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ACBUS203A Case Study: Australian Income Tax Law
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- Course Code: ACBUS203A
- Course Title: Income Tax Law
- Referencing Styles: Harvard
- Words: 5000
- University: Tafe NSW
- Country: AU
Case Study: Red Herrings Australia Pty Ltd (RHA)
For several generations, the Svendsen family in Sweden has been involved with red herrings whose natural habitat is the pristine waters of the Svendsen Fjord on the Baltic coast. Like salmon, red herrings only breed where they were born, and as the Svendsen own the entire fjord, they have a natural monopoly.
With the world becoming more health-conscious and trending towards natural foods, the market for the Svendsen’s red herrings is skyrocketing, as they are naturally red and do not require chemical additives or a smoking process to make them red. They also have all the sought-after food macros that trending diets recommend.
Svendsen Red Herrings AB is now going international. They currently market to all of Europe, Britain, the Mediterranean the Middle East and North America. In 2015 they sent their youngest son, Sven and his family, to Australia to develop the Asia Pacific market.
Sven Svendsen incorporated Red Herrings Australia Pty Ltd (RHA) in July 2015 soon after migrating to Australia from Sweden with his wife, Britt and twin daughters, Hildur and Hillevi, then aged 15. Sven and Britt and directors of RHA and each own 40% of the company. Hildur and Hillevi are shareholders in RHA, each owning 10%.
The Svendsen’s became Australian residents upon migration on 1 July 2015.
As a new TAFE graduate, you have just joined the staff of Five-Sixten Accountancy, and the firm’s partner has assigned you the 2020 personal income tax return of Sven Svendsen. After reviewing his financial records and meeting with Sven, you are concerned about the tax treatment of the following items for 2019-2020:
- All amounts are in AUD.
- Sven has provided you with all receipts and other pertinent documentation.
- Before taking the items below into account, Sven’s Australian taxable income is in the top tax bracket.
- Sale of assets in Sweden
- Hunting lodge
- In 2001 Sven inherited a log-cabin hunting lodge in the mountains overlooking a fjord from his grandfather, Ingmar. Ingmar had bought the lodge for $5,000 in 1960, and at the time of his death, the estate valued it at $50,000. The lodge was old and dilapidated, and Sven spent $10,000 restoring it. He and his family used the lodge as a weekend retreat when they lived in Sweden before migrating to Australia.
- Since leaving Sweden, Sven rented the lodge to holidaymakers through Airbnb.
- Sven sold the property in May 2020 for $150,000 and received the proceeds on 7 June 2020 net of marketing, legal and foreign exchange conversion fees totalling $10,000.
- During the time Sven owned the lodge, he paid $15,000 in property rates and taxes to the local council.
- Sven has never claimed any of the above as tax deductions.
- Hunting memorabilia
- Before putting the hunting lodge on the market, Sven sold the following antique hunting memorabilia that decorated the walls, on eBay:
- Mounted reindeer head – $15,000 (bought in 2001 for $10,005)
- Antique hunting rifles (2) – $16,000 ($8,000 each). Sven bought them in 2002 for $1,400 and $1,600, respectively.
- Distribution from Svendsen Family Trust, Sweden
- Sven’s grandfather set up the Svendsen Family Trust in Sweden that his in 1963 and nominated all his descendants are beneficiaries During the year the trust EFT’d Sven $23,000 being the interest of $50,000 less Swedish Non-resident’s Withholding Tax of $27,000. Sven does not lodge a Swedish tax return.
You Are Required:
Draft a report for the partner of Five-Sixten to send to the Sven Svendsen on the Australian income tax considerations relating to the above items for 2019-2020.