 at which time he is 60 years of age and wishes to retire. He sells the stockbroking business for $5,750,000. At this time his assets are: 1. A superannuation fund with a balance of $500,000;2. The assets used in the stock broking business worth $750,000; 3. Shares acquired as an investment of $1million;4. Goodwill of the stock broking business valued at $5million; and 5. An interest in another business valued at $1-million David advises you that the turnover of the stockbroking business neverexceeded $2 million per annum other than in 2014, which was an exceptionally good trading year. Required What are the CGT consequences of all the above transactions for Worry Tyres Pty Ltd, David and John? In answering each of the forgoing you are to ensure the best tax outcome for each taxpayer. In your answer you must cite all references to Income Tax Assessment Act 1997, case law and any ATO rulings as appropriate. You may assume the legislation operative in past and future years is not changed from the current legislation. Calculations are not required.
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