Taxation Law and Practice A

Order Description

Page 1 of 5
INSTRUCTIONS SHEET
1. Write all questions in the Examination Answer Booklet provided.
2. This examination consists of six questions.
3. Write clearly, use headings or subheadings. Example: Question 2 (a).
Term 1 Standard Examination 2012
Taxation Law and Practice A — LAWS19033
Page 2 of 5
TOTAL 70 MARKS
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.
(a) Proceeds of illegal drug sales amounting to $3 000 received by the taxpayer as an activity operated through his restaurant business. The taxpayer has not been convicted of an indictable offence in relation to selling the drugs.(2 marks)
(b) A lump sum legacy of $40 000 received from the estate of a deceased estate in consideration for acting as executor of the estate. (2 marks)
(c) Sale of a table to the taxpayer’s sister for $4 000. The table is trading stock for the taxpayer’s furniture business and has a market value of $6 000. (2 marks)
(d) Sale of a table to a customer of a furniture store. The customer buys the table for a price of $6 600, including GST. (4 marks)
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.
(a) The cost of parking fines for a Supreme Court judge who has to park in a loading zone so that he can get to court on time. (2 marks)
(b) The cost of repairs to a bus purchased by Brisbane City Council. The repairs are completed soon after the purchase and before the bus can be used to transport passengers. (2 marks)
(c) The replacement cost of a coffee machine purchased by a cafe. (2 marks)
(d) Resurfacing of a gravel road with bitumen in the car park of a cinema. (2 marks)
(e) Travel expenses incurred for travelling between Penny’s day job at Mount Hospital and her after hours work as a personal carer for Ozcare. Penny receives wages from both jobs. (2marks)
Term 1 Standard Examination 2012
Taxation Law and Practice A — LAWS19033
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Question 3 15 Marks
Garden Dreams Pty Ltd, a resident private company, has a net profit from its trading operations for the year ended 30 June 2012 of $280 000.
Included in this net profit was:
? Dividends received from an overseas company (net of 15% interest withholding tax) of $1 700, and
? a fully franked dividend from a resident private company of $8 400, and
? an unfranked dividend of $5 000 from a resident public company.
Expenses deducted in arriving at the net profit included:
Accounting Depreciation
$30 000
Provision for long service leave
$24 000
Provision for bad debts
$10 000
Other information relating to the trading net profit:
? Tax depreciation has been calculated at $25 000.
? Long service leave was paid amounting to $6 000.
The company has a carry-forward net capital loss of $4 800.
Required:
(a) Determine the taxable income of Garden Dreams Pty Ltd for the year ended 30 June 2012. (8 marks)
(b) Determine the tax payable for the 2011/2012 income year. (2 marks)
(c) If Garden Dreams Pty Ltd wanted to write off $5 000 worth of bad debts for this income year what steps would they have to take? (5 marks)
Question 4 10 Marks
(a) The GST legislation makes provision for taxable supplies, GST-free supplies and input taxed supplies. Explain what is meant by each of these terms, providing examples of the types of goods covered by each, and any exemptions or exceptions that apply. (5 marks)
(b) Explain what you understand by the notion of “carrying on a business”. In your answer you should consider whether there is any minimum activity required for carrying on a business, and the usefulness of the various tests that have been developed to determine whether or not a taxpayer is carrying on a business. Reference should be made to relevant cases. (5 marks)
Term 1 Standard Examination 2012
Taxation Law and Practice A — LAWS19033
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Question 5 15 Marks
(a) The Brown Family Trust, which is an inter vivos discretionary trust, had trust income (and net income) of $36 000 for the 2011/12 income year. None of this income was derived from franked dividends or capital gains.
The trustees resolved to distribute the income equally to the following beneficiaries:
? Julie Brown, aged 45 (no other income)
? Tom Brown, aged 20 ($2 400 other income)
? Majella Brown, aged 11 (at school, no other income)
Required:
Advise the trustees and the beneficiaries of their liability for tax in respect of the income they received from the trust.
In your answer you should make reference to the appropriate provisions of ITAA 1997. (10 marks)
(b) On 1 February 2012 Sam and Jenny Newman purchased a block of four units for $800 000. On the same day, Sam and Jenny entered into a partnership agreement which stated that all losses of the partnership would be borne by Sam, but any partnership profits would be shared equally. For the year ended 30 June 2012 the property produced a loss of $20 000 after all expenses had been deducted.
Required:
Advise Sam and Jenny as to whether such an agreement is effective for tax purposes. (5 marks)
Question 6 10 Marks
On 1 June 2011, a company purchased a new Toyota Camry sedan for $28 000, including GST. Before delivery of the vehicle, window tinting was installed at a cost of $1 000 and a mobile phone fitted for business purposes at a cost of $800.
The business manager used the vehicle for business purposes and garaged the vehicle at his home. However, he was expected to make a contribution of $600 towards the cost of fuel and oil for his personal use of the vehicle.
According to the log book, the vehicle travelled a total of 30 000 kilometres in the period 1 June 2011 to 31 March 2012, of which 24 000 kilometres of travel was work-related.
Question 6 continued over next page
Term 1 Standard Examination 2012
Taxation Law and Practice A — LAWS19033
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Question 6 (continued)
Expenses incurred on the vehicle during the period 1 June 2011 to 31 March 2012 were as follows:
Registration and Insurance paid 1 June 2011
$750
Repairs and Maintenance
$ 1 800
Fuel and Oil
$3 600
These expenses include GST and the company claims input tax credits.
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. (10 marks)