Law

Paper , Order, or Assignment Requirements

You must complete both parts of the assignment. Please complete

both parts of the assignment separately. You should allocate

approximately 1500 words on both Part A and approximately 1500

words on the policy-based essay question in Part B.

Regarding referencing, you have to follow the Australian

Guide to Legal Citation (AGLC) style of referencing.

Part A – Problem Questions

Problem question 1A (approx 400 words)

Required: Discuss whether the sale of the land generates

ordinary income for Karl due to laws relating to the

assessability of extraordinary/isolated transactions. Do not

discuss Capital Gains Tax. Where appropriate, support your

answer with legislative and case authority.

Karl is a rich employee investment banker. His friend Petra ran a

DVD store. Petra owned the DVD store premises and land that it

was located on. Petra needed some money as her store was

struggling financially, so Karl lent her business $100,000 at 8%

annual interest. However, after a year it became apparent that her

business could not repay this. Consequently, they came to an

agreement, where in exchange for Karl forgiving the debt, he

would take a one quarter interest on the land that the business

premises was located on. At the time of this arrangement it was

agreed that the land would be sold in the near future. Consequently,

the store was demolished, and council plans were obtained to build

a 5 storey apartment in its place. Karl was the one who organised

the demolition and worked closely with the architects and lawyers

to get the council approval. This involved about $20,000 in fees for

architects and lawyers. Subsequently, the land with plans and

council approval was sold through a real estate agent for $800,000.

Problem question 1B (approx 1100 words)

On 1 June 1999 Cindy entered into a contract to buy two separate

shop premises. Settlement was on 1 October 1999. Cindy paid

$200,000 for each shop premises. There was stamp duty of

$10,000 payable for each of the premises. Cindy used each of these

premises to runs shops that sold sports shoes.

On 10 August of 2016, Cindy decided to go into early retirement

despite being only 52 years old. As a result, she entered into the

two separate contracts with Di:

  • The first sports shoe shop was to be sold to Di. Title to the actual

shop premises was to be sold for $600,000. The current shoes

in the store were to be sold for $60,000, and the goodwill

attached to the store was to be sold for $150,000.

  • The second sports shoe shop was to be rented to Di for a three

year term. The terms of the lease set the rent at $15,000 per

year, and there was an upfront lease premium of $40,000.

Each of the stores consistently had an annual aggregate

turnover of over $2.5m for the years they were owned and

run by Cindy. When Cindy entered into the 10 August 2016

agreement in addition to the above she also owned the

following:

  • 60% share of the house she lived in, which was valued at $1.5m.
  • 45% interest in a company called Small Pty Ltd, which owns 4

investment properties. 55% of this company is owned by

Cindy’s friend Nathan. The total value of this company is

$2m.

  • 65% share in an investment property with her friend Mike. This

property is valued at $500,000 but has a $200,000 mortgage

on it.

  • A life insurance policy worth $100,000.
  • CBA shares, current market value of $300,000. A few years ago

on 1 July 2011, Cindy had purchased a Melbourne CBD

apartment to live in for $200,000 for which she also paid

stamp duty of $10,000. She immediately moved into it after

she bought it and treated it as her main residence. On 1 July

2012 Cindy purchased a suburban house to live in, which she

immediately moved into and treated as her main residence for

tax purposes. She immediately rented out her CBD apartment

at this time, and had it valued at $400,000. Cindy sold this

CBD apartment for $500,000 on 20 August 2016.

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