australian income tax law & practices

Project Description:

part 1- short answer questions:

instructions for part 1:

• you must answer all questions.
• use legislation and/or cases where appropriate to support your answers.
• no calculations are required for part 1.

1. lim has a television repair business that makes taxable supplies. what are the tax implications of this?

2. name two areas of tax accounting that allows for simpler calculations where the taxpayer is a small business entity (you do not need to include relevant legislation in this question).

3. who pays the tax on trust income if the income cannot be distributed from the trust? what is one (1) reason for income not being distributed to beneficiaries?

4. what is the difference between a home office and a home study? why is this distinction important for tax purposes?

5. what is the difference between ordinary income and statutory income? give an example of each. (you are not required to name any cases for this question- you are required to list 2 sections of relevant tax legislation)

6. zoe is a tax resident of new zealand (and is not a tax resident of australia). zoe owns an investment property in australia. zoe receives rent from the property. explain the australian tax implications of the rent received by zoe.

7. discuss the purpose of divisions 84 to 87 itaa97.

8. discuss the interaction between division 70 itaa97 and s. 6-5 itaa97.

9. explain the meaning of ‘flow through entities’ and ‘opaque entities’ for tax purposes. give an example of each.

10. discuss the legal principles from the case of henderson v fct 70 atc 4016.

11. joseph imports a luxury car into australia from the united states for the sole purpose of selling the car in australia and making a profit. explain the tax implications of this one- off transaction.

12. li is an employee of a catering company. the company gives him $60 a week for petrol, irrespective of how much he uses. is the petrol money a fringe benefit? explain.







part 2: calculation questions:

instructions for part 2:

• you must answer all questions.
• show all workings for your calculations and support your answers with legislation- no written explanation is required, but you must state the appropriate section/s of legislation.

part 2- question 1 :

a business purchases an asset on 1 july 2011 for $11,000 (gst incl) for use in the business. the business is registered for the gst. at the end of the financial year (2011/12), the business needs your help to calculate the capital allowance for this machine. the machine has an estimated working life of 5 years. the asset is likely to decline in value quickly in its early years, rather than steadily over the 5 years.

required (use legislation to support your answer to both (i) and (ii)):

(i) calculate the deduction that the business can claim in 2011/12 on this asset, using the most appropriate method given the facts provided.

(ii) explain the tax consequences if the business decides to sell the depreciating asset during 2012/13.

part 2- question 2 :

optic ltd is a resident company. james is a shareholder of optic ltd.

james was born in the united kingdom but he and his wife became permanent residents of australia in 2010. he has a cleaning business in australia that he operates as a sole trader. he also earns income through his investments, which include shares in optic ltd and an investment property in the united kingdom. james has private health insurance.

in the 2011/12 tax year optic ltd had assessable income of $500,000 and also paid a fully franked dividend to james of $30,000. optic ltd had deductions of $10,000.

also in the 2011/12 tax year james’ cleaning business had assessable income of $100,000. from this, he paid himself a salary of $50,000. james also received $10,000 (converted into australian currency) in rent from his investment property located in the united kingdom. james’ business expenses that he can substantiate include $1000 in gas and electricity, $2000 in cleaning fluids and $500 in tax agent fees. james does not have records to substantiate any other expenses in 2011/12.

required (use legislation to support your answer):

calculate the income tax payable for both james and for optic in the 2011/12 tax year. where applicable also calculate medicare levy and medicare levy surcharge payable.

part 2- question 3

in june 2012, thuy nguyen, an australian resident for tax purposes, disposed of the following assets:

i. a holiday home which she sold for $500,000. the property was originally purchased by thuy in july 2000 for $100,000
ii. a painting which she sold for $10,000. the painting was originally purchased by thuy in march 1990 for $12,000.
iii. a car which she sold for $10,000. the car was purchased in 1999 for $20,000.
iv. shares which she sold for $50,000. the shares were purchased in december 2011 for $3000.
v. a boat which she sold for $10,000. the boat was purchased in april 2009 for $25,000.

part 3: problem style questions:

instructions for part 3:

• you must answer all questions.
• you must support your answers with legislation- no written explanation is required, but students must state the appropriate section/s of legislation.
• you are required to discuss the legal issues and the law and apply the law to the particular facts then reach a conclusion.

part 3- question 1 (7 marks):

seyma is a resident. in july 2011 she purchased an old house for $500,000 which she has leased to tenants for $500 per week. the property was purchased using $700,000 borrowed from a bank; seyma is paying interest to the bank at commercial rates. she has engaged a real estate agent to manage the property for her and he charges $200 a month.

in april 2012 seyma paid $2000(incl gst) to replace the front fence, after the tenants complained that it was falling down. she decided to replace the old wooden fence with a metal fence because the metal fence would last longer than a wooden fence. in june 2012 she painted the front part of the house as the original paint was starting to crack. the painting cost $3000(incl gst).

also in june 2012, seyma replaced the hot water system for $1,500 (incl gst). the plumber who fitted the new hot water system charged her $250 (incl gst).


advise seyma of the tax consequences of the purchase and renting out of the house, and each of the expenses she has incurred. also advise seyma, based on the facts provided, whether she needs to be registered for the gst.

note: you are not required to do any calculations. you are required to cite legislation and to cite case law to support your answer.

part 3- question 2 (7 marks):

xavier was born in france and until recently has lived all his life in france. he plans to move to australia with his wife (who is australian) but is not sure how long he will stay in australia. he plans to rent a home in australia for 12 months but may stay longer if he and his wife are happy in australia. regardless of how long he stays in australia, he will continue to travel to france to check on his merchandising business in france (he is part owner of the merchandising business and plans to keep his part ownership even while he is living in australia). in addition to his part ownership in the merchandising business, xavier has investments in france, but he does not own a home in france.


advise xavier on the australian tax consequences (if any) of xavier’s income from his business and the income from his investments, while xavier is living in australia.

if you need further information from xavier, discuss what further information you need.
note: you are required to cite legislation and to cite case law to support your answer.

part 3- question 3 (7 marks):

jack works as an english literature teacher. in addition to his employment as a teacher, he writes articles for magazines and occasionally enters writing competitions. he occasionally gets paid for the articles that he writes. jack also provides english tutoring several evenings a week and is paid on an hourly basis by the students for the tutoring.

jack receives a salary plus a car from his employer, which he drives to and from home as well as to work related meetings. he contributes nothing to the costs of the car.

recently jack received news that he had won the annual victorian fiction essay competition, worth $5,000.


advise jack of the tax consequences of his salary, the car, the money he receives for articles he writes and the tutoring he does and the prize he has recently won.

note: you are not required to do any calculations. you are required to cite legislation and to cite case law to support your answer.

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