TABL 5551 TAXATION LAW – COURSE ASSIGNMENT Due Dates: Electro!c Su"#!ss!o $!a Tur!% Tur!% o Moo&le– 5'# ( t) Octo"er *+1,
Cassandra Pty Ltd, an Australian resident company for tax purposes, purchases land with a derelict building building on it in Melbourne Melbourne on 1 January January 21! for "#,$ %etween %etween 1 January and 1 &ebruary 21! Cassandra Pty Ltd Ltd spends "1, on demolishing demolishing the derelict building$ building$ 'n 2 nd &ebruary 21! Cassandra Pty Ltd enters into a contract with '( %uild Pty Ltd )an Australian resident company for tax purposes* to construct a theatre theatre building on the Melbourne land$ +he total cost of construcon was "1,, with Cassandra Pty Ltd paying a deposit of "1, on signing the contract and ma-ing nine progress payments payments of "1, each month during the period of construcon$ Cassandra Pty Ltd borrowed "1,2, from %ig %an- Ltd )an Australian resident ban-* on 1# th January 21! on an interest only basis at a rate of #. to partly fund the purchase of the land and the construco construcon n of the theatre theatre building$ +he balance of the purchase price and costs costs of construco construcon n were paid from Cassandra Cassandra Pty Ltd/s Ltd/s retained earnings$ Cassandra Pty Ltd paid stamp stamp duty of "1, on the purchase of the land$ Legal fees associated associated with the purchase of the land were "2,$ Construcon of the theatre is completed on 1 'ctober 21! and, following a month of rehearsals, the 0rst play, play, +he +he Paris 'f +he outh/, performed performed by Cassandr Cassandra a Pty Ltd Ltd ta-es place$ +he play is successful and Cassandra Pty Ltd/s re3enues from the play for the year ending 4 June 21# were "2,$ &ollowing the successful season of +he Paris 'f +he outh/, Cassandra Pty Ltd decides to produce %i(et/s %i(et/s opera Carmen/ at the theatre$ theatre$ %ecause of the scale of the opera Cassandra Cassandra Pty Ltd spends "1#, on enlarging the stage at the theatre and "2, on construcon of an orchestra pit on 1 &ebruary 215$ Cassandra Pty Ltd pays pays for the cost of enlarging the stage from its retained retained earnings$ &ollowing the enlarging of the stage and the construcon of the orchestra pit, performances of Cassandra Pty Ltd/s producon of Carmen/ commence on 1 March 215 and run unl 4 June 215$ Cassandra Pty Ltd has re3enues re3enues of "1#, from this season of Carmen/ at the Melbourne theatre$ 'scar Pty Ltd, an Australian resident company for tax purposes, purchases the land and theatre buildi building ng from Cassand Cassandra ra Pty Ltd on 1 July July 215 215 for "4,, "4,,$ $ Cassan Cassandr dra a Pty Ltd Ltd uses uses the "1,2, of the sale proceeds to repay repay the loan from %ig %an- Ltd$ Ltd$ 6uring the enre period of the loan interest interest had been payable at the rate of #. per annum on an interest interest only basis$ Cassandra Pty Ltd paid interest at that rate each month through the term of the loan$ hortly a7er 'scar Pty Ltd purchases the theatre Melbourne su8ers su8ers a mild earth tremor$ tremor$ At about the same me 'scar )the sole shareholder and director of 'scar Pty Ltd* watches a documentary about about earth9ua earth9ua--e damage damage in Chris Christch tchur urch ch :ew ;ealand ;ealand$$ As a resul resultt 'scar 'scar dec decide idess to ha3e strengthening wor-s carried out on the theatre building in Melbourne so that it can withstand an earth9ua-e of similar force to the Christchurch earth9ua-es$ earth9ua-es$
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signing the contract ! e9ual instalments of "1, o3er a sixteen month period$ +he contract is signed on 1 July 215$ +he contract calls for each of the remaining instalments to be paid on the 0rst day of :o3ember 215, the 0rst day of March 21=, the 0rst day of July 21= and the 0rst day of :o3ember 21=$ 'scar Pty Ltd opens the theatre as The Wild Theatre $ +he 0rst play that is performed at the theatre is %oy 3ersus >ild/ wri?en by 'scar$ @n 6ecember 215 'scar Pty Ltd employs carpenters, stage and lighng technicians, a 0nance manager, and a mar-eng manager$ +he salary cost for these employees is "1#, per wee-$ 'scar directs the play himself$ 'scar Pty Ltd also spends "#, in January 21= for material to be used in construcng sets for the theatre$ A7er the play has been performed the sets will be demolished and sent to the local >aste 6isposal Centre$ 'scar Pty Ltd also enters into contracts with se3eral actors to rehearse the play for six wee-s and perform in the play for a period of three months$ +he contract with the actors sets their pay at "# per rehearsal and "1 per performance increasing to "1# per performance if more than #. of performances in the 0rst month are sold out$ A7er six wee-s of rehearsals in &ebruary and March 21= %oy 3ersus >ild/ opens at the Wild Theatre on 1 April 21=$ nfortunately for 'scar Pty Ltd and the actors none of the performances in April are sold out$ Patrons in the theatre complain about the disrupon to access caused by the earth9ua-e strengthening wor-s that are sll proceeding$ As a result 'scar Pty Ltd refuses to pay the 1 July 21= and 1 :o3ember 21= instalments on the building wor-s$
Ad3ise Cassandra Pty Ltd of the capital gains tax conse9uences of the abo3e transacons for it$ 1+ Mar/s *. Ad3ise 'scar Pty Ltd as to whether, and if so when and to what extent, any of the abo3e expenditures that it incurs will be deducble to in for Australian income tax purposes$ 1+ 1.
Mar/s 0.
Ad3ise
RE7ERENCES – stu&ets #a6 & t)e 2ollo!4 re2ereces use2ul ! aser!4 t)e ass!4#et "ut are ot re3u!re& to re2er to t)ese aut)or!%es a& ca re2er to ot)er aut)or!%es !2 t)e6 cos!&er t)e# to "e rele$at. Alt)ou4) t)e l!st #!4)t loo/ !%#!&a%48 )at !s re3u!re& !s ascerta!!4 t)e rele$at 'r!c!'le a& a''l6!4 !t to t)e 2acts. Income Tax Assessment Act
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Wangaraa Woollen Mills )1E5E* 11E CLF 1 )what is plant* Imperial Chemical Industries of Australia and New Zealand Ltd v FCT )1E=* 12 CLF 4E5 )what is
plant* Carpentaria Transport t! Ltd v FCT )1EE* 21 A+F #14 E A+C !#E )what is plant* "ro#en $ill Co t! Ltd )1E5E* 12 CLF 2! )treatment of costs of demolion* Arthur Murra! )1E5#* 11! CLF 41! )ad3ance payments* % &owe ' (ons t! Ltd )1E=1* 12! CLF !21 )instalment sales* W) Thomas ' Co )1E5#* 11# CLF #D )inial repairs* lacer aci*c Management t! Ltd E# A+C !!#E )post cessaon expenditure* (teele EE A+C !2!2 )pre commencement expenditure* Commonwealth Aluminium )1E==* == A+C !1#1 )defeasible obligaons* Carden )1E4D* 54 CLF 1D )and other cases on the cash 3 accruals issue* Australian +as Light Co D4 A+C !D )conngent right to payment* "$ "illiton etroleum ,"ass (traight- Ltd 22 A+C #15E
