Instructions:
You MUST reference in the body of the essay every time you use information from
other people. This requires you to keep a track of where you are taking information
from and then writing the reference up. You should use the Harvard/APA style; and
use the University’s new Presentation of Academic Work.
The assignment should not exceed approximately 2000 words.
Also very important fact about the part 1 is that there is a very similar case law in the Australian or English legal system.
Assignment
Part 1
Schubert, Mahler and Tull are resident Australian seamen employed on the fishing trawler
MV St Cecilia. Whilst on a routine fishing operation the captain of St Cecilia heard a radio
message that SS Titan, an abandoned oil tanker about 20 nautical miles to the south was
drifting towards the Australian coast. The vessel was badly holed, leaking oil and with
present currents and tidal situations it was drifting towards a coral reef a short distance
from a stretch of environmentally sensitive coastline. If the tanker wrecked on the reef the
environmental and economic consequences would be enormous.
The captain sailed to the reported position of the stricken tanker. In the rough sea, the crew
were unsuccessful in their attempt to attach a tow line. The captain then called for volunteers
prepared to risk their lives in boarding the vessel and securing a tow line manually.
Schubert and Mahler had previously worked on a salvage vessel and had some experience
in operations of this type and they volunteered immediately. They displayed considerable
bravery in swimming through rough seas, boarded the tanker and fixed a line. The heroic feat
was recorded on video by Tull.
Once the line was secure, St Cecilia towed the tanker away from the coastline and it was
subsequently salvaged by the tug, Resurrection.
Both Schubert and Mahler were awarded an Order of Australia medal by the Australian
Government and $100,000 each from Lloyds of London, the insurer of Titan, who had been
saved a billion dollar payout.
In addition, Mahler entered into a contract to write an article for a magazine. He was paid
$20,000 and an additional $10,000 for signing an agreement not to give interviews on
television or to journalists.
Schubert was offered $10,000 for his OA medal. He was in poor health at the time and
required medical treatment so accepted the payment.
Tull sold the video to Channel 9 for $8,000 and it was shown exclusively on that station
throughout Australia. Later that year he was paid $50,000 to travel to the USA to provide
technical advice on a proposed telemovie of the event tentatively entitled ‘Aqualung’. He
plans to stay in the US indefinitely and pursue other filmmaking opportunities.
Required 1. [Approximately 40% of marks]
(a) Explain what is meant by ‘income by ordinary concepts’.
(b) Advise what tax consequences arise in respect of the payments to Mahler, Schubert
and Tull.
You must refer to appropriate case law and applicable sections of the Income Tax Acts.
Part 2
Ruby Engineering Pty Ltd [Ruby] was incorporated in 1990 and produced engine
components used in the Australian car industry. In 2008 the business and company assets
were sold to Diamond Ltd. Under the terms of the agreement, Ruby remained liable for any
claims arising before 2008. The company used the funds to invest in real estate and shares.
During the year ended 30 June 2013 Ruby incurred the following expenses:
(a) Ruby has owned and rented a residential property since 2008. Rental income for the
current year is $15,000. During the year the company replaced the old kitchen fittings,
including cupboards that had deteriorated through water damage and wear and tear. The
new cupboards were of the same type as the old ones and the kitchen layout was not
altered substantially. The cost was $6,500.
(b) In another of the rental properties a visitor to the tenants slipped on the steps and
sustained injuries requiring medical attention. She claims one of the steps was loose and
commenced legal proceedings against Ruby alleging her injuries were caused by the poor
condition of the building. Ruby incurred legal expenses of $4,000 and the action has not
been settled at 30 June.
(c) In 2006 Ruby sold a batch of parts that were subsequently found to be defective. The
purchaser, an Australian car manufacturer lodged a claim for damages in the Federal
Court. The claim was settled in November 2012 and Ruby paid $750,000 to the
manufacturer.
(d) The directors of Ruby were concerned about the claim in (c) and the effect it had on the
year’s reported profit. They resolved to set aside a small amount of funds annually to
meet any future claims. Accordingly, an amount of $100,000 was set aside in a provision
in the accounts for the year ended 30 June.
(e) In August 2012 Ruby decided to investigate the possibility of re entering the car parts
manufacturing industry using a new type of alloy. An amount of $120,000 was paid to
consultants investigating the proposal but the directors decided not to proceed at this
time.
Required 2. [Approximately 60% of marks]
Advise the directors of Ruby Pty Ltd of the tax deductibility of the above amounts. You must
make reference to appropriate authorities and legislation.
Attachments:
Instructions…..docx