Part A (30 marks)
Much of his work consisted of
preparing building designs and specifications for local council building permits but Lee
quickly gained a reputation for quality drawings prepared within tight timeframes. By the
end of 2013/14 he had a small client base of local builders and private referrals and billings
(fees) of $75,000.
During the year 30 June 2015 Lee submitted a design as part of a national competition for
the Citadel, the centrepiece of an urban redevelopment. His visionary design and
revolutionary use of local materials greatly impressed the judging panel and, to national
acclaim, Lee was awarded the prize early in the year and commissioned to build the
structure. Immediately he borrowed $1 million, rented premises in Main Terrace, acquired
state of the art equipment and employed six draughtsmen and two administrative staff.
During 2014/15 his billings were $1.5 million.
Required
Discuss whether Lee should return on a cash or accrual basis in 2013/14 and in 2014/15
You must refer to appropriate case law. Your answer must include (but should not be limited
- to) a discussion of the following:
- What factors affect the choice of a cash or accrual basis?
- Does Lee have a choice of the basis he adopts?
- Does the Commissioner of Taxation have a right to insist on a particular basis?
- Should Lee’s basis be the same in both years?
Part B 30 marks.
Beta Smash Repairs is a panel beating/smash repair business conducted as a sole
proprietorship by Bert. The business commenced on 1 July 2013. In addition to the repair
service, Bert obtains or purchases wrecked vehicles or vehicles in poor condition, rebuilds
and plans to sell them. At the end of the first year of operations (2013/14) none of these
vehicles had been sold.
At 30 June 2015 there were six rebuild vehicles on Bert’s premises. Two of these were
obtained for nothing; three cost $500 each. The sixth vehicle was brought in by a customer.
She and Bert agreed as follows: Bert would work on repairing the car as time permitted,
look for a buyer and, if possible, sell the car. Ownership was not transferred to Bert and if he
sold the car, one third of the proceeds would go to the customer and Bert would retain two
thirds.
During the year Bert purchased $50,000 of vehicle parts of which $5,000 remained on hand
at 30 June. Other repair costs and overheads amounted to $80,000. Bert estimates that 70%
of total costs relate to the smash repair side of the business and the balance relates to
rebuilding the six vehicles referred to above. Costs are spread evenly over the six vehicles
and Bert estimates that each car would sell for $12,000 when complete.
Required:
Advise Bert of the income tax implications of the above, including all possible closing stock
figures. You must cite all relevant sections of the Acts and case law. [Disregard GST]
Part c 30 marks
(a) Identify the types of taxes that apply to digital currencies (such as Bitcoin) in
Australia at the present time.
In your answer you should list relevant ATO Rulings/Determinations.
(b) Assume that all states and territories agreed to expand the definition of ‘money’ in A
New Tax System (Goods and Services Tax) Act 1999 to include digital currency; and
to expand the definition of ‘financial supply’ in A New Tax System (Goods and
Services Tax) Regulations 1999 to include digital currency. Would your answer in (a)
be the same? Why, or why not?
