Discuss the tax implications of the following payments made by a partnership assuming that partnership income before the payments were made was $100000.
Term 1 Standard Examination 2013/Taxation Law and Practice A LAWS19033
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Instructions Sheet
1. Write all answers in the Examination Answer Booklet provided.
2. This examination is worth a total of 70 marks.
3. This paper consists of six questions. Marks are indicated accordingly.
4. Write your answer clearly use headings or subheadings to show which part of your answer refers to which question. Example: Question 2 (a).
Term 1 Standard Examination 2013
Taxation Law and Practice A LAWS19033
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TOTAL 70 MARKS
COMPULSORY QUESTIONS
Students are to answer ALL questions.
Question 1 10 Marks
Briefly explain the extent if any to which each of the following receipts would be assessable income exempt income non-assessable non-exempt income or a capital gain of an Australian resident taxpayer if derived in the current year of income:
In your answers refer as appropriate to the ITAA 1936 ITAA 1997 Tax Rulings and/or case law.
Required:
(a) An amount of $100 received from the local tennis club in recognition of your assistance with their club accounts. (2 marks)
(b) Receipt of an amount of $10000 from an insurance company to compensate for pain and suffering from a neck injury sustained in a car accident. (2 marks)
(c) Sale of a lounge suite for $800. The lounge suite was purchased at a garage sale for $300 three months beforehand. (2 marks)
(d) The following figures relate to the trading stock of a retailer for the year ended 30 June 2013:
Opening stock (market value) $ 75000
Closing stock (market value) $ 89000 (2 marks)
(e) Jana commenced 3 months long service leave on 20 June 2013. She received a lump sum of $15000 representing her salary for the period of the long service leave on 2 July 2013. (2 marks)
Term 1 Standard Examination 2013
Taxation Law and Practice A LAWS19033
Page 3 of 5
Question 2 10 Marks
Briefly explain the extent if any to which each of the following payments made by an Australian resident taxpayer during the current year of income would be an allowable deduction:
In your answers refer as appropriate to the ITAA 1936 ITAA 1997 Tax Rulings and/or case law.
Required:
(a) An amount of $6000 paid to a solicitor to set up an incorporated company prior to starting business operations. (2 marks)
(b) The salary of a babysitter who is employed to look after the children of a businesswoman while she goes to work. (2 marks)
(c) The cost of veterinary expenses for a dog used as a guard dog by the owner of a used car yard. (2 marks)
(d) Jill works part-time at a dress shop while she completes a nursing degree. In July 2012 she incurs expenses of $700 to fly to Brisbane to attend a job interview with a major hospital. While she is there she attends a conference on Safety in Nursing at a cost of $400. A week after returning she finds out she has got the nursing job. (4 marks)
Question 3 15 Marks
(a) Discuss the tax implications of the following payments made by a partnership assuming that partnership income before the payments were made was $100000.
i. Salary of $10000 to one of the partners.
ii. Interest of $2000 paid on a loan to the partnership by one of the partners.
iii. Interest on $3000 paid on capital contributed by the partners.
(6 marks)
(b) Hannah and Rebecca run a business training horses. This business is run through a trading trust the Horse Star Trust.
The Horse Star Trust incurred a loss of $15000 in the 2011/12 income year as calculated in accordance with s95(1) ITAA 1936.
After conducting a major advertising campaign at the local racing track business picked up at Horse Star and in the 2012/13 income year the following items were recorded:
Profit from business activities
$95000
Unfranked dividend
$1000
Interest from a term deposit
$3500
Winnings from betting on horse races
$10000
Question 3 continued over next page
Term 1 Standard Examination 2013
Taxation Law and Practice A LAWS19033
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Question 3 (continued)
During the 2012/2013 income year tax deductible business expenses of $25000 were incurred.
The trustee has exercised discretion to make the following payments to beneficiaries who all have a vested interest in income of the trust:
Hannah aged 32
30% of trust net income
Rebecca aged 31
30% of trust net income
Joe aged 24 currently serving time in jail for doping horses
20% of trust net income
Any remaining income is to be retained in the trust for re-investment purposes.
Required:
i. Calculate the s 95(1) trust net income for 2012/2013. (5 marks)
ii. Explain how the trust net income will be assessed in the 2012/2013 income year making reference to whether assessment will be to the trustee and/or beneficiaries. (4 marks)
You should make reference to appropriate provisions of the ITAA 1936 and ITAA 1997.
Question 4 15 Marks
(a) In some cases trading stock for one taxpayer may be plant for another. Explain how the distinction is made and provide some examples of the difference. (5 marks)
(b) What options are available to a taxpayer when determining the effective life of a depreciating asset? Can the effective life ever be changed during the life of an asset? (5 marks)
(c) Explain why a tax offset has a greater value to a taxpayer than an allowable deduction. Does the marginal tax rate of the taxpayer have any effect on whether a tax offset has greater value than an allowable deduction? (5 marks)
Question 5 10 Marks
On 1 May 2012 a company purchased a new Holden Captiva for $43000 (GST input tax credits have been claimed on the purchase). Before delivery of the vehicle air conditioning was installed at a cost of $2000 and a UHF radio fitted for business purposes at a cost of $800.
The vehicle was made available to an employee for his exclusive use for both business and private purposes.
Question 5 continued over next page
Term 1 Standard Examination 2013
Taxation Law and Practice A LAWS19033
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Question 5 (continued)
Expenses incurred on the vehicle during the period 1 May 2012 to 31 March 2013 were as follows:
Registration and Insurance paid 1 May 2012
$750
Repairs and Maintenance
$2000
Fuel and Oil
$3100
The employee paid his employer $850 towards the cost of fuel used for private purposes.
According to the log book the vehicle travelled a total of 60000 kilometres in the period 1 May 2012 to 31 March 2013 of which 51000 kilometres of travel was work-related.
Required:
Given that the employer company has elected to use the operating cost method to determine the taxable value of the car fringe benefit calculate the fringe benefits tax payable in respect of the vehicle for the fringe benefits tax year ended 31 March 2013.
Question 6 10 Marks
(a) Discuss whether the following supplies constitute a taxable supply GST free supply or input taxed supply under the provisions of A New Tax System (Goods and Services Tax) Act 1999.
i. Fees charged by an accountant who is registered for GST for completing a tax return. (2 marks)
ii. Sale of a hot chicken from a takeaway shop which is registered for GST.
(2 marks)
iii. Sale of chocolate bars by a small business which is not registered for GST. (2 marks)
(b) What input tax credits if any are available in respect of the following transactions?
i. A cash register system costing $55000 purchased by a small takeaway shop which is registered for GST. (2 marks)
ii. Goods costing $330 purchased by a hobby farmer for use on his farm.
(2 marks)
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