Attempt 1 Karen is the CEO of Medico Pty Ltd, a company that owns a number of bulk billing medical centres and has annual revenue of approximately $500 million. Medico's Payments to GPs Medico Pty Ltd wishes to extend its business, and so enters into a number of contracts with some General Practitioner doctors (GPs) who do not yet offer services to Medico's clinic In exchange for Medico giving of these GPs a lump sum of $300,000, each GPs agrees to make themselves available to service clients in Medico's clinics for at least 5 days a week (except for holidays) for the next 4 years (as independent contractors). While doing so, the GPs can keep 50% of revenue that they charge the patients (consistent with industry practice). In the current tax year, Medico spent $20 million on these $300,000 GP payments. Its accountants are unsure whether they are capital or not. Karen's legal fees Karen owns a rental property (in her own private capacity - unrelated to her role as Karen's legal fees Karen owns a rental property (in her own private capacity - unrelated to her role as CEO), which had a leaking roof and so needed repair. She arranged for a roof plumber to attend the property at 3:00pm on a Tuesday. She also turned up at that time. She used her own key to allow entry for both herself and the plumber to the property. However, the tenant insisted that he had not given Karen permission to come at that time and called the police, who charged Karen with trespass. Karen went to court and incurred $10,000 in legal fees. She was found not guilty. Medico's Transactions The following information is relevant for Medico's concerning its transactions during the current tax year: purchase of an X-ray machine for $50,000 for use in one of its clinics (with an effective life of 10 years); and purchases of skin-care products (for sale to customers) of $20,000; and Medico's Transactions The following information is relevant for Medico's concerning its transactions during the current tax year: purchase of an X-ray machine for $50,000 for use in one of its clinics (with an effective life of 10 years); and purchases of skin-care products (for sale to customers) of $20,000; and sales of skin-care products to customers: $80,000. Total closing stock value for skin-care products at the end of the current tax year located in their head office was as follows: cost of $25,000 replacement value of $20,000 market selling value of $70,000. The closing stock at the end of the previous tax year had been valued at cost and replacement value of $20,000 market selling value of $70,000. The closing stock at the end of the previous tax year had been valued at cost and was $10,000. Required. Supporting your answers with cases and legislative authority, discuss the following: a. The deductibility for Medico regarding the $20 million of costs of paying the GPS (7 Points). b. The deductibility for Karen for the legal fees as a general deduction (7 Points). c. The tax consequences for Medico relating to the X-ray machine and the skin care products, assuming that the objective is to minimise Medico's income tax liabilities for the tax year (4 Points). Attempt 1 Karen is the CEO of Medico Pty Ltd, a company that owns a number of bulk billing medical centres and has annual revenue of approximately $500 million. Medico's Payments to GPs Medico Pty Ltd wishes to extend its business, and so enters into a number of contracts with some General Practitioner doctors (GPs) who do not yet offer services to Medico's clinic In exchange for Medico giving of these GPs a lump sum of $300,000, each GPs agrees to make themselves available to service clients in Medico's clinics for at least 5 days a week (except for holidays) for the next 4 years (as independent contractors). While doing so, the GPs can keep 50% of revenue that they charge the patients (consistent with industry practice). In the current tax year, Medico spent $20 million on these $300,000 GP payments. Its accountants are unsure whether they are capital or not. Karen's legal fees Karen owns a rental property (in her own private capacity - unrelated to her role as Karen's legal fees Karen owns a rental property (in her own private capacity - unrelated to her role as CEO), which had a leaking roof and so needed repair. She arranged for a roof plumber to attend the property at 3:00pm on a Tuesday. She also turned up at that time. She used her own key to allow entry for both herself and the plumber to the property. However, the tenant insisted that he had not given Karen permission to come at that time and called the police, who charged Karen with trespass. Karen went to court and incurred $10,000 in legal fees. She was found not guilty. Medico's Transactions The following information is relevant for Medico's concerning its transactions during the current tax year: purchase of an X-ray machine for $50,000 for use in one of its clinics (with an effective life of 10 years); and purchases of skin-care products (for sale to customers) of $20,000; and Medico's Transactions The following information is relevant for Medico's concerning its transactions during the current tax year: purchase of an X-ray machine for $50,000 for use in one of its clinics (with an effective life of 10 years); and purchases of skin-care products (for sale to customers) of $20,000; and sales of skin-care products to customers: $80,000. Total closing stock value for skin-care products at the end of the current tax year located in their head office was as follows: cost of $25,000 replacement value of $20,000 market selling value of $70,000. The closing stock at the end of the previous tax year had been valued at cost and replacement value of $20,000 market selling value of $70,000. The closing stock at the end of the previous tax year had been valued at cost and was $10,000. Required. Supporting your answers with cases and legislative authority, discuss the following: a. The deductibility for Medico regarding the $20 million of costs of paying the GPS (7 Points). b. The deductibility for Karen for the legal fees as a general deduction (7 Points). c. The tax consequences for Medico relating to the X-ray machine and the skin care products, assuming that the objective is to minimise Medico's income tax liabilities for the tax year (4 Points)