Business law case studies

Business Law Case Studies Business laws deal with the set of laws that are highly functional in resolving the domestic or foreign matters of business through a series of official materials, meetings, and other commercial agreements. Business lawyers help their clients glide through the allegation and other relevant matters of trade with their in-depth knowledge of the commercial laws. A business law student without properly dealing and understanding of the intricacies of business law case study would not be able to help their clients in future.

CASE STUDY : 1

Question: 1- In June 2016 Tom had signed an agreement in Sydney with XYZ Ltd to act as the company’s plantation manager in Brunei until June 2018. At the time of signing the agreement, Tom was advised that it was possible that at the end of his two year contract the company would offer him a one year extension. Tom advised the company, at the time of signing, that he had no definite view of accepting or rejecting the possible extension but would consider it at the end of his two year posting. He rented his house in Sydney for two years. He arrived in Brunei on 1 July 2016. He and his family resided in a large house they leased near the plantation, which was provided as part of his employment package. His younger daughter Mary, aged 9, accompanied him and his wife to live in Brunei, where she attended boarding school. His older married daughter Anne, aged 23, remained in Australia with her husband. While in Brunei, Tom and his wife joined the local bridge and golf club. He also rented a holiday apartment at a nearby beach resort for two years. During the time the family was in Brunei, his wife took a part-time job teaching English.

In June 2018, Tom was offered a one year extension of his contract, but decided to reject it and returned to Sydney on 10 June 2018. While in Brunei, the rent from his house in Sydney was paid into his interest earning Australian bank account, which he accessed using his Australian credit card. His salary was paid into an interest earning bank account that he had opened in Brunei. He drew upon his Brunei bank account from time to time at local ATMs in Brunei.

On returning to Australia, Tom decided to open an accounting practice as a sole practitioner. His wife assisted him, by acting as the receptionist.

Fortunately, he was able to provide a service to a client shortly after beginning business. He billed this client for fees of $8,000 on 27 June 2018, but did not receive the cash payment from his client for these services, until July 2018. This was the only client he billed for the year ended 30 June 2017.

Answer : Issue The first issue, which has been raised in this context, is about the rental property issue that is being faced by Tom. While working for the company in Brunei, he rented his house in Sydney for two years. Hence, the first issue emphasizes residential rental properties. The second issue, which is being faced by Tom, is tax liability from bank interest earning. Additionally,

Tom was also facing problems relating to the tax liability of a salary account in Australia. Tom while residing in two years in Brunei used his Australian credit card for the salary purpose and for the rental earning purpose he used his Australian bank account. The third issue which has been highlighted in the context of Tom after returning to Sydney after two years is that he started his own business of accounting practice and worked as a sole practitioner. Therefore, the issue here is that Tom provided service to the client and billed a fee of $8,000 on June 27, 2018.

However, in lieu of the same he did not obtain the cash based payment for these services from his client until July 2018.

Rule The rule of Residential rental properties under the taxation law includes that when a person rents out his property, he needs to show up all his income and report on the tax return. Contextually, in the tax return, the visibility of the rental income is considered to be essential, as it proves that the owner of the house has a good intention and wants to make money legally from the property. However, if the owner does not show up the income earned from the rental house, then the earning would be considered to be illegal. This rule is based on the case of property rental income;. A gross income of an individual is perceived to be legal and is valued after making up various kind of remuneration into it. If the resident of Australia resides anywhere, he is liable to pay all the taxes from the income that he generates every time.The income is based on earning made from each source and none of them can be exempted. If it happens that it can be called as tax evasion. Therefore, the employment income is included in the tax proceedings and a person having any source of income must have to report for it in the tax return. As per 183-day test rule with respect to residency in Australia, it can be stated that an individual has to be either continuously or occasionally in the country for being perceived as a constructive residence. This is unless an individual can prove that his/her residing place is outside Australia. Additionally, it may also be in the case if the individual has no plan to settle in the country. It must be noted with respect to this particular rule that an individual must be satisfied that his or her residing place is outside Australia, however, the first statutory test of domicile needs to assure that the individual is a permanent resident outside Australia. In this context, a domicile is referred as the place, which on the basis of law is considered to be the permanent home or something that is perceived to be more than a residing property. Hence, an individual may not have a fixed residence, but based on the Australian law, he/she is always observed to be domicile. This allows an individual to reside in two places.

An individual may be even earning the interest income. The main concept in the context is that a person needs to show up all the income of his/her earnings. The Australian taxation office refers that if they find any such person, stating the interest income and interest earned reported by the financial institution differs, then a notice is to be served to the individuals.

Therefore, the taxation rule infers about reporting the sources of income from everywhere in the tax return.

When a person establishes any kind of firm in Australia, there are some laws and regulations, which are to be followed. Moreover, on the basis of the Division 207 and Subdivision 210?H of the Income Tax Assessment Act 1997, a company is liable to pay off all the corporate taxes against its income. Proper registration of the firm and the lodge of it in tax returns make the firm valid and legal. The firm prior to settling up the firm must have to understand the laws, which comply with the tax. A business or a firm is registered only when it is proven that it has followed all the procedures in a legal way. In addition, there are various legal registrations, which are important to accept prior to establishing a business entity.

Hence, to make all the important registration of the firm, the owner needs to consult with the tax advisers, who can make them understand the legal processes involved in registration of the company. Additionally, as the firm hires new employees in the organization, it is essential to record the entire payroll related to each and every employee, who has been paid;;.

Therefore, these are the following rules as well as the regulations that are considered in the taxation process and a firm to maintain its legality needs for maintaining all the important processes. It is clear from the Australian Taxation Office if a person is found to be avoiding any kind of tax rules and regulation then he/she is liable to be charged with penalties. This may lead the business to be at risk. Payments that have been made to a taxpayer in the form of inducement to return to work or to provide services

CASE STUDY : 2 Question: 2- You are working as a tax consultant in Mayfield, NSW. Your client is an investor and antique collector. You have ascertained that she is not carrying on a business. Your client provides the following information of sales of various assets during the current tax year: (a) Block of vacant land. On 3 June of the current tax year your client signed a contract to sell a block of vacant land for $320,000. She acquired this land in January 2001 for $100,000 and incurred $20,000 in local council, water and sewerage rates and land taxes during her period of ownership of the land. The contract of sale stipulates that a deposit of $20,000 is payable to her when the contract of sale is signed and the balance is payable on 3 January of the next tax year, when the change of ownership will be registered. (b) Antique bed. On 12 November of the current tax year your client had an antique four-poster Louis XIV bed stolen from her house. She recently had the bed valued for insurance purposes and the market value at 31 October of the current tax year was $25,000. She purchased the bed for $3,500 on 21 July 1986. Although the furniture was in very good condition, the bed needed alterations to allow for the installation of an innerspring mattress.

These alterations significantly increased the value of the bed, and cost $1,500. She paid for the alterations on 29 October 1986. On 13 November of the current tax year she lodged a claim with her insurance company seeking to recover her loss. On 16 January of the current tax year her insurance company advised her that the antique bed had not been a specified item on her insurance policy. Therefore, the maximum amount she would be paid under her household contents policy was $11,000. This amount was paid to her on 21 January of the current tax year.

(c) Painting. Your client acquired a painting by a well-known Australian artist on 2 May 1985 for $2,000. The painting had significantly risen in value due to the death of the artist. She sold the painting for $125,000 at an art auction on 3 April of the current tax year. (d) Shares. Your client has a substantial share portfolio which she has acquired over many years. She sold the following shares in the relevant year of income: (i) 1,000 Common Bank Ltd shares acquired in 2001 for $15 per share and sold on 4 July of the current tax year for $47 per share. She incurred $550 in brokerage fees on the sale and $750 in stamp duty costs on purchase. (ii) 2,500 shares in PHB Iron Ore Ltd. These shares were also acquired in 2001 for $12 per share and sold on 14 February of the current tax year for $25 per share. She incurred $1,000 in brokerage fees on the sale and $1,500 in stamp duty costs on purchase (iii) 1,200 shares in Young Kids Learning Ltd. These shares were acquired in 2005 for $5 per share and sold on 14 February of the current tax year for $0.50 per share. She incurred $100 in brokerage fees on the sale and $500 in stamp duty costs on purchase. (iv) 10,000 shares in Share Build Ltd. These shares were acquired on 5 July of the current tax year for $1 per share and sold on 22 January of the current tax year for $2.50 per share. She incurred $900 in brokerage fees on the sale and $1,100 in stamp duty costs on purchase. (e) Violin. Your client also has an interest in collecting musical instruments.

She plays the violin very well and has several violins in her collection, all of which she plays on Your client also has a total of $8,500 in capital losses carried forward from the previous tax year, $1,500 of which are attributable to a loss on the sale of a piece of sculpture which she sold in April of the previous year.

Required: Based on this information, determine your client’s net capital gain or net capital loss for the year ended 30 June of the current tax year.

Answer :

In case and individual taxpayer acquired an vacant or empty land for the purpose of investment or private use, the requirement is to consider the land as a capital asset and it is subject to capital gain tax when the taxpayer sells it (Harding 2013). According to the Australian Taxation Office, the taxation treatment of the vacant land acquired by the taxpayer in the form of capital asset needs to be treated like other assets for capital gain purpose. For this reason, it is the obligation on the taxpayer to keep record of all the data and information related to the cost of the land. At the same time, the taxpayer needs to keep the records of related expenses of the land that are council rate and interest rate on the loan. These expenses are not subject to income tax deduction as they need to be included in the cost base related to the land at the time of the computation of capital gains or losses while selling the land (Grudnoff 2015).

It can be seen from the provide scenario that the taxpayer signed a contract for selling the vacant land for $320,000. Some of the ongoing expenses reported by the taxpayer related to the land are water and sewage rates, land tax and local council at the time of the ownership of the land. According to Section 104-10 (1), the occurrence of CGT event A1 can be seen at the time of selling the land (Mahar 2016). Thus, under Section 102-5, ITAA 1997, the taxpayer will be needed to show the capital gain net amount in his taxable income.

Requirement [b]: Antique Bed The definition of Collectable can be seen under Subdivision 108-B. According to Section 108-10 (2), a collectable can be defined as the object that the taxpayer uses for the purpose of personal enjoyment and use (Dabner 2015). As per Section 118-10 (1), ITAA 1997, a collectable will be subjected to exempt from CGT taxation when its value is $500 or less than $500. It can be seen from the present scenario that someone stolen the antique bed from the building of the taxpayer. Later, it has been observed that the taxpayer did not include the stolen antique bed in his specific matters’ list in the insurance policy. Section 104-25 (1) indicates towards the occurrence of CGT event A1 when someone destroy or damage the asset. In this situation, the compensation receipt related to the stolen antique bed lead to the occurrence of CGT event A1 due to compensation received for the stolen antique bed (Boccabella 2015).

Requirement [c]: Painting Prospective functioning of CGT can be seen and it can be applied at the time of the occurrence of the CGT event related to the purchased assets on or after the date of 20th September 1985. In case of most of the CGT events, the presence of exemptions can be seen related to the obtained assets before the date of 20th September 1985 (Jacob 2018). For this reason, the assets are exempted from CGT assets in case they are purchased after CGT event. It can be seen from the provided situation that the taxpayer obtained the painting on 2nd May 1985 and the painting has been sold by the taxpayer in the present taxation year for $125,000. In this case, it is needed to consider the pre-CGT asset as subject to exemption from CGT event as the taxpayer obtained it before CGT introduced or before 20th September 1985 (Evans et al. 2014).

Requirement [d]: Shares CGT is applicable for the investors or the individual taxpayers in case of the capital gains that the taxpayer has acquired from units or shares at the time of the occurrence of the CGT event; particularly, at the time of the selling of the asset by the taxpayer. In this context, it needs to be mentioned one needs to do the taxation treatment of units or shares of the company along with the managed funds as the same manner like the other assets related to the capital gain tax purpose (Kania 2013). The treatment of profits made by the taxpayer due to the sale of the shares needs to be done as ordinary income. It can be seen in the provided scenario that the taxpayer has reported capital gains from shares and they were acquired in Build Ltd, Common Ltd and PHB. After this event, reporting of loss can be seen from the side of the taxpayer from the sales of the shares of Young Kids Learning. For this reason, in this situation, the taxpayer has the option of setting off the capital loss due to the sales of shares of Young Kids Learning against the capital gain due to the sale of Common Ltd, PHB and Build Ltd (Daily, Kieff and Wilmarth Jr 2014).

Requirement [e]: Violin Subdivision 108-C deals with the personal use assets. According to Section 108-20 (2), personal assets are the assets that are considered as the non-collectable assets and the taxpayers acquire these assets for personal use and enjoyment (Evans and Krever 2017). Furniture, boat, electricity goods and any items of household are this kind of asset. Land and building cannot be included under personal use assets. Section 108-30 states that it does not include the personal use asset’s cost of ownership.

As per Section 118-10 (3), there is a requirement to ignore the cost base of persona asset having value $10,000 or less (Dabner 2015). The

requirement for the taxpayer is to keep record of information of the assets having value more than $10,000. It can be seen from the provided scenario that the violin was purchased for $5000. It needs to be considered as the personal use asset as it has been bought for the purpose of private use only. It is evident that the cost of the violin is less than $10,000. For this reason, the sale of the violin along with the derived capital gain can be ignored as it is a personal use asset and is subjected to exempt from CGT

CASE STUDY : 3 Question: 3- There is a constant quarrel between Ankita and Aniket due to which there is a marital discord between two. As a part of settlement the husband agrees to pay sum of Rs. 50,000 per month as maintenance allowance of his wife. Provided she stays separately. Does the wife has a claim to get that amount.

Ans : The given case is under the chapter of consideration, which means the promises executes the work at the desire or under the direction of the promisor. Consideration is essential for the validity of an agreement i.e. in other words an agreement made without consideration is void. However section 25 (1) that is natural love and affection; deal with the exception of this rule.

In this set case there is a quarrel between Ankit and Ankita due to which there is a marital discord between two. As a part of settlement the husband agrees to pay for the maintenance allowances to his wife provided she stays separately.

Case : Rajlucky V/S Bhootnath An agreement was entered into by a husband with his wife during quarrels and disagreements, whereby the husband promised to give some property to wife. But after this he refused to perform the action and here the agreement was held to be void.

Judgement : As mentioned above an agreement was entered in to by a Ankit with his wife Ankita during their quarrels, whereby the husband agrees to pay the maintenance allowances to his wife provided she stays separately. In the above case the agreement held to be void because, under the circumstances, there was no natural love and affection between parties.

As per the exceptions under the consideration section 25(1) love and

affection states that agreement has to be made out of natural love and affection and it should be between the parties standing near relationship to each other. As we seen in this case nearness of relationship, however does not necessarily import love and affection. Therefore there is no consideration made by husband hence it is only an agreement and not a contract. Therefore it is a void agreement hence husband need not have to pay compensation for the separation.

CASE STUDY : 4 Question: 4- X in consideration of Rs. 5,00,000 from Y agrees to murder Z while borrows the money from K who knowingly lends money to Y can K recover this amount.

Ans : The given case is under the chapter of Fraud which means the active concealment of a fact by a person having knowledge or belief of the fact.

Fraud arises when there is a false representation of a fact made with the knowledge that is false or without belief in its truth or reckless not carrying whether it be true or false.

In this set case X in consideration of Rs. 5,00,000 from Y agrees to murder Z while borrows the money from K who knowingly lends money to Y can K recover this amount.

Judgement : As mentioned above in this case x in consideration of Rs. 5,00,000 from Y agrees to murder Z while borrows the money from k knowingly lends money to Y. in this case K is not eligible to recover the amount, because according to section- 17 Fraud arises when there is a false representation of a fact made with the knowledge that is false or without belief in its truth or reckless not carrying whether it be true or false.

Here, Person who takes a risk even he knows that what he does may be dangerous is comes under the fraud. K knows the fact behind landing money from him which is dangerous event therefore K is fraud under section- 1.

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