Income Tax

Credit: samoaplanet.com

All scenarios are hypothetical and are set for the purpose of this assignment. All taxpayers have a standard balance date of 31 March. All currency is expressed in New Zealand dollars. Questions relate to the provisions of the Income Tax Act 2007.
– Dee Loit is a tax consultant for three different clients, A, B, and C, all of whom are NZ residents. He asks you to look into the income tax implications for each of these three clients. 

Client A (an individual) holds shares with a cost price of $30,000 in an overseas company (not in Australia; market value is $40,000 on 31 March 2016 and $50,000 on 31 March 2017).

Client B (a company) holds shares with a cost price of $40,000 in an overseas company (not in Australia; market value is $50,000 on 31 March 2016 and $60,000 on 31 March 2017). During the year ended 31 March 2017, Client B sold 2,000 shares of the overseas company for $4,000. Apart from this sale, there were no other sales or purchases made.

Client C is a complying trust (set up by Chuck in 2010 for the benefit of his children), which has a portfolio of shares costing $100,000, comprising $55,000 in Australian listed company shares (market value on 31 March 2016 is $63,000 and on 31 March 2017 is $64,000), and $45,000 in two UK listed companies’ shares, Axee PLC and Baxee PLC.

Additional information about Axee PLC and Baxee PLC are as follows:

• Axee PLC: market value on 31 March 2016 is $60,000 and on 31 March 2017 is $65,000. C bought another 500 shares for $4,000 on 24 June 2016.

• Baxee PLC: market value on 31 March 2016 is $38,000 and on 31 March 2017 is $27,000. C sold 2,000 shares for $8,000 which originally cost $3,000 two years ago.

All three clients have no other investments apart from these shareholdings and all shares were bought in 2010 (apart from the additional 500 Axee PLC shares as detailed above). Their respective shareholdings in the foreign companies are all less than 10%.

REQUIRED:

Based on the above scenario, you are required to explain to Dee Loit:

a) which of the above investments is/are exempt from the FIF rules in the 2017 income year; (2 marks)

b) what calculation methods under the FIF rules his clients can use if they are not exempt; (2 marks)
c) what the FIF income for 2016-17 is for those clients that are not exempt; show all workings for the methods that the clients can use. (11 marks)

You need to provide sections of the Income Tax Act 2007 to support your answers. A reference list is not required.