Reference no: EM133051526

CLWM4100 Taxation Law - Kaplan Business School

Workshop 6

Questions before workshop

Question 1
Do you think tax deductions are useful in the overall tax context? What would happen if no tax deductions were allowed?

Question 2
Jack receives his electricity bill on 20 June 2021. Assume that Jack uses the electricity to power his business 100%. (Why is this important?). The amount of $1,200 is due for payment on 10 July 2021. Jack pays his electricity bill on 2 July 2021.
When is the outgoing incurred?

Would your answer be the same if Jack was paying his car registration for the next 12 months? Why?

Question 3
Discuss whether the following would be deductible under Section 8-1 of the ITAA (1997):
• Internet bill dated 18 June 2021 for $200 where the taxpayer was able to establish a pattern of usage showing that it was used 100% for business.
• Mobile phone bill dated 8 June 2021 for $130. The phone was used for calling family members.
• ASIC fee invoice dated 12 June 2021 for $400 in respect of the registration of a new business name.

Question 4
Compare the deductibility of interest expenses in the following business phases:
1. During preparatory activities before activities could be said to commence
2. During the trading life of the business
3. After a business has ceased and the loan has not been paid out

Questions during workshop

Question 1
Would the following be deductible under section 8-1? Support your arguments by reference to the structure of s8-1 ITAA97.
1) The theft of the day's takings from the business premises of a taxpayer.

2) Day care expenses for the child of an employed solicitor, incurred in the pursuit of her career.
3) The cost of dog food for a cattle dog
4) Insurance premiums:
a.paid for personal disability insurance for loss of income producing capability b.paid for an income protection policy for loss of income
c. paid for fire insurance premiums in respect of business premises.

5) Lease payments on a shop where the business had ceased to trade but the lease did not expire for another 12 months.
6) Travel expenses incurred by a director of a company for the purpose of investigating export potential where:
a. There is no existing overseas market
b. There is a small existing overseas market and the director wishes to expand operations

7) The costs of meals incurred by a lecturer employee who is required to teach after hours.

8) The cost incurred by an employee accountant in buying a suit compliant with the employer's dress code worn to impress clients so they can gain more clients.

Question 2
Discuss whether the following outgoings would be allowed as a tax deduction.
• A police officer washes her police uniform.
• A school teacher wears a $200 pair of sunglasses whilst on playground duty.
• The cost incurred by an employee accountant in buying a suit compliant with the employer's dress code worn to impress clients, so they can gain more clients.

Question 3
Speculative Pty Ltd borrows $400 000 to purchase a block of flats for the purpose of renting them out. However, prior to tenanting the flats Speculative goes into liquidation and the property is sold for the purchase price.
Is Speculative entitled to deductions for interest paid on the loan as no rent was ever received? Would your answer differ if Speculative was in the business of building blocks of flats?

Question 4
Would the following be deductible under section 8-1?
• Legal expenses incurred by a hotel proprietor in opposing an application for a licence to open another hotel in the area.

Questions after workshop

Question 1
Explain why a tax offset is a much more effective way than tax deductions to reduce an overall tax bill

Question 2
Discuss the following comment
The source of the funds rather than the use the funds are put to determine whether the interest paid on a loan is tax deductible. As a result, it is only possible to claim interest deductions on loans from banks as they are in the business of making loans.

Question 3
Explain why the interest paid on a loan to purchase a vacant block of land is not tax deductible and must be included in the cost base, whereas interest on a loan to purchase a rental is deductible and cannot be included in the cost base.

Workshop 7

Question 1
Refer to the link below. Bad debts s 25-35
In your own words, describe a bad debt for taxation purposes. Provide your own example.

Question 2
What is a loss for taxation purposes according to Division 36 of the ITAA (1997)?

Question 3
What is a depreciating asset? How is the purchase of a depreciating asset dealt with under the tax law?
What tax deductions are associated with depreciating assets? What are 2 key factors in determining the tax deduction available?

Question 4
What is trading stock? How is trading stock dealt with for tax purposes?

Questions during workshop

Question 1
Jack purchased business premises on October 5, 2020. Jack incurred the following expenses:

On October 8, 2020, Jack replaced 20 roof tiles at a cost of $800. Jack used steel roof tiles to replace the old clay roof tiles.
On December 24, 2020, Jacks replaced the petrol engine in his Mazda 3 with a new Turbo Diesel engine (fuel efficient and more power).
On January 24, 2021, Jack paid a gardener for a day's work at his business premises
$400. The gardener mowed the lawn and pruned the hedges.

On March 2, 2021, a bad storm damaged the carpets in the main office. The entire carpet was replaced at a cost of $8,700.
How much of these expenses can be claimed under Section 25-10 ITAA 97?

Question 2
Jane purchased a rental property on 1 September 2020 for $500,000. Tennant's occupied the house at the time of purchase. Jane provides you with the following information:
Jane took out a $400,000 loan with the NAB on 1 September 2020 for 25 years to fund the purchase. Interest paid for the financial year ending 30 June 2021 totalled $14,560.
Loan establishment fees of $5,200 were charged by the bank on 1 September 2020. What is the total deduction for the 2021 financial year? Please quote relevant sections.

Question 3
The following data relates to Gandalf Greyteeth, a resident taxpayer:

	2019/2020	2020/2021	2021/2022
Assessable income	$70,000	$65,000	$90,000
Net exempt income	$ 4,000	$2,000	$2,000
Deductions *	$83,000	$60,000	$89,000
Personal Superannuation contributions	$ 2,000	$2,000	$2,000
Gifts	-	$400	$800

*Note Deductions represents all deductions except superannuation, gifts and losses of previous years,

For each tax year, determine Gandalf's taxable income and any losses that may be carried forward.

Question 4
A machine used in a manufacturing business has an estimated effective life of 5 years was purchased on 1 January 2020 for $25,000 and sold on 21 March 2021 for
$12,500.
• Prepare the depreciation schedules for both the prime cost AND diminishing value methods.
• Calculate the assessable or deductible balancing adjustment.

Question 5
Lincoln is an Australian resident for the full year aged 30. He conducts a business as a sole trader as a video game designer and retailer. During the 2020/21 year he had trading stock purchases of $275 000.

The value of the opening stock on 1/7/20 was $72 200, and the closing stock on 30/6/21 was $92 300.

Calculate Lincoln's trading stock deduction.

Questions after workshop

Question 1
When does a repair turn into an improvement? What are the tax implications of an improvement?

Question 2
What is meant by "trading stock on hand"?

Question 3
Felicity is an accountant with Young and Ernst, a large firm of chartered accountants. For the year ended 30 June 2018, she has undertaken the following duties as part of her employment.

Trip 1 Felicity picks up the mail 5 days a week on the way to work.

Trip 2 Once at work, Felicity will travel to a client once a week to perform reconciliations on their MYOB file.

Trip 3 Young and Ernst have premises in the Sydney CBD and Parramatta. Felicity will travel between each office 2 times a week for training and other work-related duties.

Trip 4 Felicity carries a laptop to work 2 days per week. Felicity believes that the laptop is old and bulky and wishes to claim this journey.
Required:

Advise Felicity as to the deductibility of each item/trip above.

Workshop 8

Questions before workshop

Question 1
Outline a partnership structure.
Does a partnership structure pay tax? Does seem unusual?

Question 2
What is a trust structure?
Does the trust structure pay tax? Does this seem unusual?

Question 3
Name the various parties to a family trust arrangement. Give examples of who these parties may be in real life.

Questions during workshop

Question 1
Mullet, Shark and Starfish operate a business which conducts deep sea fishing trips.
Their partnership agreement states that all profits and losses are to be shared in the ratio of 3:2:1 after allowing for partners' salaries, interest on capital, an interest on drawings.

The receipts and payments of the business for the 2020/21 tax year were as follows.

Receipts
Gross Income - Boat Charters	$491 000
Payments
Boat operating expenses	$ 54 000
Salary - Mullet	$ 60 000
Salary - Shark	$ 18 000
Salary - Employee	$ 36 000
Superannuation - Mullet	$    5 000
Superannuation - Shark	$    4 000
Superannuation - Employee	$    3 000
Interest on Capital - Mullet	$ 14 000
Interest on Capital - Shark	$ 11 000
Interest on Capital - Star Fish	$    6 100
Interest on loan - Stingray Bank	$ 15 000
Interest on loan - Shark	$ 27 000
Drawings - Mullet	$ 20 000
Drawings - Shark	$ 15 000
Drawings - Starfish	$ 10 000
Other deductible expenses	$ 55 000

Other Information
• Interest on drawings is charged at 12% of the total annual drawings
• Decline in Value deduction amounted to $92, 000.
• There was no debtors or creditors as the partnership settled all accounts when issued.
Required
Calculate the partnership net income for the year. Prepare a partnership distribution statement.
Calculate Shark's taxable income (Shark did not have any other income or deductions).

Question 2
Lisa and Monica operate a hairdressing salon as partners where they each are entitled to 50% of the profits after allowing for partner's salaries, interest on capital, interest on advances and interest on drawings.
For the current income year, the partnership derives $89 000 of sales and $8090 in GST and incurred $34 000 of expenses. The expenses included the purchase of a new hair curling mega device which has an effective life of 7 years. However, it has not been unpacked and is not currently operational. The mega device cost $7000.
Lisa and Monica paid themselves wages of $23,000 and $18,500 respectively. In addition, Lisa received $3 000 interest on capital and paid $750 interest on her drawings.
Monica was paid $3 500 interest on funds she advanced to the partnership. Monica also has a capital loss of $5000, $2000 of this is from the disposal of a collectible.

Required
a) Calculate the s90 Partnership Net Income (PNI) and complete a partnership schedule showing the overall distribution to each of the partners.
b) Calculate the taxable income and the tax assessed on taxable income for Monica

Ignore Medicare Levy and the low income tax offset

Question 3
The Alberts Family Trust, an inter vivos trust, had the following beneficiaries: Candy (aged 45; entitled to 40% of trust income)
Dandy (aged30; bankrupt; entitled to 35% of trust income) Landy (aged 17; entitled to 20% of trust income)
The remainder of each year's income was to be retained or distributed at the Trustee's discretion.
During the CIY Tax year trust income was $195 000. A discretionary amount of $7 000 was paid to Landy. This amount was in addition to Lady's entitlement under the Trust Deed.
The trust also had losses of $15 000 in the PIY tax year. These were to be met out of the trust income.
Landy also received interest of $38 000 during the CIY tax year from investments given to him by his parents.

Landy is single and is not covered by private health insurance.

Required
1) Prepare a schedule (covering all beneficiaries) nominating:
• Name of beneficiary
• Whether or not the beneficiary is PRESENTLY ENTITLED
• Whether or not the beneficiary is under a LEGAL DISABILITY
Which sections of the Act apply to make the income assessable? Who is assessed on each amount?
The amount retained or distributed

2) Calculate tax payable by the trustee
3) Calculate tax payable by Landy

Question 4
The Stumbles Discretionary Family Trust realized a net loss of $20 000 in the PIY tax year. The trust had assessable income of $150 000 and general deductions of $30 000 in the CIY year. The loss must be met out of trust income.
The trust deed has two beneficiaries:
Hale who is entitled to 60% of trust income, and 100% of the capital
Dale who is entitled to 40% of trust income, and has no capital interest. Required

1. Calculate the Trust's net income for the CIY tax year.
2. Calculate each beneficiary's entitlement for the CIY tax year.
3. Dale is 17 and at school. She also has $10,000 from a part time job at McJacks. Calculate Dale's taxable income and the tax paid by the trustee on her behalf.

Question 5
Doug Bogus is a 16-year-old fulltime student. During the 2020/21 tax year, Doug had the following assessable income and deductions:

ASSESSABLE INCOME
Wages from part time employment at Safeway (no PAYG withheld)	$ 8 000
Interest from term deposit given by parents	$ 2 000	$10 000
DEDUCTIONS
Uniform relating to part time employment at Safeway	$ 500
Tax Agents Fee	$ 100	$ 600
TAXABLE INCOME		$ 9 400

REQUIRED:

1) Calculate Doug's excepted assessable income.
2) Calculate Doug's eligible assessable income. 3) Calculate net tax payable by Doug.

After workshop questions

Question 1
What is the difference between a fixed and a discretionary trust? Which one would be more useful from the tax planning perspective?

Question 2
How does the tax system view taxpayers with two names on a rental property, a shared bank account or shared ownership of shares?

Question 3
Why do you think the category of eligible income was created?

Workshop 9

Pre - workshop questions

Question 1
Why do you think a company is a taxable entity?

Question 2
How is it possible a company can have a positive cash flow yet not have a taxable income?

Question 3
How is the tax paid by a company associated with the dividends received by shareholders?

Workshop Questions

Question 1
On 1 July 2017, Crunch Pty Ltd was owned by the following shareholders. Felicity - 46%; Gabbi - 29%, Howard - 18%; and Ingrid - 7%.
On 7 July 2018, both Felicity and Ingrid sold all of their shares in Crunch Pty Ltd to Jorge.
Does Crunch Pty Ltd satisfy the continuity of ownership test between the following tax years?
• 2017/18 and 2020/21?
• 2018/19 and 2020/21?
• 2019/20 and 2020/21?
Crunch Pty Ltd generated tax losses in 2017/18: -$8,000, 2018/19: -$4,000, 2019/20: -$1,000 and had taxable income of $23,000 in 2020/21, would it be able to claim a deduction for any of the tax losses (assuming it passes one of the Continuity of Business Tests)?

Question 2
Gold Nugget Pty Ltd is a private company that undertakes gold mining activities in North Queensland. The company was incorporated in 2009. The company had previously carried out exploration activities that revealed gold ore and traces of copper. The mining lease permitted the mining of gold and copper but as the copper prices and demand for copper was low the copper was extracted but wasted. The company has had the following results for the past three years:

Tax Year	Taxable Income (loss)
2018/19	($120 000)
2019/20	($ 29 000)
2020/21	$227 000

Note - the above figures comprise only assessable income and deductions (excluding losses of previous years).

On 1 August 2018, 60% of the company's shares changed ownership. On 27 June 2020, copper prices had increased so the company purchased new equipment to process the copper. However, the processing of copper was only a small part of the overall core business.

Can the company utilise any of its tax losses against its 2020/21 taxable income?

Question 3
Frankly Awful Pty Ltd, a corporate tax entity, has the following transactions for the 2020/21 tax year.

Date	Transactions
30/06/20	Credit Balance	$11 000
15/07/20	PAYG Instalment	$ 8 900
29/08/20	Received 60% Franked Dividend	$16 100
11/10/20	PAYG Instalment	$ 8 900
24/12/20	Refund of 2013/14 company tax	$19 950
14/02/21	Paid 75% Franked Dividend	$11 200
19/02/21	Received Dividend from Chile ($1 000 tax withheld)	$ 9 000
03/05/21	Paid Unfranked Dividend	$ 6 650
12/05/21	Received Unfranked Dividend	$ 8 000
28/06/21	Paid Fully Franked Dividend	$17 850

Note - the benchmark franking percentage is 75%. The commissioner has not been notified of any variation.
Prepare the franking account for the 2020/21 tax year. Calculate any additional taxes payable.

Question 4
Crime Converters Pty Ltd has prepared an income statement for 2020/21.

Gross Profit		$1 624 000
Add: Other Income
Unfranked Dividends	$    2 300
Fully Franked Dividends	$    7 700
Net Dividends from Spain - Note 1	$ 32 000
Gain on Sale of Shares - Note 2	$    2 000	$    44 000
Total Operating Expenses
Expenses
Depreciation - Note 3	$ 34 000
Fringe Benefits Tax	$ 48 000
ayroll Tax	$ 46 900
Superannuation - Note 4	$ 75 000
PAYG Instalments Paid - Note 5	$ 92 000
Other Deductible Expenditure	$965 000	$1 260 900
Net Profit		$ 407 100

Note 1 The dividends from Spain have had $8 000 of tax withheld
Note 2 Shares sold during the year were acquired in 1984 as an investment
Note 3 Decline in value deduction is calculated as $28 000
Note 4 Superannuation includes an amount of $30 000 paid to a director's wife. This
entire amount is deemed to be excessive.
Note 5 All of the PAYG tax instalments relate to the current year.

Prepare a tax statement reconciling net profit with taxable income for the 2020/21 tax year. Calculate net tax payable by the company for the 2020/21 tax year.

After workshop questions

Question 1
Other than paying dividends or salaries can you think of any other ways we could get money out of a private company? Can we utilise this approach to get tax free money from our private company?

Question 2
Why do you think the FCT has so many penalties associated with the incorrect management of franking accounts?

Question 3
Do you think trusts should be taxed like companies? What would this approach mean for the tax system?

Workshop 10 - Superannuation fund taxation, GST and FBT

Pre - workshop questions

Question 1
Discuss different types of superannuation funds

Question 2
For GST purposes what are the key components of a taxable supply?

Question 3
CarSales Pty Ltd is a resident company that owns and operates a car dealership. During the year, the company has provided the use of a car to each of the following:
a) Damon, a salesperson, receives the use of a Lexus;
b) Damon's wife Kylie, who does not work at the dealership, receives the use of a Citroen;
c) Nigel, who the company will employ as an accountant as soon as he finishes his professional exams, is given the use of a Honda;
d) The dealership gives Gabby the use of a Mercedes. Gabby conducts business as an advertising consultant and has agreed to receive use of the car instead of charging Kamikaze a fee for her services;
e) Tristan, a former employee who left after 20 years of service with the company, is provided with the use of a Chrysler;

Required: Giving reasons, identify which of the above transactions represents a fringe benefit.
Workshop Questions Question 1
The ABC Superannuation Fund is a complying superannuation fund. The
fund provided you with the following information related to 2020/21.

Receipts
• Contributions received from employer $119,000
• Contributions from members (deductions of $50,000 claimed) $96,000
• Interest received $19,000
• Receipts of fund transfer from another complying fund $70,000

Payments
• Income stream Benefits paid to members $40,000
• Transfer to other complying super fund $18,000
• Insurance premium - death and disability $11,000
• Administration costs $4,000
All of the above amounts related to members who have supplied their tax file number.

Required
Calculate the Fund's taxable income and tax payable for the 2020/21 tax year.

Question 2
Consider each of the following situations in relation to GST registration. Is each person required to be registered? If so, why?
1. Dean, a professional tuna fisherman, based in South Australia and whose annual turnover from sales of fresh tuna for export is expected to be $400,000;
2. Alan, a part time Uber and Ola driver, whose annual turnover from ride sharing is expected to be $40,000;
3. Foodsecure Ltd is a registered charity that provides fresh food and groceries at a reduced price to people in need. The annual turnover including donations is expected to be $140,000. All profits are passed back into the business;
4. Georgio is a part time gardener and also sells plants at the markets on the weekend. His annual turnover will be approximately $20,000 from part-time gardening and $35,000 from the sale of plants.

Question 3
Taj claimed an input tax credit of $500* on a creditable acquisition totalling $5,500 in the previous financial year . Following a dispute resolution procedure the consideration for the supply was reduced to $2,200.
What are the GST consequences for Taj?
* The GST component is calculated as 1/11th of $5,500.

Question 4
The Disco Biscuit Company provides their employees with the following benefits during the year ended 31 March 2022. The employer is registered for GST and able to claim input tax credits.
a) Gym membership of $1,540 (incl GST).
b) Medical costs (GST free) $4,800
c) Overseas travel (GST free) $5,000

Required:
Calculate FBT payable by Disco Biscuit Company for the year ended 31 March 2022

After workshop questions

Question 1

The ABC Superannuation Fund is a complying superannuation fund. The fund received the following contributions during 2020/21.
• Contributions from Michael Cooper for his employees $134,000

• Contributions from Nadia Gomez, a self-employer who is 35 years old and entitled to claim a deduction $25,000
• Contributions from Anthony Zhang on behalf of his wife Molly (who has no other income or superannuation) $17,000
All of the above amounts related to members who have supplied their tax file number.
Calculate assessable income for the Super fund for the 2020/21 tax year.

Question 2
The Aware Superannuation Fund (which is a complying fund) has operated for 5 years accepting contributions. The fund had the following receipts and payments for the current tax year 2020/21:

Receipts:
• Contributions paid by employers as required under Superannuation Guarantee legislation $90,000 (tax file numbers supplied except for $20,000 contributions)
• Salary Sacrifice contributions forwarded by employers $14,000
• Contributions received directly from self-employed members (these are deductible to the members) $8,000
• Proceeds from sale of investment property $70,000 (purchased 4 years ago for
$40,000)
Payments:
• Fund admin costs $18,000
• Payment to retiring members of the fund $35,000
• PAYG instalments $21,000
Required: Calculate the taxable income and the tax payable of the fund for 2021. Clearly list all possible assessable income and all possible allowable deductions.

Workshop 11

Tax Administration, Tax Rulings and Tax planning, avoidance and evasion

Pre - workshop questions

Question 1
What is the role of the ATO?

Question 2
What are your options if you are unhappy with an ATO decision about your tax affairs?

Question 3
Explain the objection, appeals and review process

workshop questions

Question 1
For each of the following arrangements, nominate whether it is an example of tax planning, tax avoidance or tax evasion with a brief explanation for each.

a) Sid and his wife Lily decide to buy a negatively geared investment property solely in Sid's name to obtain the maximum tax benefit from the property

b) Andrew operates a retail bottled drinks business. He calculates his closing stock based on 12,000 bottles when he actually has 18,000 bottles

Question 2

Rights and duties of tax agents

For each of the following, indicate whether the individuals concerned have committed an offence. Where an offence has been committed, state the relevant section of the Income Tax Administration Act that they have breached.

a) Rick, a second year accounting student has charged various friends and acquaintances a $60 fee to prepare their individual income tax returns.

b) Matt, an accounting graduate, obtains two free personal training sessions with Arnie, his trainer, in return for preparing Arnie's income tax return.

c) Nicola conducts business as a contract bookkeeper. She charges her clients a fee for preparing monthly financial accounts. Nicola also prepares their income tax returns, but does not charge a fee for this. Nicola advertises in the local paper that her services include income tax advice and preparation.

d) Avril, a registered tax agent, employs Mike to assist her in preparing her clients' income tax returns. When Mike is hospitalised for three months following a skiing accident, Avril begins to fall behind with her lodgements. To overcome this, Avril subcontracts several of her clients to Dan, a registered tax agent who operates from an adjoining office, and also to Jasmine, a former employee who now operates a bookkeeping service.

After workshop questions

Question 1
Explain the function of the following sections of the ITAA36
• s171
• s173
• s177

Question 2
Have you enjoyed your voyage through the Australian taxation system?

Attachment:- Taxation Law.rar