Question

Michael owns a pizza restaurant. He has several employees working in the kitchen and delivering pizzas. He also owns various assets, including a rental property. During the year ended 30 June 2019 Michael received $915,000 in cash from the sale of pizzas and other related products.

Eric is Michael’s head chef and he is provided with the use of a motor car as well as his salary of $100,000 per year. The car was purchased by Michael on 1 April 2018 for $55,000. Michael has not made the election under section 10 of the Fringe Benefits Tax Assessment Act 1986. Eric travelled 10,000 km in the car during the FBT year ended 31 March 2019 and, of this, 4,000 km were for business purposes. Eric paid for the petrol for the car and this amounted to $900 for the FBT year ended 31 March 2019. Eric was not reimbursed for the petrol.

Mary is Michael’s store manager and she was given an interest free loan of $500,000 by Michael on 1 January 2019. Mary used the loan for two purposes: 60% for the purchase of an investment property and 40% to pay off her home mortgage.

Michael also paid the private health insurance premiums of his staff and these premiums amounted to $55,000 for the year ended 31 March 2019.

Michael purchased a rental property at Haymarket on 1 July 2018 for $1,200,000. To finance this purchase, he borrowed $1 million from Megabank at an interest rate of 5%. To arrange for the loan Michael paid a total of $4,000 for a loan application fee, a valuation fee, and legal fees on 1 July 2018. He also paid stamp duty of $52,000 and $3,200 in legal fees in connection with the purchase of the property. He rented out his property from 1 July 2018. He received rent in cash from his tenants during the year ended 30 June 2019 in the amount of $93,000.

In August 2018 Michael fixed the door to the rental property which was broken at the time of his purchase for a cost of $900. He also purchased a new refrigerator for the rental property of $3,000 on 1 November 2018. The useful life of the refrigerator is 10 years. Michael replaced the entire roof of the rental property in October 2018 at a cost of $35,000 after it was severely damaged in a hailstorm in September 2018. He used substantially the same type of material that was there before.

On 30 June 2019 he sold the Haymarket rental property for $1,500,000. The costs he incurred on the sale were $30,000 for real estate agent’s commission and $2,000 for advertising. With the proceeds of the property sale, Michael repaid his loan from Megabank on the date of sale.

Michael purchased some BHP Billiton Limited shares in May 2000 for $50,000 and then sold them in May 2019 for $100,000. He purchased an antique clock for $600 in June 2000 and sold it in June 2019 for $4,000. Michael also sold his Mercedes sports car in April 2019 for $60,000 which he purchased in April 2001 for $20,000.

Michael always wants to maximise his deductions.

Michael owns a pizza restaurant. He has several employees working in the kitchen and delivering pizzas. He also owns various assets, including a rental property. During the year ended 30 June 2019 Michael received $915,000 in cash from the sale of pizzas and other related products.

Eric is Michael’s head chef and he is provided with the use of a motor car as well as his salary of $100,000 per year. The car was purchased by Michael on 1 April 2018 for $55,000. Michael has not made the election under section 10 of the Fringe Benefits Tax Assessment Act 1986. Eric travelled 10,000 km in the car during the FBT year ended 31 March 2019 and, of this, 4,000 km were for business purposes. Eric paid for the petrol for the car and this amounted to $900 for the FBT year ended 31 March 2019. Eric was not reimbursed for the petrol.

Mary is Michael’s store manager and she was given an interest free loan of $500,000 by Michael on 1 January 2019. Mary used the loan for two purposes: 60% for the purchase of an investment property and 40% to pay off her home mortgage.

Michael also paid the private health insurance premiums of his staff and these premiums amounted to $55,000 for the year ended 31 March 2019.

Michael purchased a rental property at Haymarket on 1 July 2018 for $1,200,000. To finance this purchase, he borrowed $1 million from Megabank at an interest rate of 5%. To arrange for the loan Michael paid a total of $4,000 for a loan application fee, a valuation fee, and legal fees on 1 July 2018. He also paid stamp duty of $52,000 and $3,200 in legal fees in connection with the purchase of the property. He rented out his property from 1 July 2018. He received rent in cash from his tenants during the year ended 30 June 2019 in the amount of $93,000.

In August 2018 Michael fixed the door to the rental property which was broken at the time of his purchase for a cost of $900. He also purchased a new refrigerator for the rental property of $3,000 on 1 November 2018. The useful life of the refrigerator is 10 years. Michael replaced the entire roof of the rental property in October 2018 at a cost of $35,000 after it was severely damaged in a hailstorm in September 2018. He used substantially the same type of material that was there before.

On 30 June 2019 he sold the Haymarket rental property for $1,500,000. The costs he incurred on the sale were $30,000 for real estate agent’s commission and $2,000 for advertising. With the proceeds of the property sale, Michael repaid his loan from Megabank on the date of sale.

Michael purchased some BHP Billiton Limited shares in May 2000 for $50,000 and then sold them in May 2019 for $100,000. He purchased an antique clock for $600 in June 2000 and sold it in June 2019 for $4,000. Michael also sold his Mercedes sports car in April 2019 for $60,000 which he purchased in April 2001 for $20,000.

Michael always wants to maximise his deductions.

What is Michael’s assessable income (excluding Capital Gain Tax) for the year ended 30 June 2019?

What fringe benefits tax (FBT) must Michael pay for the year ended 31 March 2019?

What is Michael’s net capital gain or net capital loss for the year ended 30 June 2019?

What income tax deductions can Michael claim for the year ended 30 June 2019?

You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law. If relevant, you must show your calculation. You must apply the law to the facts and provide YOUR OWN analysis of the issues and write a comprehensive answer to the question.