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Below are some short answer questions. Answer all questions. Each question is unrelated to other questions.

(a)Journalism 101 teaches students how to write a news item for a newspaper. Students are taught that the opening sentence of a news item must address the four 'w's.

Here is an example.

"A young man was shot in Suva yesterday."

Here is the analysis.

What? A person was shot. Who? A young man. When? Yesterday. Where? In Suva.

Income Tax 101 also makes the point that in designing an income tax one must attend to the four 'w's.

Fiji's ITA 2015 creates a general tax on income that is formally called 'Income Tax'.

As regards Income Tax, s.8(1) and (3) cover who, what and when.

Required: Which provision of the Act deals with the 'where'?(1 mark)

(b)To encourage local business and industry, the government hosts an annual awards evening at which it grants awards such as 'Exporter of the Year.' An 'award' is just a certificate. It has no material value but of course can be very useful to a company in marketing itself.

Aside from government awards, the event has commercial sponsors. One of these is Bankco. Bankco grants the company named as Exporter of the Year a $100,000 line of credit for one year with an interest rate of 0% (i.e. interest free).

In December Fco is delighted and surprized to be named the Exporter of the Year. Fco fully draws down the line of credit with Bankco. Fco uses the Bankco advance to pay down an existing overdraft that Fco has with Westpac on which interest is charged at 10%.

Required: Fco is better off for having been selected as Exporter of the Year. Has Fco derived income to be included in gross income/chargeable income?

(d)In 2015 Mango Co Ltd ('Mco') acquires a 60 year lease of agricultural land. The company plants 250 mango seedlings on the land. The seedlings develop into young mango trees and produce their first crop of mangoes in 2020.

Over the five years from the planting, Mco incurs expenditure in caring for the developing mango tress. This involves applying nutrients around the young trees, occasionally spraying for bugs and diseases, watering the young trees during dry weather, and annual pruning of the trees.

There is now a tax dispute between the CEO and Mco concerning the expenditure incurred in caring for the growing trees up to 2020 when the trees first produced mangoes. The CEO denies deduction of the expenditures citing (inter alia) Wharf Properties. Mco believes the expenditures are deductible.

Required:

- What argument/s may be put in favour of the CEO's position?

- What argument/s may be put in favour of Mco's position?

- Who do you think should win this dispute?(3 marks)

(e)Roadco carries on a road building business. In early January Roadco purchases a second hand grader for use in its business. In the first week of use the grader's clutch fails. (The clutch is a device that sits between a vehicle's engine and gearbox.) The clutch is found to be badly worn and beyond repair. Roadco spends $2,000 buying and installing a new clutch.

A clutch should and normally does operate trouble free for years. However, in late July the grader's clutch fails again. It totally disintegrates. Unhappily for Roadco this is just beyond the manufacturer's 6 month warranty period. Roadco again spends $2,000 buying and installing a new clutch.

Required: Explain how and why the January clutch expenditure and July clutch expenditure receive different tax treatments.(3 marks)

(f)2019: Lusi is a Fiji national and resident of Fiji. Lusi is a lecturer in the USP law school Suva campus. Aside from her employment income, Lusi derives a steady stream of interest income on two mortgages (more technically loans secured by a mortgage) that she extended to clients in her former career as a lawyer.

Lusi's annual salary is $85,000. In consequence her interest income is in effect subject to a flat tax of 20% (s.8(6)).

2020: USP relocates Lusi to the law school campus in Vanuatu for a 3 year term. Lusi ceases to be a Fiji resident. In Vanuatu, Lusi pays no income tax on her salary and interest income for the simple reason that Vanuatu has no income tax. As regards Fiji, Lusi's interest income is now subject to a flat tax of 10% (s.10 NrWT).

If s.10 was repealed Lusi would be subject to a flat tax of 20% on her interest income (s.8(1) and (3)). Looks like Fiji has shot itself in the foot.

Required: What might in theory explain the lower tax rate under s.10? (2 marks)

(g)Does s.39(3) largely undercut the House of Lords decision in Southern Railway of Peru Ltd v Owen? (2 marks)