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End of Semester Examination – Past Exam Paper 1 (Modified)

ACCT90016: Taxation for Business Decision Making

IMPORTANT NOTE: Most of the marks originally allocated have been increased as shown below to better reflect the quality of analysis expected as per guidance during the weekly study Qs workshops]

Question 1 [each part worth 5 marks]

(a) Jamac Pty Ltd (Jamac) is a company which is incorporated in the UK. It was set up by a group of Australian individuals to market and sell their cycling products in Europe. Jamac does not market or sell any products in Australia.

Your task: Explain, giving reasons, whether Jamac is a resident of Australia for tax purposes. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply.

(b) CPC Ltd (CPC) is the publisher of ‘Good Life’, a lifestyle magazine which is published monthly. In order to encourage sales, CPC offers considerable discounts to purchasers who subscribe to the magazine for a period of at least two years and pay the subscription up-front (that is, immediately). In the relevant year of income, CPC received several up-front subscription payments.

Your task: Explain, giving reasons, the tax implications for CPC arising from the receipt of the up-front subscription payments. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply.

(c) Builders-R-Us Pty Ltd (Builders-R-Us) is a Melbourne-based construction company which specialises in building fences. During the 2014/2015 income year it was engaged by a housing developer to build fences in a new housing estate it was developing in Berwick, a suburb of Melbourne. The contract price for the fence construction was $550,000 (inclusive of GST), payable on completion. The contract was completed by June 2022. When seeking payment, Builders-R-Us asked the developer to pay it $350,000 and the balance ($200,000) directly to one of its (that is, Builders-R-Us’) sub- contractors (to whom Builders-R-Us owed money). The $350,000 was paid to Builders–R-Us on 27 June 2022 and the $200,000 was paid to the sub- contractor on 2 July 2022.

Your task: Explain, giving reasons, the tax implications for Builders-R-Us arising from the payment for the work. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if ~~those facts apply.~~

[Total marks for Question 1: 3 x 5 marks = 15 marks]

Question 2

Note: Question 2 is in two parts: parts (A) and (B).

Robert Richards is a car salesman with a Melbourne based car dealer and an Australian resident for tax purposes. He is not registered for GST.

Part (A) [ 8 marks]

Earlier this year, Robert sends you (his friend) the following email:

‘I am thinking of selling the following things that I own:

(1) A painting by leading Australian artist John Brack.

(2) A holiday home which is situated on the coast near Geelong, Victoria.

(3) My home in Parkville, Melbourne, and my car.

(4) My plasma screen television.

I purchased them all in 2020

Please advise me of the tax implications if I go ahead and sell them.’

Your task:

Advise him, giving reasons for your advice. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply.

Part (B [ 6 marks]

Robert also advises you that during 2021/2022, in addition to his employment as a car salesman (for which he received a salary of $70,000), he also carried on a business activity (as an individual) walking pet dogs for their owners. His business activity produced income of $8,000 and deductions of $11,000.

Your task:

Advise him, giving reasons, how he should bring to account the income and deductions of that business activity. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply.

[Total marks for question 2: 8+6 marks = 14 marks]

Question 3 [each part worth 5 marks]

ACME Pty Ltd (ACME) is a Melbourne consulting company which specialises in giving telecommunications advice to small businesses. The company has an annual turnover exceeding $50,000,000 and is an Australian resident for tax purposes. During the 2021/2022 income year ACME was involved in the following events.

Your task: Explain, giving reasons, the tax implications for ACME arising from each event. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply. YOU CAN IGNORE ANY GST IMPLICATIONS THAT MAY BE APPLICABLE.

(a) It was required to pay to Lender Ltd, a non-resident of Australia for tax purposes, interest on a loan it had received from Lender Ltd. The loan, used for income-producing purposes, was secured by a mortgage over the building housing ACME’s head office in Melbourne, Australia.

(b) It also paid $20,000 to the owner of a building it leased in Sydney for its (ACME’s) failure to make necessary repairs to that building. The lease contract required ACME to make the repairs but it failed to do so.

(c) It paid $2,000 for the managing director’s membership of the Executive Club, a recreational club situated in the central business district of Melbourne. The payment was a component of the managing director’s remuneration package.

(d) It re-imbursed an employee $350 for ACME-related telephone calls made by the employee on her private telephone.

(e) It received $200,000 from the owner of a new building in Adelaide in return for it (ACME) taking up a lease of a floor in the building. ACME currently operates from leased premises which it had occupied for the past 10 years.

(f) It put aside in reserve $30,000 to cover future annual and long service leave payments for its employees. It also spent $20,000 on travel costs when it sent its managing director to a telecommunications conference in Singapore at which ACME marketed its services.

(g) It received $100,000 from a rival firm of consultants in return for its (ACME’s) agreement not to extend its operations to Perth for a period of 5 years. It incurred legal fees of $10,000 negotiating the agreement.

(h) It paid its managing director $2,500,000 in director’s fees.

[Total marks for Question 3: 8 x 5 marks = 40 marks]

Question 4 [each part worth 4 marks]

Albert Anderson, a resident of Australia for tax purposes, has just graduated from university with a degree in information technology. He has been offered a position with a company in Sydney, Australia. Before he decides whether to take the offer, he seeks your advice on the following matters.

Your task:

Advise him, giving reasons, on each of the matters. If you need more facts, be sure to indicate those that are needed and consider the potential tax consequences if those facts apply.

(a) Will he be able to gain the tax benefits of income splitting by diverting his remuneration through a company or a trust?

(b) If, as part of his job, his employer re-imburses his car expenses on a cents per kilometre basis, what are the tax consequences of receiving such a re- imbursement?

(c) If he chooses to do some of his work from home, are the costs associated with working at home tax deductible? If so, what costs are deductible?

(d) If he invests some of his money by buying shares in public companies and receives dividends, how will he be taxed on those dividends?

[Total marks for question 4: 4 x4 marks =16 mark}