Non-Assessable Quiz (1)
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Apr 3, 2024
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Taxation Law – Non-Assessable Quiz
Instruction:
circle one
response
Question 1
In December 1983 Tania paid $200,000 for a large block of rural land on the outskirts of Sydney. Her intention was to use the property as a place to relax from time to time (she has worked as a lawyer in Sydney for several decades). She built a holiday house on the land in 1984, and she and her family have used the property for weekend retreats. In 2019, Tania hired Machon Architects and Builders to demolish the house on the land, and to make an application for subdivision to the local Council. She also hired a Tree Service company to remove a number of trees on the land. She incurred a total of $150,000 on these services. In 2020, the Council approved a subdivision plan that would divide the land into 120 blocks. In September 2023, Tania sells the land to a developer for $15,000,000. Choose the best response. (a)
The sale to the developer would generate ordinary income under Myer Strand 1;
(b)
The capital proceeds of $15,000,000 would be taxable under the CGT provisions—after subtracting cost base elements and reducing by the CGT discount, $7,325,000 would be added to his assessable income as a result of the sale;
(c)
The net profit on the sale is arguably ordinary income under the Whitfords Beach
principle;
(d)
Both (b) and (c) are correct; (e)
Both (a) and (c) are correct. Question 2
Which of the following is correct?
(a) In the
Whitfords Beach
case, the profits made on sale were ordinary income based both on Myer strand 1 and Myer strand 2; (b) XYZ is a company that sells leather handbags and accessories. It has sales revenue of around $1.5 million for the most recent income year. Based on these facts, it is not entitled to claim the CGT discount on any capital gains it makes; (c) Anna does not operate a business. In August 2023, she sells her antique sculpture for $50,000. She had purchased this in July 1997 for $20,000. She is not entitled to claim the CGT discount, but can use an indexed cost base to calculate the capital gain; (d) In 2023/2024, Max makes a capital loss on the sale of his shares in Mayne Pharma, and also makes a capital gain on the sale of his painting by a renowned Australian artist. He can use the capital loss on shares to reduce his capital gain on the painting. (e) None of the above. Question 3
Matilda is an Australian resident for tax purposes. In August 2023, Matilda sells 1000 shares in CBA for $80 per share. She had bought these in February 2023 for $65 per share. In March 2023, she sold 1000 shares in ABC Milk for $13.50. She had bought these in June 2016 for $1.80 per share. Note also the following: in January 2024, Matilda sold 15,000 XYZ Pharma shares at a price of 70 cents per share. She had bought these in August 2016 for $2 per share.
Taxation Law – Non-Assessable Quiz
Based on the above information, what is Matilda’s net capital gain (loss) in 2022/2023? Choose the correct answer: (a) $3,600
(b) $7,200
(c)
$6,150 carry forward capital loss (d) $26,700
Question 4
Harry inherits a large block of rural land in 2011. He did not have any plans for the land for several years but then in 2015 his cousin Harriet advised that the land could be made far more valuable if converted into a golf course. In 2016, Harry and Harriet form a joint venture for the purpose of developing the land into a golf course. Harry and Harriet engage architects, landscapers and builders for this purpose (a club is also constructed). The golf course and club are completed in 2022. Harry and Harriet were initially planning to operate a golf course business in partnership but they then decide to sell the land (and club) to an American billionaire. Choose the best answer: (a) Any gain made on the sale of the land to the billionaire would amount to a mere realization of capital (not ordinary income); there would be a CGT liability under s102-5 ITAA97; (b) Any gain on the sale of the land would be taxable under both Myer
strand 1 and Myer
strand 2; (c) Any gain would be exempt from tax because Harry acquired the land through inheritance;
(d) Any profit on the sale of the land to the billionaire is likely to constitute ordinary income. The Whitfords Beach
principle appears to apply. Question 5
Which of the following (if any) are true?
(a)
Since amendments of 2006, non-residents who sell land in Australia do not incur any CGT liability. (b)
Youth allowance payments from the Government are assessable income. (c)
Companies with a turnover of no more than $2 million per year are entitled to a CGT discount on
any capital gains. (d)
Frequent flyer points are a form of statutory income under s15-2 ITAA97. (e)
(b) and (c). (f)
(a), (b) and (c).
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