Report on Worry Tyres Pty Ltd

Added on - 16 Sep 2019

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The word limit for the examination is 3,000 words; you may decide how toallocate them.No bibliography/reference list is required.If you believe that insufficient information has been furnished toenable you to properly answer any question you must indicate whatinformation is missing and why it was necessary.QUESTION 1Question 1 is worth 50 marksOn 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 Ltdwas transferred by Michael (John’s father) to John. Michael hadacquired the shares in Worry Tyres Pty Ltd on incorporation. On 30 June2010 the shares in Worry Tyres Pty Ltd were worth $600,000represented by:a house worth $250,000 which had been acquired before 20 September1985; andother assets worth $350,000 which had been acquired after 19September 1985.The house had been let to a business for a rental of $1000 per weekfrom 1 September 1996 to 1 May 2010. John and David occupied thehouse owned by Worry Tyres Pty Ltd as their main residence from 1July 2010. The relationship between John and David broke downduring 2015. On 31 March 2016 the Family Court agreed to a propertysettlement whereby Worry Tyres Pty Ltd would transfer to David thehouse it owned.On 31 March 2016 the market value of the house was $550,000. Theother assets were now worth $600,000.On 30 March 2017 David sold
the house for $625,000. David used the house 90% as his mainresidence and the remaining 10% was let to a third party as a doctor’ssurgery.David continues with his other business activities as a stockbrokeruntil 1 July 2019 at which time he is 60 years of age and wishes toretire. He sells the stockbroking business for $5,750,000. At this timehis 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; and5. An interest in another business valued at $1-millionDavid advises you that the turnover of the stockbroking business neverexceeded $2 million per annum other than in 2014, which was anexceptionally good trading year.RequiredWhat are the CGT consequences of all the abovetransactions for Worry Tyres Pty Ltd, David and John? In answeringeach of the forgoing you are to ensure the best tax outcome for eachtaxpayer. In your answer you must cite all references toIncome TaxAssessment Act1997, case law and any ATO rulings as appropriate.You may assume the legislation operative in past and future years isnot changed from the current legislation. Calculations are not required.
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