Principles of Taxation Law Assignment: CBP and Monica's Taxation

This document presents a comprehensive solution to a Principles of Taxation Law assignment. The assignment addresses two main questions: the first question analyzes the tax implications for a building partnership, Cedars Building Partners (CBP), focusing on property inheritance, rental income, capital gains, and construction costs. It explores various scenarios including property sales, rental income, and the impact of construction methods on tax liabilities. The second question provides financial advice to Monica, evaluating the tax treatment of rental properties, loan repayments, property modifications, doubtful debts, travel expenses, and professional membership fees. The solution provides detailed calculations and explanations based on the ITAA97, covering capital gains tax, allowable deductions, and income tax considerations.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors note:

1TAXATION
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................5
Reference.......................................................................................................................................10

2TAXATION
Answer to Question 1:
In the given case, the client Tony and Hub is building development business naming
Cedar Building Partners (CBP). The clients own a property in 35b Bright Street valuing
$10000000 which was formerly acquired by their deceased father Mr Joe in 1974. Both of the
brothers have decided use the property as business purpose, not as a residential purpose. The
main idea before developing the land is to make money from the property which is being given
to them from their deceased father.
The land is hugged and categorised in to R2 zone, which means two secluded buildings,
can be developed in the one block land (Braithwaite 2017). In that case there are few
circumstances that are to be discussed in the given case that the following are.
1. In the given case if the client Mr Tony and Hub did not invest a penny in the building and
only earning the rental income form the CGT asset then they will earn $12000 monthly
which amounts to $144000 per Annum. But this is not the right process as there are
chances of developing the structure then they could earn more then what they are earning
now. This process can cost more money for the brothers, but in long run, this expenses
will be regarded as investments. This will be held as the business taxable under ITAA97
s995-1.
Rental income
Particulars Amount
Rent per month 12000
Annual rent 144000
2. If the client sell the house then they will earn $1000000. Which will be added to the tax
on the selling price after deduction of the index value of the asset. The tax will be
chargeable under the ITAA 6-10 statutory income. Further the transfer from the deceased
father is not taxable as the gift or inheritance dose not attracts the tax under ITAA97.

3TAXATION
3. In the given case there will not be any taxable activity that is carried on by the client. In
that case, it is an investment not an income. The income will be derived by the client as
the ordinary income if they further let out the newly build property (McNamara 2018).
The cost of renovation will be of $200000. Moreover, for the new construction the
amount will be $250000. This will be deducted from the income, as it will hold for the
deduction from the property.
4. Capital Gain Computation
Particulars amount amount
sale 1000000
Less: transfer cost 0
Total 1000000
Less : index cost of acquisition 2079683
Cost of Purchase 700000
Base year 37.9
Current year 112.6
Capital gain Loss 1079683-
5.
4.1: If the house or the plot is spliced into two parts after the creation of the house then each part
will be valued at $1200000. In that case if any of the clients sell the property then in the case
they will be charged to tax under CGT under the section 10 of the ITAA (Lobato and Meese
2016).
4.2: If the client holds the property jointly then they will be able to earn rental income from the
assets and the value of the property will be increased to $2400000 after a term of five years.

4TAXATION
Capital Gain Computation(house 1)
Particulars amount amount
sale 120000
Less: transfer cost 0
Total 120000
Less : index cost of acquisition 103984.1689
Cost of Purchase 35000
Base year 37.9
Current year 112.6
cost of renovation 200000 200000
Capita Gain -183984.17
Capital Gain Computation(house 2)
Particulars amount amount
sale 120000
Less: transfer cost 0
Total 120000
Less : index cost of acquisition 103984.1689
Cost of Purchase 35000
Base year 37.9
Current year 112.6

5TAXATION
cost of renovation 200000 200000
Capita Gain -183984.17
Further the brothers Toney and Hub decided to build the house by own motion without
appointing a builder then they could reduce the amount of the construction. They expects that the
cost of development of the new house will be $200000-250000. It will be double in case it is
transfer to the builder.
In that case there are some problems that required to be kept.
 The responsibility of the construction and the structure is to be borne by the builder.
In case of any problem, the matter is to take care of by the builder.
 Secondly, in the case if the brothers develop the property then they have to indulge a
huge time worth money.
 The biggest problem is that the clients are not professional in the construction
business. In that case they might have calculated the estimated cost in a wrongly
manner.
Answer to Question 2:
In the given case, Monica a financial advisor seeks advice on the financial activated that
is performed by the clients in the financial year. In the given case, it is assumed that the assesse
is an ordinary resident individual according to the ITAA97.
A. In the given case the assesse has acquired a rental property for $500000. This is will be
treated as a CGT assets according to the ITAA.
B. For the acquisition, the assesse has acquired a loan of $4500000 for 25 years.
a. For the initial grant of the loan, the assesse has paid a loan amounting $5000 for the
establishment fee. This is to be held as the processing charges of the financial
institutions (Vann 2016).

6TAXATION
b. The loan is repaid by the monthly instalments. The amount of the EMI is $21250 per
month. In that case, the EMI is contributing to the principal payment amounting to be
$10000 and interest on the loan of $11250. The interest amount is to be deducted
from the income of the client if the acquired property is fully used for the business
purpose. In case of any partial use the interest is allowable as deduction under ITAA
1997.
loan repayment
Month Due PRINCIPAL Interest total closing due
1 450000 10000 11250 21250 440000
2 440000 10000 11250 21250 430000
3 430000 10000 11250 21250 420000
4 420000 10000 11250 21250 410000
5 410000 10000 11250 21250 400000
6 400000 10000 11250 21250 390000
7 390000 10000 11250 21250 380000
8 380000 10000 11250 21250 370000
9 370000 10000 11250 21250 360000
10 360000 10000 11250 21250 350000
11 350000 10000 11250 21250 340000
12 340000 10000 11250 21250 330000
13 330000 10000 11250 21250 320000
14 320000 10000 11250 21250 310000
15 310000 10000 11250 21250 300000
16 300000 10000 11250 21250 290000

7TAXATION
17 290000 10000 11250 21250 280000
18 280000 10000 11250 21250 270000
19 270000 10000 11250 21250 260000
20 260000 10000 11250 21250 250000
21 250000 10000 11250 21250 240000
22 240000 10000 11250 21250 230000
23 230000 10000 11250 21250 220000
24 220000 10000 11250 21250 210000
25 210000 10000 11250 21250 200000
c.
C. In the given case the property required modification and repair therefore the amount
spent by Monica is $450000, which will be added if the asset is used for the residence. In
case the CGT asset is held as the business assets then it will be deducted form the
income.
D. In that case, the amount receivable for the sister of Monica who has obtain the financial
advisory service from her will be treated as the doubtful debt. As there are reasonable
grounds for that. In that case, the provision is deductible Expense according to the ITAA.
Further, if the due is received in the future then it will be taken as the income and
chargeable as income (Edmonds 2018).
E. In that case, the traveling cost from the home to the university is a deductible Expense. In
that case, the Amount of $500 will be deducted form the income as an allowable Expense
according to the ITAA 1997.

8TAXATION
F. In case of membership fees to the Australian Financial Planners Association Monica
spends $450. These fees are paid to build and maintain an elite class and the recognition
as the financial advisor. This is a deductible expense according to the ITAA.
The fees paid to golf club of $500 is not a deductible expense, as this are only for the hobby of
Monica and has a partial impact on the clients. But this are not to be taken as the deduction as
these are personal spending.
Allowable Deduction
Particulars amount per month year
Interest 11250 135000
Repair 45000 45000
PBDD 500 500
Travelling 500 26000
membership fees 450 450
Total 206950

9TAXATION

10TAXATION
Reference
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Edmonds, R., 2018. Resource Capital Fund IV LP: The issues on appeal?. Taxation in
Australia, 53(1), p.22.
Lobato, R. and Meese, J., 2016. Australia: Circumvention goes mainstream. EDITED BY
RAMON LOBATO, p.120.
McNamara, J., 2018, June. Geoblocking in Australia: Intellectual property rights versus
consumer freedom-where does the balance lie?. In Intellectual Property Forum: journal of the
Intellectual and Industrial Property Society of Australia and New Zealand (No. 112, p. 38).
Intellectual and Industrial Property Society of Australia and New Zealand Inc.
Vann, R., 2016. Hybrid Entities in Australia: Resource Capital Fund III LP Case.