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Hi, I have some confusion about the deduction question for my courses (TAXN201). Could you please advice me on my tutorial question answer especially...
Hi, I have some confusion about the deduction question for my courses (TAXN201). Could you please advice me on my tutorial question answer especially for Question 1e), Question 2, and Question 3? I have copied the question below! Thank you :D
QUESTION ONE: Deductions
On 1 April 2016, Justus decided to give up his full-time job as an accountant and instead focus on renting out his three rental properties via an online website called FairBNB. Assume that Justus is operating a business. He incurs the following expenses in the year ended 31 March 2017:
a) $3,000 in painting the bedrooms in two of the properties. The bedrooms had not been painted since he purchased the properties 10 years ago.
b) $450 in FairBNB fees for the use of the website.
c) $5,000 in installing a spa pool at one of the properties.
d) $600 in compensation to someone who had rented out the property as Justus had accidentally rented the property to two groups of people at the same time. FairBNB insisted that he provide compensation to the people who had to find alternative accommodation.
e) Justus uses his study for doing the administration related to the rental business. The study is 10% of the floor space of his house. His house expenses for the year total $2,500 (rates, electricity and insurance). The study is also used as a bedroom for Justus's two children.
f) Justus purchases some clothes to use when he is doing the gardens at the rental properties - these are boots and a waterproof jacket. The total cost is $350.
Required:
Advise Justus whether any of the items outlined in (a) to (f) above are allowable deductions in the income tax year ended 31 March 2017. Provide an explanation for your decision for each of the items.
QUESTION TWO: Personal Property Sales
In April 2016, Jane lost her job. In order to make some money to pay her bills she decided to sell some items of personal property. Details of these sales are as follows:
• On 1 May 2016, Jane sold her old engagement ring. Jane is no longer married - and never liked the ring. It was worth $8,000 when she got engaged 15 years ago and it sold for $20,000 at an auction.
• On 1 June 2016, Jane sold shares she was holding in some electricity companies. She purchased the shares when the electricity companies were first listed on the New Zealand Stock Exchange 10 years ago with the aim of eventually making some money on them when she sold them. She had intended to save them for her retirement, but has decided to sell them now as she needs the money.
• On 1 September 2016, Jane started purchasing second-hand furniture from markets and then selling the furniture online. In the period from 1 September 2016 to 31 December 2016, Jane bought and sold 15 items of furniture and made approximately $150 in profit on each item.
Required:
Explain whether Jane's sales transactions in 2016 were likely to constitute gross income under sections CB3, CB 4 or CB 5 of the Income Tax Act 2007.
QUESTION THREE: Employment
Mario is a qualified engineer. For the past 10 years he has worked full-time as a civil engineer for the Wellington County Council (WCC). On 1st April 2017, Mario decided he would like to work for himself and left his job at WCC. He has set himself up in business as a civil engineer and has had two offers of work from prospective clients.
Required:
Explain how Mario's contract with his future clients should be structured in order that he will be legitimately regarded as an independent contractor.
