Commercial Enterprise

Part A 

Jim carries on income producing activities in two different locations. During the week he works as a barrister in Sydney in the central business district (CBD). Sometimes during the week he also has to go to courts located in various suburbs in Sydney to represent a client. On the weekends he works on his farm at Cooma. The farm is a commercial enterprise. 

Advise Jim on the deductibility of travel costs in respect of the following travel: 

1. 1)  driving from his office in the CBD to another court located in a suburb in Sydney and then driving home; 

2. 2)  driving from his office in the CBD directly to the farm in Cooma, with 4 big folders of file he intend to review there; 

3. 3)  driving from office in the CBD to home and then to the farm in Cooma. 

Part B 

John, an accountant and a tax resident, has provided you with the following information relating to himself for the 2013 income year: 

1. He sold a laptop for $500 on 30 June 2013. The laptop was purchased for $2,500 on 1 July 20011. He has self assessed the laptop to have an effective life of 3 years and he has used the straight line method of depreciation for tax purposes. He used the laptop 100% for work purposes. 

2. On12November2012,hesoldhisgolfclubsfor$15,000.Heoriginallyacquiredthem for $1,000 in 2007. The clubs had dramatically increased in value after Tiger Woods 

autographed them in 2007 during his practice hit out in Australia at the golf course where Mark regularly plays. 

3. He signed a contract to sell his rental property on 25 June 2013 for $400,000. The title to the property was transferred on 31 July 2013. The property originally purchased in 2007 for $300,000. 

Advise Ian of the income tax consequences of each of the above items. Show your calculation process where appropriate and provide relevant case law, ATO rulings and section references to support your answer. 

Part C 

Tom Ltd is incorporated in Australia. It is a retailer who sells clothes to the public. The following transactions occurred in the year ended 30 June 2013. 

1. The company purchased $180,000 stock during the income year. The opening balance of its stock was $120,000 and the closing balance was $160,000. 

2. Thecompanypaid$10,000bonustoitsChiefExecutiveOfficer. 

3. The company also sells goods to customers on credit. During the year, a number of customers owing a total of $15,000 defaulted on their accounts. 

4. A competitor has recently applied to the council for permission to operate as a clothes retailer in the commercial building next to Tom Ltd. Tom Ltd incurred $30,000 in legal fees opposing the application. The action was successful. 

5. During this year, Tom Ltd received $35,000 fully franked dividend; and paid $15,000 income tax. It also declared and paid $280,000 fully franked dividend to its shareholder (you can assume the open balance of franking credit account is zero). 

Advise Tom Ltd of the Australian income tax implications of the above transactions. Provide relevant case law, ATO rulings and section references to support your answer. 


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