ACC311 Taxation Law and Practice Semester 1, 2019 Examination
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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 |
2022-06-01