Question One (20 marks)

Part A (12 marks)

James Wit, a high class Western Australian State League footballer was approached by a Victorian club to play for them in the coming 2020 season. James did not accept the offer but did agreed not to play for another national club for the next two years and received $50,000 for this commitment.

In May 2020, James had several disagreements with his current Western Australian club and as a result decided to leave and play for the Victorian club that had approached him earlier in the year. The Victorian club paid $20,000 to release James from his present contract and paid him an additional $10,000 in June to cover the cost of moving interstate.

Required:

Discuss the income tax implications for James ignoring any CGT issues. Refer to relevant legislation and case law to support your arguments for and against before arriving at your conclusion.

Part B (8 marks)

Specialist Pty Ltd manufacture and sell two products, Product X and Y. An independent survey yielded the following information in relation to the companies trading stock on hand:

Product/value	30 June 2019	30 June 2020
Product X cost	$60,000	$70,000
Product Y- cost	$30,000	$20,000
Product X market selling value	$80,000	$60,000
Product Y- market selling value	$60,000	$40,000
Product X replacement price	$70,000	$80,000
Product Y- replacement price	$40,000	$30,000

In 2019 the company valued its entire closing stock for tax purposes at replacement price.

Required:

Assuming that purchases in 2020 came to $120,000 and sales proceeds amounted to $280,000, and the company had no other transactions, calculate the companys taxable income for 2020, valuing trading stock so as to give the smallest possible taxable income.

Show all calculations and cite relevant legislation and case law where appropriate to support your answer.

[Total 12 + 8 = 20 marks] (500 words not including calculations)