Question one

Singh Motors Ltd (Motorco) is a Fiji company. Motorco is largely owned by Mr Singh who is also the companys managing director. The company conducts a motor vehicle repair business.

Motorcos principal business premises is a garage in Suva. Ten people including Mr Singh work in the Suva business. The company also has a branch office in Sigatoka. Four people work in the Sigatoka garage.

The following events concern the Sigatoka branch office.

(i) The Sigatoka premises consist of a steel frame building covered by metal sheeting. In January a cyclone severely damages the roof. Buildco, a local construction company is engaged to repair the damaged roof. The roof is in fact beyond repair and Buildco is compelled to replace the entire roof frame and its covering of metal sheeting. The work done by Buildco costs $40,000.

(ii) In May, Motorco purchases a secondhand tow truck (price $19,000) for use in the Sigatoka operations. In June, the trucks clutch fails and has to be replaced at a cost of $3,000.

(iii) Motorcos branch office in Sigatoka has been in operation for twenty years. Increasing competition has left the Sigatoka business only marginally profitable in recent years. In November, Motorco takes the hard decision to close the Sigatoka garage. The four employees working in the Sigatoka garage are dismissed. All four had been employed by the company for many years. The company makes a redundancy payment to each worker. Redundancy payments total $60,000.

In determining profits for tax purposes there can be no deduction of capital expenditures.

Can Motorco take account of the expenditures detailed in paras (i), (ii) and (iii) in determining the profits of its trade?

Question two

Auntie is a chemist. She invents a number of new plastic compounds for which she obtains patents. Auntie dies and Niece inherits five patents. (The different patents are of varying significance and in consequence of varying value). Niece deals with the different patents as follows.

Patent One: Niece grants an exclusive licence to Aco for the remaining life (7 years) of the patent in return for a licence fee of $10,000 payable immediately and ongoing royalty payable annually.

Patent Two: Niece assigns ownership of the patent to Bco in return for $8,000 payable immediately.

Patent Three: Niece assigns ownership of the patent to Cco in return for $1,000 payable annually for the remaining life (13 years) of the patent.

Patent Four: Niece assigns ownership of the patent to Dco in return for $20,000, one half to be paid immediately and one half to be paid in 2007.

Patent Five: Niece assigns ownership of the patent to Eco in return for the payment annually for the remaining life of the patent (8 years) of $1,000 or 1 cent for each kilogram of plastic produced using the patent, whichever is the greater.

In each deal what is the likely tax treatment for the payments received by niece? Explain your answer.

Question three

In 2017, X is 52 years old. He is employed as a grasscutter by the City Council on an annual salary of $12,000. X hopes and plans to continue working for the City Council until reaching retirement age of 55.

Unhappily in January, fate takes a turn for the worse. X is riding the bus home from work. The bus crashes. X is badly injured and becomes disabled. His working career is at an end.

X files a negligence claim against the bus company. A settlement is reached. X receives a sum covering all medical expenses incurred in consequence of the accident. In addition he receives general damages of $36,000 for pain, suffering and bodily injury. The general damages figure is calculated having regard to (inter alia) Xs wage and anticipated remaining working life at the time of the accident.

Should the $36,000 be included in calculating Xs taxable income for the year?

Question four

H and W have been married for many years. Within the marriage H has always been the income earner while W has worked in the home raising the children and managing the household.

H and W find they have grown apart. They decide to separate.

H and W execute a formal, legally binding maintenance agreement in which H agrees to pay W monthly, an amount equal to one half of his monthly take-home salary (i.e. salary after deductions for tax and contributions to the Pacifica National Provident Fund). The agreement is to operate so long as H remains employed. (It is anticipated H will be compelled to retire in 10 years time.) The agreement terminates if W remarries or obtains employment, both unlikely events.

On general principles should W include the money received from H in her taxable income for the year?

Might there be a double tax problem here?