Question 4 (8 Marks)

On 1 July 2017 Gung Ho Pty Ltd was capitalised by issuing fifty ordinary shares each to Charles and James. Gung Ho Pty Ltd carried on a car importation and wholesale business and made a loss of $200,000 for the year ended 30 June 2018. On 1 July 2018, James sold all his shares to William. The company made a further loss of $400,000 for the year ended 30 June 2019. Donald was issued fifty new shares on 30 June 2019.

During July 2019 the company decided to add a network of retail outlets and provided a full sales and service to the public. For the year ended 30 June 2020 the taxable income of Gung Ho Pty Ltd was $700,000.

Required:

Fully explain using references to ITAA provisions:

1) if the company can deduct the 2018 loss in 2020?

2) if the company can deduct the 2019 loss in 2020?

3) the taxable income of Gung Ho Pty Ltd for 30 June 2020?

Year 2018 2019 2020

Profit/(loss) ($200,000) ($400,000) $700,000

Shareholding

Charles 50 50 50

James 50 0 0

William 0 50 50

Donald 0 0 50

100 100 150