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ACC311 Taxation Law and Practice

Semester 1, 2019

Examination

Question 1: Companies and Shareholders

Total Marks: 25

a. Prepare the company’s franking account for this income year.  Reference authorities as required – 15 Marks

A resident company (not a Small Business Entity), has an opening credit balance of $7,000 in its franking account in this income year. It has the following transactions in the year. Ignore the impacts of any over or under franking:

1.

21 July

Final PAYG instalment of $11,000 paid

2.

8 September

Received a $20,000 cash dividend (fully franked)

3.

21 October

PAYG instalment of $11,000 paid

4.

12 December

Partially franked dividend of $15,000 paid (franked to 60%)

5.

21 January

PAYG instalment of 11,000 paid

6.

1 March

Payment of $22,000 cash dividend fully franked

7.

21 April

PAYG instalment of $11,000 paid

8.

28 April

Payment of fringe benefits tax of $8,000

9.

1 May

Partially franked dividend of $18,000 paid (franked to 25%)

10.

20 June

Salaries paid to one of its shareholders were deemed to be dividends under Div 7A of ITAA36.  The amount of the deemed dividend was $12,000.

11.

1 July

Payment of unfranked dividend of $15,000

b. Small Business Entities (SBE) – Discuss the conditions to be met in order for an entity to qualify as a SBE, as well as concessions available to SBE under the tax law.

Reference authorities as required – 10 Marks.

Question 2: Partnerships

Total marks: 25

Calculate the ITAA 1936 s90 partnership income for the current year and determine the distribution to each partner.  Reference authorities as required – 25 marks.

Phil, Caroline, Tom and Ainsley are all equal partners in a highly successful business promoting glamping getaways in the Northern Territory.  The capital for the business was contributed by Phil and Ainsley, who each contributed $200,000.  In the income year to 30 June the partnership recorded a trading profit of $160,000.

The income in this trading profit included (among other items):

Receipt of interest on New Zealand deposit (net 10% of withholding tax)

14,400

Fully franked dividend (carrying imputation credits of $3,000)

14,000

Expenses included in calculating net profit include:

Salary to Phil as managing partner

140,000

Salary to Caroline as office manager

140,000

Salary to Tom as marketing director

140,000

Salary to Ainsley as tour director

120,000

Salary paid to office staff

240,000

Interest on capital to Phil (10% x 200,000)

20,000

Interest on capital to Ainsley (10% x 200,000)

20,000

Interest to Tom on a loan made to the partnership for acquiring a new computer system

10,000

Question 3: Offsets

Total Marks: 25

From the below information, prepare a statement of the assessable income and deductions of Jack Brown for the current income year. Calculate Jack’s net tax payable. Reference authorities as required – 25 marks.

Jack Brown provides the following information in respect of receipts and expenditures for the year ended 30 June 2019:

Receipts

1

Salary

35,000

2

Army Reserve Salary

15,000

3

Dividends franked top 50% (excluding gross up)

2,000

4

Car expense reimbursement from employer (on a cents per kilometre basis)

850

5

Entertainment allowance from employer

300

Expenditure

1

Car expenses incurred on work related travel (on a cents per kilometre basis)

800

2

Entertainment expenses incurred on employer’s business

260

3

Interest paid on a bank loan used to buy shares in a listed company

380

4

Dry cleaning of a distinctive work uniform

40

5

Speeding fine (driving between two work sites)

150

Further information

1

Jack maintained the following dependants:

(a) Two school aged children who are in full time secondary education.

(b) One child aged 19 who is on a “gap” year and not working or enrolled in formal education.

(c) One child aged 20 who is on a second “gap” year and not working or enrolled in formal education.

(d) A wife who is not in receipt of any income.

(e) An invalid mother, aged 68, who receives a disability support pension of $1,900.

2

Jack and his family live permanently in a town in a Special area Zone.

3

Jack has private health insurance but has not claimed the private health insurance offset upfront. His total premium for the year was $1,500.

4

Jack is aged 50.

Question 4: FBT - Motor Vehicles

Total marks: 25

Fringe Benefits Tax (FBT): Calculate the FBT payable based on the car fringe benefit, using two different methods. The employer is entitled to claim input tax credits.  Reference authorities as required – 25 Marks.

Assumptions:

Assume the car is garaged at the employee’s home each night, apart from 2 nights when the car was at the mechanic’s workshop for repairs.  The vehicle was also stored in airport parking for 7 days.

Other information:

On 1 January 2019 an employer purchased a new car at a cost of $35,000.  The car is given to an employee who uses it mainly for private purposes – of the 16,000 km travelled to 31 March, 7,000 km were for business purposes.

(Days from 1 January 2019 to 31 March 2019 totals 90 days)

Expenses incurred were:

Registration and insurance for 12 months

1,800

Petrol and oil (per month)

450

Repairs (dent from a parking incident 20 January)

350

Contribution by employee for petrol and oil (declaration provided to employer)

550

Air conditioner installed 1 January 2019

3,000