Lucy Lee is a 26-year-old accountant working in private practice in Auckland. She was born in Singapore but emigrated to New Zealand when she was 10. She went to school and University in New Zealand and has qualified for membership of CA ANZ.During university Lucy Lee moved out from home and flatted with friends in Parnell for 4 years, She owned a car and had NZ Drivers’ License ASB bank accounts and credit cards, held gym and club memberships, and had small investments in the New Zealand share market.Lucy Lee’s family live in New Zealand, except her older brother Jamie who moved back to Singapore for work 4 years ago and now lives there permanently with his wife. After breaking up with her boyfriend and becoming sick of her job, Lucy Lee decided to go with a friend to Singapore for a working holiday, leaving on 15 April 2017. She was initially not sure how long she would be away. She moved out of her flat and took all her property, surplus clothes, books, etc., back to her parents’ house. She did not sell her car but left it at a friend’s place for storage. She suspended her gym membership but retained her bank account, credit card and shares.Lucy Lee returned to New Zealand for 2 weeks over Christmas in December 2017 but then returned to Singapore. While here she stayed in her bedroom at her parents’ place and used her car. She reactivated her gym membership for the month. Lucy Lee next returned to New Zealand on 5 April 2018 to attend the wedding of a close friend and stayed for another month, staying both with friends and in her old bedroom. She did not have time to reactivate her gym membership which eventually expired completely.Lucy Lee next returned to New Zealand for 2 weeks over Christmas in December 2018, again staying in her old bedroom. She had now been in Singapore for almost 2 years and while her friend who originally left with her had returned to New Zealand, Lucy Lee had decided that she would stay on indefinitely. She had made many friends in Singapore, had bought a car and obtained a Singapore drivers’ license, spent time with her brother (who now had children) and had met a new boyfriend. Accordingly, during that trip over Christmas 2018 Lucy Lee sold her car and liquidated her NZ shares.Unfortunately, in October 2019 Lucy Lee’s new boyfriend left her and she lost her job. Not wanting to experience another Singapore summer with all the heat, Lucy Lee returned to NZ permanently. She initially moved back to her old bedroom but soon after she found a new job in Auckland and went flatting again.During her time in Singapore, Lucy Lee had a very highly paid job with an American multi-national. She derived more than NZ$ 200,000 per year and paid tax at only 15%. Since her return, the New Zealand IRD investigated why Lucy Lee did not file tax returns for 2018 and 2019 tax year and pay tax upon income she had derived in Singapore. The IRD alleges that Lucy Lee remained a New Zealand tax resident for the entire period she was away.Required: With reference to the statute and case law, advise whether Lucy Lee remained a New Zealand tax resident while she was living and working in Singapore. If you consider she ceased being a
tax resident, please advise when that may have occurred and what factors led you to that conclusion.Question 2 – Income(5 Marks)A bank had an “encouragement to study” scheme under which payments were made to employees who successfully completed approved courses of study. Sharpie Smith was an employee of the bank who successfully completed an appropriate course and was accordingly awarded $970 by the bank. Required:Discuss whether $970 receipt is gross income to Sharpie Smith. Support your answer with references to case law and the Income Tax Act 2007. Question 3 – Deductions(8 Marks)Delicia has two main sources of income. She is employed as a solicitor at a law firm. She also plays the keyboard and sings at corporate functions and parties, usually once or twice a week. She receives lump sum payments from the various functions that she plays at. She asks your advise whether the following items of expenditure are allowable deductions:a)Purchase of a business suit. She explains that she must “look professional” when she meets clients.b)Purchase of a van and van related expenditure. Delicia bought the van to drive to work and to transport her keyboard and other equipment to gigs. She of course has to pay for petrol, repairs and insurance to keep the van running. She borrowed from her bank to pay for the van and pays interest to the bank. c)Purchase of sparkly tops and other “stage clothes”. She says that she needs to look glamorous when she is performing.d)Parking ticket. Delicia parked her van in a loading zone for three hours during one of her gigs and got a parking ticket. e)Delicia paid her $800 annual fees to the New Zealand Law Society. Required:For each of the items advise Delicia what deductions (if any) could be claimed in respect of the above expenditure for the year ending 31 March 2020. Support your answer with references to the Income Tax Act 2007 and the general permission, the general limitation and any specific rules as necessary and appropriate case law. Assume that Delicia is carrying on a business in relation to performing at functions. Question 4 – GSTKara buys second-hand garments from charity shops, cleans and repairs them and then sells them on Trade Me and at a stall at Avondale market as “retro fashion”. In June 2020 she asks for your advice about GST. Her turnover for the period 1 April 2019 to 31 March 2020 was $48,000. Her turnover for June 2020 was $5,500 and she expects this level to be maintained in the future. She pays cash for the second-hand garments and sells them for cash at the market stall. As far as Trade Me sales are concerned, the customers either pay be cash or by cheque. She bought a second-hand van in May 2020 for $15,000 (GST inclusive) on hire purchase. She uses the van 60% in her business and 40% for personal use. Her van repayments are $1,000 per month including $150 interest. Her main expenses are cleaning and repair materials, postage and packaging, dry-cleaning, petrol and van maintenance, all of which she pays in cash. She pays the monthly rent for the market stall in advance by direct credit. Required:a)Does Kara need to register for GST? Provide reasons to support your answer. To answer parts (b) to (f), assume Kara does need to register for GST. b)What accounting basis can Kara choose to account for her GST? What accounting basis should Kara choose? Give reasons.c)What taxable periods can Kara choose to submit her GST returns? What taxable period should she choose? Give reasons.d)How in her GST return will she account for her purchases and sales of second-hand goods? Explain fully.e)Quite often her friends donate their old clothes to Kara for free. How does this affect Kara’s GST?f)Explain fully how the van will be accounted for, including the purchase, the repayments and the business and private use for GST purposes. Support your answers by reference to the relevant sections of the Goods and Services Tax Act 1985. Question 5 – EntitiesTwo friends, Mary and Bob and Bob’s brother James who lives in Australia, and Mary’s sister Tania lives in UK are interested in purchasing a 3 hectare block of farm land which is in a rundown condition with the idea of starting a business of growing herbs for supply to food manufacturers and distributors. The block of land will cost $200,000. Mary and Bob will contribute $20,000, each towards the purchase price and will hence have 10% ownership each in the partnership. James and Tania will each contribute $80,000 and their share in the partnership will be 40% each.They have approached an agricultural advisor for a feasibility study and the cash flow from the venture is estimated as follows: Year endingIncome Deductions (Interest, rates and other expenses)31/3/20208,00020,00031/3/202116,00030,00031/3/202220,00036,000Required:Mary, Bob, James and Tania have asked you for advice on which type of entity structure (ordinary company, Look through company, general partnership, limited partnership, trust) they should set up that will allow Bob and Mary to participate and access losses and take more persons in future if more capital is required. Explain to them what the best entity structure would be to choose from the 5 they have asked advice on. Note: Your advise should be based on comparative analysis of all entities structures. Question 6: Individual Income Tax Return (IR 3)(8 Marks)Amy, a New Zealand tax resident, has been a client of yours for some years. She supplies you with the following information regarding her tax affairs for the year ended 31 March 2020. All amounts are in New Zealand dollars.i.Amy is a cleaner who works in the ER Department of Auckland Hospital. Her annual salary is $38,000 from which $5,270 income tax is deducted. The expenses Amy incurs to carry out her job are uniform cleaning costs of $150 and car parking costs of $1,000. The Auckland Hospital did not reimburse her for these expenses. ii.Amy contributes to income protection insurance. In August 2019 she had an accident and was hospitalised. The Insurance company paid $400 to compensate her for lost income. After recovery from the accident to enable her to come to work after recovering from accident, the Hospital sent her 10 taxi vouchers valued $50 each. iii.Amy purchased $8000 shares in Kiwi Fisheries Ltd. She organised a loan in order to assist her to purchase these shares. The loan cost her $300 in interest during the year but she received in her bank account $800 in dividend from the shares. This dividend was fully imputed.iv.Amy earned gross interest from the ASB Bank amounting to $2,400. She forgot to give her IRD number to the bank and the bank assumed she was on the top marginal tax rate. v.During the whole year Amy used to help her elderly neighbours with their household chores for a few hours every Saturday and Sunday for which she was paid $80 each week. vi.Amy has a bank account in Canada and earned gross interest $200. Canadian withholding tax rate is 10%. vii.Amy also receives rental income of $21,000 from a rental property that she owns in Auckland. During the income year, she carried out minor repairs and maintenance to the property of $1,200, all of which is deductible. She also incurred deductible interest expenditure on a mortgage over her rental property of $8,800. viii.Amy was awarded compensation under the Employment Relations Act 2000 amounting to $3,000, from her former employer of a restaurant – the owner abused her publicly for opening a door when he told her to close it. ix.Amy received cash payment of $2,700 from a television quiz show. She also received goods worth $400. x.Amy paid you $400 for preparing her tax return.Required:Calculate Amy’s income tax liability for the year ended 31 March 2020, showing all workings and indicating clearly the appropriate taxation treatment of all items (i – x) including, statutory references. Round all calculations to the nearest dollar.
Hi there! Click one of our representatives below and we will get back to you as soon as possible.