TAXATION 1
3000 words
TASK
This problem solving assessment task has two components, Part A and Part B. Each part has a different submission date. The Part A response is to be based on the data provided below under the heading Assessment item 2.
Question
On March XXXXXXXXXXPhilip inherited a property in inner Sydney at 151 Temple Street from his Aunt. The property had been used for commercial purposes but as the area was central to his job as an interior designer he decided to move in immediately and renovate to convert to residential accommodation. The property was valued by the Aunt’s deceased estate at $370,000. Philip bo
owed $100,000 on 1 April 2012 at fixed interest of 5.5% per annum payable over twenty years to finance the renovation.
In September 2014 Philip ma
ied Kim, a plumber, and they resided in the now completely renovated property, paying out the loan early on 1 April 2016. On 1 July 2017 they purchased jointly an adjacent property, XXXXXXXXXXTemple Street, for $850,000, which was significantly larger with the view to develop it into two residential properties. They purchased this property using savings of $30,000 and a loan of $960,000 (legal and other costs to purchase were $40,000 and the balance was bo
owed to finance the first stage of the renovation) and using the equity in the renovated property at 151 Temple Street which was valued to obtain the loan at $800,000, as further collateral. They again opted for a fixed interest rate, 4.7% per annum with the loan maturing in 30 years. They continued to live in the original property until they had completed the first phase of the renovation at 153 Temple on 1 August 2019. The renovation had come in on budget at a cost of $100,000. They were so pleased with the renovation and the larger residence it offered they decided to move from the original property on 1 August 2019 and rented 151 Temple for $759 per week to a cousin from 7 August 2019. The rental payment was approximately 10% below market in exchange for the cousin providing labour for the renovation of the remaining property.
Despite the rental income they are concerned that the next phase of the renovation is taking too long and are considering selling a property to raise funds quickly to complete the work. A local real estate agent has indicated 151 Temple St could be sold for $1 million and the more recently renovated 153 Temple St would sell for $1.3 million.
Required
· Advise Philip and Kim of the tax implications of selling either property and any amount that would be included in the calculation of taxable income by Philip and Kim (you are NOT required to calculate any possible tax payable).
Your advice is to take the form of a report (adopting ILAC style) which will form part of the client work papers and should include a recommendation based on the known facts provided above as well as identifying any additional information that should be requested prior to providing any advice to the client. Â (15 marks)
RATIONALE
This assessment task will assess the following learning outcome/s:
· be able to identify and explain the rules of law relating to taxation law topics covered in the subject.
· be able demonstrate a capacity to engage in legal research.
· be able to use legal research skills to apply the law to legal problems relating to taxation so as to reach a solution.
· be able to analyse legal rules so as to differentiate between possible outcomes to the legal issues arising from novel fact situations.
This assignment has been designed to ensure that students are able to identify and apply legislation, rulings and case law to the issues identified as well as demonstrate the ability to analyse the issues fully and apply this knowledge to a hypothetical, practical situation.
MARKING CRITERIA AND STANDARDS
In assessing your assignment the marker will expect you to:
· present an essay that is readable and coherent;
· use appropriate language, co
ect spelling and grammar;
· identify and analyse relevant issues;
· explain and apply relevant cases, rulings and legislation;
· reach a sound and well-reasoned conclusion;
· use appropriate referencing; and
· demonstrate time management skills.
Also note the following style guide:
1. You should use the ILAC style of essay writing for this assignment
2. Do not re-state the question as part of your answer. Â This often gets repeated in the 'issue' section, however that is inco
ect.
3. Use in-text referencing. Do not use footnotes.
4. Names of cases or statutes should be italicised, and followed by the jurisdiction not in italics, for example:Â Acts Interpretation Act 1901Â (Cth). Â Note the a
eviation for ‘Commonwealth’ is ‘Cth’ not ‘Cwlth’.
5. Do not start a new line simply because you are starting a new sentence.
6. Start each paragraph on a new line, and leave a clear line gap after the preceding paragraph. Don't make your paragraphs too long.
7. You must end your assignment with a bibliography that is divided into three separate parts, listing statutes, cases and books / articles / on-line Modules.
PLEASEÂ NOTE THAT YOU WILL LOSE MARKS IF YOU DO NOT COMPLY WITH THIS STYLE GUIDE.