Jack and Jill Jones are married and borrowed money to purchase a rental property as joint tenants. They both entered into a written agreement which provided that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90% of the property profits. The agreement also provided that if the property generated a loss, Jack is entitled to 100% of the loss. During the 2020-21 tax year a loss of $10,000 arose.   

Required:

How will the loss be allocated for tax purposes? Also, if Jack and Jill decide to sell the property how would they be required to account for any potential capital gain/loss? Cite relevant legislation and case law to support your answer. 

                                   

Part B    

Jessy Myers, a computer analyst, is uncertain whether $4,500 of expenditure incurred by her in undertaking a postgraduate course in accounting is tax deductible in the 2020-21 tax year Jesse nevertheless claims the expenditure as a deduction in her return. Subsequently, she is subject to a tax audit.

 Required:

If the expenditure was not deductible and its inclusion resulted in a shortfall amount of $1,350, what penalty could be imposed on Jesse? How would your answer differ if Jesse advised the tax auditor of her uncertainty about the deductibility of the expenditure during the course of the audit?

Assume that after lodging her tax return, which includes the uncertain item of expenditure as a deduction, Jesse applies for a private ruling in relation to the transaction. The ruling indicated that the item was not deductible. Explain the tax consequences for Jesse, citing relevant legislation and case law to support your answer. 

Answer rating: 100% (QA)

answer The 10000 loss can be allocated as a reduction in Jacks adjusted gr... View the full answer