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HA3042 Taxation Law Tutorial Questions Assignment Answer

    Assessment Task – Tutorial Questions Assignment

    Unit Code: HA3042

    Unit Name: Taxation Law

    Assignment: Tutorial Questions Assignment (Individual) Weighting: 50%

    Purpose:

    This assignment is designed to assess your level of knowledge of the key topics covered in this unit

    Unit Learning Outcomes Assessed:

    • Gain a broad understanding of tax law
    • Demonstrate ability to analyse and synthesise complex tax law issues
    • Demonstrate ability to apply principles of tax law to complex legal problems

    Description:

    Each week students were provided with three tutorial questions of varying degrees of difficulty. The tutorial questions are available in the Tutorial Folder, for each week, on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions from weeks 7 to 12 inclusive and submit these answers in a single document.

    The questions to be answered are:

    Question 1 (7 marks)

    (Note this question is based on the Week 7 Tutorial)

    An extract of the Asset Register of Ace Pty Ltd (“Ace”) for the 2018 - 2019 Income year is shown as follows:

    Asset
    		Cost
    		Opening Adjustable Value
    		Method
    		Effective Life
    		Decline in Value for This Period
    		Closing Adjustable Value
    Printer
    		1,200
    		1,200
    		Diminishing Value
    		3 years
    		400
    		800
    Desks
    		3,000
    		2,400
    		Prime Cost
    		10 years
    		300
    		2,100
    Appliances
    		2,600
    		1,040
    		Prime Cost
    		5 years
    		520
    		520

    All depreciable assets are 100% for business use and Ace uses a low-value pool for all eligible assets. The closing value of the low-value pool at 30 June 2019 was $8,000. Ace purchased a camera on 20 Jan 2020 for $840.

    Advise Ace of the Income Tax consequences arising out of the above information for the 2019

    - 2020 Income year assuming Ace is not a small business entity.

    (7 marks. Word limit: Minimum of 120 words. Maximum of 150 words)

    Question 2(7 marks)

    (Note this question is from the Week 8 Tutorial)

    Your client is a medium-sized manufacturing company and has provided you with its accounting records for the financial year ending 30 June 2020.

    The following amounts listed below from (a) – (f) are included in the accounting records. How would you treat them for tax purposes?

    (Note – The exact amounts are to be calculated and discussed in your response)

    1. The provision for long service leave for the employees is $35,000. The actual amount paid during the year was $20,000 for the year ended 30 June 2020. (1 mark)
    2. The Insurance premium on the plant and equipment is $30,000, which was paid on 1 March 2020 for the next 12 months. (1 mark)
    3. As at 30 June 2020, there was an outstanding electricity account for $2,000 and a telephone account for $5,000 which are both still to be paid. (1 mark)
    4. A maintenance contract on the factory equipment for 12 months is $12,000. The payment was made on 1 October 2019. (1 mark)
    5. The sum of $200,000 was paid on 1 August 2019 to the Managing Director as compensation for the early termination of her employment contract. The employment contract had one year to go. It would have ended on 30 July 2020. (1 mark)
    6. There is interest expense of $70,000 on a loan which has three years to run that was originally used to purchase a computer repair business. The business ceased to operate on 30 June 2020. (1 mark)

    How would your answers to (b) and (d) change if your client is a small-sized company (1 mark)

    (7 marks. Word limit: minimum 120 to maximum 150 words)

    Question 3(7 marks)

    (Note this question is from the Week 9 Tutorial)

    Determine whether the following benefits are fringe benefits or exempt fringe benefits and, where applicable, state the relevant category of fringe benefit.

    Provide reasons for your answers and calculate the exact fringe benefit amount(s), where appropriate, for the following cases listed below (a) – (g):

    1. A monthly payment of $120 is made to Jack. Jack is an employee, who sometimes uses his home phone for work purposes. Jack has estimated that the business use percentage of his phone bill is 20%. (1 mark)
    2. A payment of $1,000 employee’s superannuation contribution by the employer to a complying superannuation fund. (1 mark)
    3. A loan of $20,000 from the company to one of its shareholders with no interest being charged. The company’s rules do not permit loans to employees, but it is silent about loans to shareholders. (1 mark)
    4. A payment of a $50 Uber fare by the employer for the employee to travel home after working late. (1 mark)
    5. A bunch of flowers sent to a sick employee. The flowers cost $120. (1 mark)
    6. Provision of a car for an employee’s private use, including payment of all fuel costs by the employer. Consider whether any fringe benefits have arisen. (1 mark)
    7. Provision of sandwiches at a lunchtime seminar held at the employer’s premises. (1 mark) 

    (7 marks. Word limit. Minimum of 120 words. Maximum of 150 words)

    Question 4(7 marks)

    (Note this question is from the Week 10 Tutorial)

    Michael and Jenny are in a partnership. The partnership records, exclusive of GST, for the year ended 30 June 2020 are as follows:

    ($) Receipts
    440,000
    		Gross receipts from Trading Stock
    ($) Payments
    120,000
    		Purchases of Trading Stock
    50,000
    		Partners' salaries (each)
    3,000
    		Interest on a cash advance made to the partnership by Michael
    100,000
    		Salaries for employees and rent paid
    1,000
    		Legal expenses in recovering bad debts

    Other important details are stated below:

    • Michael and Jenny share partnership profits equally
    • Trading Stock on hand as at 1 July 2019 was $50,000
    • Trading stock on hand as at 30 June 2020 was $80,000
    • Michael 's personal records include:
      • Gambling winnings of $500
      • Net salary as a part-time Instructor (excluding PAYG Tax Instalments of $1,400) is $8,000
    • Subscription to professional journals of $200
    • Michael is a member of a private health fund

    Required:

    Calculate Michael 's Taxable Income for the Income year explaining your treatment of each item noted in this question. (7 marks. Word limit: Minimum of 120 words. Maximum of 150 words)

    Question 5(11 marks)

    (Note this question is from the Week 11 Tutorial)

    A resident company pays a partly franked dividend of $700 (80% franked) to a resident shareholder. Explain the Income Tax implications of the shareholder if he/she is:

    1. an Individual who is subject to the Top Marginal Tax rate. (2 marks)
    2. an Individual with Marginal Tax rate of 15%. (2 marks)
    3. a company with other Assessable Income of $100,000 and a carried forward loss of $40,000. (3 marks)
    4. a company with other Assessable Income of $88,000 and deductions of $7,000. (2 marks)
    5. a partnership with two (2) resident Individual partners sharing partnership profits or losses equally. (2 marks) (11 marks. Word limit: minimum 120 to maximum 150 words)

    Question 6(11 marks)

    (Note this question is from the Week 12 Tutorial)

    Advise the following tax payers of the GST consequences arising out of the following information and calculate the GST outputs or inputs, as required:

    • Angela is a photographer. She recently purchased a new camera from the USA as the camera was not yet available in Australia. The camera cost AUD 1,818, which was shipped directly to her home. (2 marks)
    • NIC Ltd is a large advisory firm that is registered for GST purposes. It accounts for GST on an accruals basis and submits its Business Activity Statements (BAS) on a monthly basis. NIC Ltd organises and pays for the accommodation of one of its managers, Daniel. This is treated as a fringe benefit for fringe benefits tax purposes. On 10 June 2020, NIC Ltd received a tax invoice from the residential property agent where Daniel lives, Smart Strata Pty Ltd, for the payment of Daniel’s fees of $550 (including GST). NIC Ltd did not pay the membership fee for Daniel until 12 July. Smart Strata Pty Ltd accounts for GST on a cash basis and submits its BAS on a quarterly basis. (Explain the GST consequences for both NIC Ltd and Smart Strata Pty Ltd) (4 marks)
    • MBR Pty Ltd has a total input tax credit of $1,000,000 comprising $80,000 of financial supplies and the balance is taxable supplies. (5 marks) (11 marks. Word limit: Minimum of 120 words. Maximum of 150 words)

    Answer

    Introduction

    The person who is earning income and liable to pay tax return has to calculate income tax (Cerioni, 2015). This is regarded as direct tax which should be paid by same individual whose has calculated income. The given report is based upon Australian tax law which has to compliance with it in every situation. The tax payer includes partnership business, trust, company, individual and many more. According to ITAA 1997, various provision are made for compliance of income tax as well as computing taxable income and deductible expenses are explained in this report. 

    Provision to deduct expenditure made for repair (Case 1)

    According to ruling made under 97/23, if any expenditure is made by payer of tax for earning business to include such expenditure then it will be liable for reduction from income at time of calculating income. As per ITAA 1997, it provides provision to treat expenditure made for maintenance as well as repairing of assets during conducting of enterprise. 

    Case Fact

    Furnaces Pty Limited is regarded as enterprise as well as using chimney at organisation (Kane, 2015). In this regard, they have received notice for closing of enterprise if they does not possess new chimney. Here, business has brought new chimney as well as replaced with old one. The business is claiming expenditure for replacing old assets as it is regarded as revenue expenditure in order to compute under taxable income as per ITAA of 1977. 

    Analysis of provision according to ITAA 1997/36

    According to provision made under ruling of 97/98, if any assessment is made for expenditure to enhance capital assets that has applied in enterprise which will be regarded as revenue expenditure and allowed for reduction of taxable income at time of calculation. Such type of expenses is divided into two aspects. The first is regarded as demolishing expenditure for old assets as well as second is regarded as purchasing of new property. Here, demolish expenditure will be regarded as revenue nature expenses as well as allowed for reducing in same year. On other side, capital assets is regarded as purchasing cost which will be regarded as capitalised and reduced over time period of depreciation. This will be regarded in case study called Law of Samuel Jones Company vs. IRC, where company purchased fresh capital asset as well as demolished old property. Here, business has claimed for demolished charged which is regarded as revenue expenses along with costing of new asset has capitalised under depreciation over period. 

    Provision Implication

    If any business has incurred expensed for repair as well as maintenance for improvising sets of capital or increasing working capacity without altering changes in physical substance and regarded as revenue expenses and liable for deduction from taxable income of enterprise. In case of purchase of fresh asset it will be regarded as capital expenses as well as amortise over life time of property. 

    Conclusion

    The above summarised that as per act of 1977, there are provision made for assessable incomes as well as deductible expenses. Here, Furnaces Pty Limited need to capitalised their expenses which has incurred to buy new assets for enterprise and expenditure incurred for demolishing old assets that will be allowed for deduction in terms of revenue expenses to calculate about income that is taxable. Here, new assets has purchased and liable for depreciation over useful life of such property. 

    Analysis of provision made for individual payer of tax (Case 2)

    The individual payer of tax need to offer all types of their earning that they have earned during financial year to assess according to provision of income tax under 1997 act of income tax (Klenert and et. al., 2015). ITAA focus on providing provision where income comes from salary, capital gain, house property, profession and other sources. The given case study focus on income arise under different heads should be computed according to provision as well as tax should be paid to relevant authorities. 

    Analysis of case fact

    According to given case study, Anushka who is regarded as resident of Australia and liable for taxpayer (Klenert and et. al., 2018 ). She has conducting business as well as performing part time basis job in that place. Also she has earned income from both sources. In addition to this, she has made investment in stock market and receiving dividend income from business where share has brought by him. Here, ITAA 1997, provision will be applicable for computing taxable income of payer of tax. 

    Analysing provision of franked dividend received by payer of tax

    The franked dividend is regarded as income in shareholder hand that has received through shareholding in company. This is taxable in company’s hand as well as paid through company during distribution of dividend. This consists of franked credit that has allowed for deduction to compute taxable income of payer of tax. Franked credit is measured on basis of following:

    Dividend received *applicability of tax rate

    The given is tax rate provided as per status of income

    Status of Income
    		Providing of tax rate
    		Amount of Tax
    Up to 18200
    		No requirement of tax
    		Tax nil
    18201 to 37000
    		19 cent over 18200
    		$3572
    37001 to 90000
    		32.50 cent over 37000
    		$17225
    90000 to 180000
    		37 cent over 90000
    		$27529
    180001 to above 
    		45 cent over 180000

    Total tax needed to be paid 

    		$48326.00

    Provision of implication as well as tax computation

    Particular
    		Amount in terms of $
    Received of salary
    		81000
    Tax that has paid through employer 
    		29000
    Gross salary 
    		110000
    Add: Profit of business
    		30000
    Add: Franked dividend gained during financial year
    		7000
    Add: Dividend in terms of gross 
    		3000
    Add: Unfranked dividend
    		1200
    Total income that is taxable
    		151200
    Less: All deductions 
    		5000
    Total income 
    		146200
    Payable tax 
    		48326
    less: Gross franked dividend 
    		3000
    Net payable tax 
    		45326

    Conclusion

    The above indicates about implication of tax, which has concluded that payer of tax need to calculate about income of taxable under ITAA 1997. The total income which is made by Anushka which is $146200 as well as liability of tax for same is regarded as $48326. Dividend franked credit should be reduced by 300 as well as final liability of payer of tax is $45325. 

    Analyse of fringe benefit tax (Case 3)

    Whenever employer is provided with facility to employee for office use through any charges are made from him then it will be considered as fringe benefit (Martin and Connor, 2017). This is regarded as taxable facility as well as liable for paying tax on such value of facility. If fringe benefit is provided for use of personal for employee then they should be fully taxable as well as charged on employer. According to provision of FBTTA, fringe benefit is regarded as non cash facilities that are provided through employer to their employees as well as not covering under head of wages as well as salary. Therefore, it will be regarded as taxable along with tax to be paid by their employer for such facility. 

    Facility of lunch provided by employer to employee as well as cost for them was $1000 per head

    According to assessment of fringe benefit act of 1986, different are the conditions that should be satisfied for non tax liability under fringe benefits. They are as follows: 

    • Facility of lunch that has provided by employer to employee does not include facility of alcohol beverage.
    • The providing of short lunch is not regarded as taxable fringe benefits
    • Cost made by employer is regarded as reasonable and defined under criteria of standard cost.
    • The facility of lunch need to be provided at office during office working hours.
    • If employer has provide lunch facility at remote areas as well as outside premises of office and if cost incurred for such is lower than $300 then it will be regarded as exemption. 

    The above indicates about that if employer has provided with benefits of fringe for lunch then it would costing more than $300 then liable for fringe benefits as well as employer need to pay taxes.

    Honorarium provided in kind of car worth $500 as well as used 90% for office purpose

    The honorarium is provided to individual having professional qualification in order to serve service in particular areas (Melkevik, 2016). This is not regarded as amount of salary as it is known as compensation that is paid to that person who provided all types of services to people. This is income tax part for individual who received it and included in return tax of income. Therefore, spot club has to provide car to that person who has made full disclosure with purpose of tax as well as payer of tax need to provide proper declaration for amount of honorarium and liable for income tax from perspective of income tax. 

    Therefore, it has found that honorarium is not regarded as taxable income. 

    Christmas gift provided with value of $60 to employee

    The gifts are provided by employer to employee for motivating them as well as rewarding for work performance in business and on other side, if any gift is not exceeding $300 value then it will be considered as minor fringe benefit (Panayi, Haslehner and Traversa, 2020). According to ITAA of 1997, it is not taxable under any head. 

    The given case study indicate that if any employer has provide gift to employee with value of $60 which is low as comparing to $300 then it is regarded as minor benefits of fringe and does not liable for paying any taxes. 

    Facility of computer to employee to work from home but employee using it only 50% for office use

    In current time of pandemic, all employees has provided with facility to work from home as they cannot come home due to lockdown and spread of viruses (Prebble, 2015). This is regarded as fringe benefits that has provided by employer to employee and liable for paying tax by employer for getting of such facility. The value of taxable for benefit of fringe will be regarded as that part which was not used for any other purpose. Therefore, if facility of computer is provided to work from home then it should be used for purpose of office which is not liable for any taxes. 

    Property of office is used by Director and not receiving remuneration

    The facility provided by business to their employees and does not liable for any charge then it is regarded as fringe benefit service (Pistone and et. al., 2019). In case of service applied for other use than office then it is regarded as taxable under fringe benefit. Employer will be coming under provision of FBTA. Therefore, the director of company took truck for their personal use as well as regarded as taxable benefit of fringe. Here, company need to pay tax for such kind of facility that has provided to director.

    Conclusion 

    The report summarised that fringe benefit tax is regarded as liability of employer as well as required to be paid under authority of government. The taxable value made for fringe benefit which will be regarded as part for that when not used for purpose of taxes. Therefore, computer facility provided to work from home is used for purpose of office and does not fall under category of tax. 

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