LAWS5065-Taxation Law
Part A Discussions and Calculations
Question 1
Discuss if the following items are deductible or not (explain why or why not). Refer to the statutory laws and case laws if applicable.
(a)Mal purchases various law books for $800 in the income year. He is employed as a lawyer and uses the books as a resource in his current position.
(b)Glenn purchases $840 of paints and supplies. He uses these to paint portraits. He painted 6 portraits during the year for friends and relatives but gave them as gifts rather than selling them.
(c)Ryan has purchased $2,700 of lottery and keno tickets during the 2019/2020 income year. On 20 June 2020, he won $50,000 from one of the lotteries that he had purchased tickets in.
(d)Frank paid $200 to a registered tax agent to lodge his tax return for the income year of 2018/1019.
(e)Jacqueline purchased a Ford Ranger for $49,000 in order to use it to travel to her investment properties for maintenance purposes.
Question 2
Determine the taxable income and the tax payable /refundable of the following two individual resident taxpayers.
(a)During the income year ending 2019, Rafa Hazeez has a gross salary of $78,000 (PAYG tax withheld is $17,700), a fully franked dividend of $2,000 and an unfranked dividend of $1,000. He had incurred work related travelling expense of $ 500. He bought a laptop for $1,500 at 01/07/2018, and used it mainly for work purposes. He estimates that he used the laptop 90% for work. For tax purposes, he could use the laptop for 5 years and he decides to use prime cost method to calculate decline in value. He has no other deductions except for those mentioned above.
(b)Laurie Howe, sold an investment property located in Sydney on 15 January 202. The property was leased for the entire time that it was owned by Laurie.Details relating to the acquisition and the sale are as follows:
Purchase on 10 April 2010
Purchase price: $ 350,000
Stamp duty: $ 18,200
Legal costs: $ 17,700
Sales on 15 January 2020 for $ 640,000
Part B Case study
Question 3
The Armstrong Pty. Ltd is a family business with two resident shareholders, Nick and Gavin. During this income year of 2018-2019, the activities of the company gave rise to the following:
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$
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Loss from rental property
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(10,000)
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Interest income from term deposits
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56,000
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Cash received from no frank dividends
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7,000
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A capital gain from the sale of Telstra’s shares that had been held for three years
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2,000
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Nick also has the following income:
• Net Salary of $90,000 (PAYG withholding tax instalments of $35,000 have been deducted).
• Work-related expenses of $21,000
Nick has private hospital cover.
Required:
Calculate the taxable income and tax payable or refundable for Nick for the income year. Please show all your workings.
Question 4
Ali and Sumara started a retailing shop on a partnership. Each of them contributed $40,000 fund to the business. The partnership agreement provides:
·Both Ali and Sumara are to receive interest at the rate of 10% pa on their capital contribution.
·Ali will receive a salary of $25,000 for the management of the shop, as well as superannuation contributions of $6,000.
·The remainder in profit and loss will be shared equally between Ali and Sumara .
The accounts for this income year show the following:
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Income ($)
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Sales
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240,000
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Expenses ($)
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Cost of goods sold
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130,000
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Interest on capital paid to Ali and Sumara in total
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8,000
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Salary to Ali
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25,000
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Concessional Superannuation to Ali
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6,000
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Rent expense
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7,000
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Other deductible operating expenses
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14,000
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Required:
Calculate the net income of the partnership. Show the allocation of net income to each of the partners.
Question 5
Suman gained a Degree in Business when he was a young lad and with skill and hard work, he has used that knowledge to start his own business
He operates his own business selling computers and related equipment. Over the last financial year, sales of computers and equipment were paid for at the time of sale. During the year ended 30 June 2019, Suman received $3,000,000 in cash for sales of computers.
Purchases during the year ended 30 June 2019 were $1,200,000 and at the end of the year ended 30 June 2019 his stock on hand was $950,000 (valued at cost). Suman’s closing stock for the year ended 30 June 2018 was $650,000. Suman took 2 computers from his stock for his own use during the year. These computers cost him $220 each and had a market value of $330 each. Suman also gave away another 10 similar computers to his friends during the year.
He paid wages of $1,420,000 to his 20 staff members. This included an amount of $30,000 paid to his brother, who is still at school. The work of the brother could have been done by an unrelated person for $10,000. He also paid $200,000 into his staff’s complying superannuation funds as concessional employer contributions.
Explain how you would calculate the income from his business and the amount of all deductions that would be allowed for the year ending 30 June 2019.
You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings and the relevant case law. If relevant, you must show your calculation. Ignore residency, Fringe Benefits Tax and Goods and Services Tax issues. You must apply the law to the facts given in this question and provide YOUR OWN analysis of the issues. Calculations must be included where relevant.
