PRINCIPLES OF AUSTRALIAN TAX LAW Term 3 2019 End of Term Examination

UNSW

SYD NEY

UNSW Business School

School of Taxation and Business Law

TABL5901 PRINCIPLES OF AUSTRALIAN TAX LAW

Term 3 2019 End of Term Examination

Examination duration: 2 hours, plus 10 minutes reading time.
Number of Answer Books: 2
Reading time conditions: DO NOT write in the answer book during the 10 minutes reading time.
Examination conditions: THIS IS AN OPEN BOOK EXAMINATION.

You are permitted to bring relevant printed or written materials into the examination room.

You may use a calculator during the examination. Electronic calculators, including scientific calculators that are authorised by the University for this purpose must have any programmable memory cleared before entering the examination room. INSTRUCTIONS:

1 . Answer ALL questions.

  1. Answers must be written in INK in the answer book(s) provided by UNSW.
  2. The value of each question is indicated at the beginning of each question.
  3. Write your name, Student ID number and the question number(s) atternpted on the front of EVERY answer book used.
  4. Answer each question in a separate booklet.
  5. Number each answer book iBook 1 of 2′, ‘Book 2 of 2’ as appropriate. Insert answer books inside each other.
  6. You may keep this examination paper.

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QUESTION 1

Question 1 is worth 50 marks

Ben is an Australian resident taxpayer who works as an accountant for an Australian company Alpha Ltd. He receives a salary of $105,000 per year, plus 9.5% compulsory superannuation ($9,975).

On 1 September 2018, Alpha Ltd provides Ben with an all-expenses paid yoga retreat, as part of a health and wellness initiative the company has started. The cost of this retreat was $3,500. The yoga retreat is non-transferable and is not convertible into money. On 10 September 2018, whilst at the yoga retreat, Ben purchases a painting at a local art gallery for $8,000. Ben purchased the painting because he liked the design and hangs it in his home, where he expects it will stay for a number of years. However, in February 2019, the artist dies unexpectedly and the value of the artist’s work increases dramatically. Ben is advised that the best way to sell the painting is via an auction house. The painting is sold on 15 April 2019 for $24,000. Of that amount, Ben is required to pay 15% ($3,600) in commission to the auction house.

Ben incurred the following expenses in the year ended 30 June 2019:

Train fares to and from work: $1,600.

Suits: $800. Ben only wears these suits to work as his employer requires him to be dressed in a suit to meet clients.

Mobile phone bills: $1,200. Ben estimates that approximately 40% of his mobile phone usage is work related. Alpha Ltd provides Ben with a phone allowance of $50 per month. (That is, they pay Ben an additional $50 each month to cover part of the cost of his mobile phone bill. The amount of the allowance does not change, regardless of the amount of his phone bill or the extent to which he uses it for work).

Ben also owns a small share portfolio. He has never been considered a share trader. On 1 March 2019, he sold shares in Blue Ltd (an Australian company) for $25,000. Brokerage fees associated with the sale were $700. Ben had purchased the shares on 1 March 2012 for $17,000. In the 2017-18 income year, Ben had a net capital loss (from the sale of shares) of $3,000. Required:

Part A

Calculate Ben’s taxable income for the year ended 30 June 2019. You should assume that Ben wants to make any possible elections and/or choices to minimise his taxable income.

(40 marks)

Part B

Calculate Alpha Ltd’s FBT liability in relation to any fringe benefits provided to Ben for the FBT year ended 31 March 2019.

(70 marks)

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QUESTION 2

Question 2 is worth 50 marks

Cheryl decides to staff a business as a computer technician. She seeks your advice in relation to the following questions.

Part A (20 marks)

Cheryl expects her turnover for the first year to be approximately $50,000, but estimates it will grow in the future.

  • She wants to know if and when she will be required to register for GST.

(8 marks)

  • Briefly outline the advances and disadvantages of GST registration.

(12 marks)

Part B (30 marks)

Cheryl rents a 3-bedroom house on the outskirts of Sydney for $900 a week. She staffed paying rent for this house rented this house before she started the business, and has not told her landlord or real estate agent that she is running a business from home. Once she commences her business, she dedicates 25% of the floor area of the house for her business — one bedroom which she uses as an office, and an area of the garage for storage of various spare computer parts.

  1. l) Will she be able to claim an income tax deduction for her rent (and if so, what amount?)

(10 marks) 2) Will any GST be payable on her rental payments, and will any input tax credits be available?

(8 marks)

3) How would your answer change (if at all) if she was renting commercial premises that were solely used for her business? Consider both income tax deductibility and GST/input tax credits.

(72 marks)

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