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BTF5965 – Practice and Revision Questions

Question 1 (Income)

Lucas and Tait, who were the initial shareholders and directors, founded Axis Holdings Ltd eight years ago. Lucas and Tait had for many years been involved in property development. Seven years ago, Axis purchased two properties in an area where there was extensive real estate development. For six years, the properties were used for cattle breeding and the properties were improved for that purpose.

Owing to unforeseen circumstances, the cattle breeding proved to be unprofitable and there was an imminent zoning change whereby the properties could only be disposed of in 100-hectare lots instead of 25-hectare lots. Axis therefore arranged to subdivide the land up into 25-hectare blocks and sold the whole property to one purchaser. The Commissioner assessed Axis on the gross receipts in s 6-5 of ITAA 1997.

What are the tax implications?

Question 2 General Deductions

Sandra Bullock is an accountant who works in a charted accounting firm in the city. Sandra is a member of a professional accounting society for which she pays an annual fee of $550 and she is undertaking a professional accounting qualification for which she pays fees of $1100. Sandra is also undertaking a post graduate degree in media studies at university for which she pays course fees of $2,000. Sandra is undertaking this course as she hopes to eventually become a financial journalist once she has gained enough practical experience at her accounting firm.

Sandra’s employer requires her to dress appropriately at work and last year she spent $1100 on make-up and $2200 on a designer work suit. Sandra prefers to dress casually and on leaving the office, she usually changes into casual clothes.

Sandra also has a one day per week part-time job at a night club which starts soon after her accounting job finishes on Friday nights. The night club is located far away from the city and therefore she has to drive her car to work on Fridays so that she can get to her part-time job on time. On all the other days of the week, Sandra takes a train between home and work and spends $44 per week on tickets.

Advise Sandra as to whether she is entitled to deductions for any of the above expenses.     

Question 3 Specific Deductions

Digby Jones owns a bookstore. He undertakes the following activities:

(a) replastering and repainting a wall which had been damaged due to a leak;

(b) recarpeting the whole shop as the old carpet had worn out due to normal wear and tear;

(c) installing a new payment counter with new display signs; and

(d) repainting the front of the store with a new type of glossy paint to make it more attractive to walk-in customers.

Advise Digby of his tax consequences arising from the above information.

Question 4 GST

Derek Nolan is a builder who is registered for GST. Derek recently built a new residential home on a vacant block of land that he had purchased during the 2020-21 tax year. Derek used a number of contractors to help him with the building works who had charged him GST. Shortly after the building works were completed on 10 February 2021, Derek sold the home to Patricia Miles who plans to lease the premises to tenants

Advise Derek and Patricia of the GST implications.   

Question 5 FBT

Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC:

• salary of $300,000;

• payment of Alan's mobile phone bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan uses the phone for work-related purposes only;

• payment of Alan's children's school fees ($20,000 per year). The school fees are GST free.

ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (including GST).

At the end of the year, ABC hosted a dinner at a local Thai restaurant for all 20 employees and their partners. The total cost of the dinner was $6,600 including GST. Assume that ABC has no other meal entertainment expenditure for the year and elects for Div 9A to apply to the provision of meal entertainment fringe benefits. You can also assume that ABC determines the taxable value of meal entertainment fringe benefits using the 50/50 split method.

Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2021. Assume that ABC would be entitled to input tax credits in relation to any GST-inclusive acquisitions.