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TABL 5551 - TAXATION LAW
TERM TWO, 2023
ASSIGNMENT
INSTRUCTIONS AND CONDITIONS APPLYING
TO ASSIGNMENT
PLEASE READ THE FOLLOWING INSTRUCTIONS AND CONDITIONS
CAREFULLY
1. You are required to submit an answer to the attached assignment questions by the due date and
time for lodgment.
2. Your answer must not exceed 2,000 words. The word limit will be strictly enforced. Words over
the word limit will not be marked (i.e. wasted words).
3. Words, case names/case citations and legislative references in footnotes are not counted in the
word count. However, you must not place substantive parts or central parts of your answer or
argument in footnotes. (Note, you should use footnotes, and not endnotes, because footnotes
appear on the same page as the related text, which is easier for the reader).
4. You must pay careful attention to the presentation of your answer (e.g. use headings and sub-
headings to break up your answer, use appropriate gaps between paragraphs, use case citations
correctly, use references to legislation correctly). You are given considerable guidance on this
(e.g. old assignment solution).
5. You must fully explain your answer by reference to tax legislation, tax cases and tax principles.
6. You must not include a bibliography or reference list at the back of your assignment.
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QUESTION 1 (10 marks)
Cyril is a tax academic who teaches at University College Launceston (‘UCL’). Because of his ability
as a teacher, in recent years he has been able to supplement his income by fees paid to him for writing
and teaching short courses at several institutions in Asia. He has an interest in environmental issues
and for many years has dreamt of buying some acreage where he can install environmentally friendly
technology and eventually retire and watch the trees grow. He finds the ideal property near Cradle
Mountain and purchases it for $300,000. He borrows $280,000 at 7% interest from Big Bank to fund
the purchase.
Prior to completing the purchase Cyril approaches Enviro-energy Pty Ltd, a provider of
environmentally friendly energy, and enters into an agreement with them under which the company
will erect 10 electricity generating windmills on Cyril’s property. Enviro-energy Pty Ltd agrees to
pay Cyril $5,000 per annum for the right to locate windmills on his property. The fee is payable
whether or not the windmills are operating through the year. At about the same time, Cyril approaches
TAS State Forests and enters into an agreement with them under which the State Forests will pay
Cyril $5,000 per annum for the right to enter on his property to plant native trees in cleared areas and
to remove trees which they have previously planted. This fee is payable whether or not the State
Forests actually plant or remove any trees on Cyril’s property. Cyril also approaches Enviro-sanctuary
Ltd (a company that specialises in developing sanctuaries for endangered species) and enters into an
agreement under which Enviro-sanctuary will fence a portion of Cyril’s property and will be given
the right to locate endangered species in the fenced area for a fee of $5,000 per annum. Again the
$5,000 per annum is payable whether or not the fencing takes place and whether or not Enviro-
sanctuary actually locates any endangered species in the fenced area. Each of these agreements is for
a term of 10 years.
After completion of the purchase, Cyril then borrows another $100,000 from Big Bank at 7% and
constructs an environmentally friendly cottage on the property. Cyril equips the cottage with
computers and high-speed internet access. Cyril then moves into the cottage. He commutes from the
cottage to Launceston to teach. Although an office is maintained for him at UCL, Cyril subcontracts
out all but the first and last weeks of his teaching in all his courses.
He incorporates a company “Cyril Academic Consultant Pty Ltd” of which he is sole shareholder and
director. Thereafter, while based at his property, Cyril devotes all his time to writing and teaching
courses for Asian universities as an employee of Cyril Academic Consultant. Cyril Academic
Consultant Pty Ltd takes out a professional indemnity insurance policy in respect of Cyril’s activities.
All communications with the Asian universities are conducted through Cyril’s property. In the current
year, Cyril received a salary of $100,000 from UCL. Cyril Academic Consulting Pty Ltd received
consulting fees of $800,000 in consulting fees from Asian universities and paid Cyril a salary of
$8,000.
Later in the same year, Enviro-sanctuary is placed into receivership and the receiver, with a view to
reducing costs, cancels Cyril’s contract and offers to pay Cyril $15,000 as compensation for the loss
of the agreement. Cyril accepts the offer and requests that payment be made to Cyril Academic
Consulting Pty Ltd. The receiver of Enviro-sanctuary duly makes the payment as per Cyril’s request.
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Advise Cyril as to whether any of his receipts are income to him and, if so, on what basis. Advise
Cyril Academic Consulting Pty Ltd as to whether any of the receipts are income to it. Do not consider
the possible operation of either the general anti avoidance provision or of the CGT provisions. Do
not consider the deductibility, or otherwise, of any of Cyril’s expenses at this point.
QUESTION 2 (10 marks)
Waite Pty Ltd is a company limited by shares incorporated under the Corporations Act 2001. The
Constitution of Waite Pty Ltd does not contain an objects clause. Waite Pty Ltd has two shareholders,
Ross and Richard, who are both Australian resident natural persons. On 1 July 2010, Waite Pty Ltd
acquired 1 hectare of land on the New South Wales Mid North Coast. The purchase price of the land
was $100, 000. Minutes of the directors’ meetings at the time of the purchase of the land disclose that
the purpose of the purchase was to build holiday cottages for rental to the public. In fact, no work on
the construction of holiday cottages ever commences.
On 1 July 2021, Magnate Pty Ltd, a company incorporated under the Corporations Act 2001 acquires
all the shares in Waite Pty Ltd. Magnate Pty Ltd’s previous business activities have been confined to
the construction of commercial buildings in Melbourne, but its constitution does not contain an
objects clause. Magnate Pty Ltd, in determining a purchase price for the shares in Waite Pty Ltd,
valued the Mid North Coast land at $150, 000.
Following the purchase of the shares in Waite Pty Ltd, new directors are appointed to Waite Pty Ltd.
The new directors resolve to seek a rezoning of the Mid North Coast land with a view to constructing
4 homes on the land and selling each home at a profit. Waite Pty Ltd pays council fees of $2000 and
legal fees of $3000 in relation to the rezoning application.
The rezoning application by Waite Pty Ltd is successful. Following the rezoning, Waite Pty Ltd
obtains an estimate of the market value of the Mid North Coast land. The valuation of the land is
$500, 000. In August 2021, Waite Pty Ltd commences work on the construction of the homes.
On 1 January 2022, the construction of the homes is completed at a total cost of $1 million. The homes
prove to be very popular and each one sells for 2 million.
Advise Waite Pty Ltd on what amounts, if any, will be included in its assessable income as a result of
these transactions.
