HI6028
Taxation theory, practice and law
FIANAL ASSESSMENT
Trimester1, 2021
Assessment Weight: 50 total marks
Instructions:
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit
Question 1 (11marks)
For tax purpose, in what circumstances are individuals and companies treated as residents of Australia? Explain based on the theIncome Tax Assessment Act 1936 (Cth) and relevant caselaw.
ANSWER: ** Answer box will enlarge as you type
For the tax purpose, individuals and companies are treated as residents of Australia under the Income Tax Assessment Act 1936, wherein particular factors are treated differently with different laws by the Australian government. According to the Tax Assessment Act 1936 (Cth) a person is said to be a resident of Australia if they live in Australia. A person is said to be an Australian resident if the domicile of that particular person is in Australia. In case the Commissioner contends that the permanent place of person adobe is not peripheral of Australia, then the individual is known as the Australian resident. Under the act, the procedure by which a domicile of an individual is determined is the 1982 Domicile Act and is considered as residential of Australia, and for this, the person has to, in fact, constantly live in Australia. Hence, the person also requires to be residing in Australia throughout their annual earning or for more than a year of their earnings. However, it has been identified that these are imposed in case the commissioner officer contends that an individual is living in Australia in his year of earning. Thus, it can be said that for the tax purpose under said act, the person is a resident of Australis when he or she is associate with a superannuation scheme and qualified employee. Here, the relevant case is the “Harding v Commissioner of Taxation (2019) FCAFC 29 (Gouveia, 2019).
On the contrary, the tax purpose under Income Tax Assessment Act 1936 (Cht) states that a firm can be regarded as a resident of Australia in case it has been integrated in Australia. For the company, a residential position is also implemented if the firm is managed by Australian shareholders who are living in the overseas region. Besides, the firm is a resident of Australia if they operate a business in Australia and if it is controlled and mainly operated in Australia. However, in order to determine the tax purpose under the said act for companies in Australia, four types of income address the residential status of the firms that are based on income through business, services, interest income, and rental income. Hence, the service income decided the location where the firm operates its services, the business decides the areas where the firm deals its services and commodities, the income of interest is measured as debt and contract, and residential income determines the fixed property income. Consequently, all these factors determine the residential factor of the firms.
Question 2 (7 marks)
Referring to relevant statutory provisions and common law, discuss whether the following amounts would be as an allowable deduction against assessable income.
ANSWER:
a.under sec 25-35, ITAA 1997 Act, the provision for the doubtful deduction of debt of capital that is $4,200 is not imposed for being deducted against the assessable income as of the fact that the debt was counted as bad as it not written off. Bad debt is counted while its recovery is not likely within a particular time.
b.A number of imposed fines that can be acquired at a certain period of traveling to the workplace, but those acquired at a certain period of traveling to work are not deductible. This generally means that such fines are paid as speeding fine by the owner, which is not deductible.
c.The expense that is deductible is the officially permitted expenditures acquired by the taxpayer as the expenditure are said to be a capital expenses. Hence, these deductions are permissible under the ITTA sec 8-1, but fees paid to the solicitor is not a capital expense as it is not deductions.
e.In case the business executive travel for the business purpose, the travel expenditure is deductible if the executive provides the appropriate documentation of the expenses he paid for.
Question 3 (11marks)
Required: With reference to relevant legislation and case law, discuss and calculate what amountis allowed as a deduction for the decline in value of the machinery and the car discussed above, using both prime cost and diminishing value methods.
ANSWER:
= $110000
Given,
of use life = 10 years
value calculation of machinery excluding GST
= 110000 x 10 / 11
= $100000
Practicing prime cost method, fall in value
= Assets cost x days held / 365 x 100% / asset of use life
= 100000 x (242 / 365) x (100% / 10)
= $6630.14
Practicing diminishing value method, decline in value
= Assets cost x days held / 365 x 200% / useful life of asset
= 100000 x (242 / 365) x (200% / 10)
= $13260.27
Under sec 11-20 of GSTA, amount of $10000 can be claimed under input tax credit.
B.Toyota car (inclusive of GST)
= $74000
Useful life = 12 years
According to provisions of ITAA 1997, the cost limit is $59136 for the motorcycles.
Value of car excluding GST
= $59136 x 1/11
= $5376
Hence, the cost of the car = $74000 – $5376 = $68624
The computed 68624 cost is higher than 59136, so the rate of the car will be reduced to 59136
Under Prime cost method:
Decline in value = 59136 x (273 / 365) x (100% / 12)
= $3685.87
Under diminishing value method:
Decline in value = 59136 x (273 / 365) x (200% / 12)
= $7371.75
consequently, under section 11-20 of GSTA, amount of $5376 can be claimed under the credit of input tax.
Question 4 (7 marks)
Andrew and Piter are paterners, carrying on a business as a partnership. The partnership agreement provides that Andrew is to be paid an annual salary of $40,000. The balance is to be distributed equally between Andrew and Piter. The partnership agreement also provides that the partners are to share the losses equally in the case of losses. The partnerships assessable income for the income year is $100,000. Deductible expenses are $120,000.
Required:
What are the tax consequences for the partnership and each partner?
ANSWER:
The salary amount that has been paid to the partners are counted as the distribution of profit and therefore, no deduction will be acceptable. At this point, the salary will not be deducted as of the income that is calculable.
Taxable income of partnerhip= Assessable income deductionsallowed
= $(100000 – 120000)
= -$20000i.e. a loss of 20000
Amount available for distribution
= Net loss – Salary
= -20000 – 40000
= -60000
Loss to be shared is as under:
Andrew = 60000 x 50% = 30000
Piter = 60000 x 50% = 30000
Income received under the partnership formed
Andrew = Salary income – Loss from share of partnership
Andrew = 40000-30000 = 10000
Piter = 30000
Question 5 (7 marks)
Benjamin is an artist. He sold some assets last week. He requests you to calculate the Capital Gain Tax (CGT) consequences of the following transactions:
He purchased the following items last eight months ago.
Last week he sold these assets as follows:
Based on the legal provisions, discuss capital gain tax assets and calculate his net capital gain or net capital loss for the current tax year
ANSWER:
The Discounting benefit is not applicable in case of asset held for less than 12 months.
computation of net capital gain or loss for each asset is as follows:
| Particulars | Cost base | Capital proceeds | Capital gain | Capital loss |
| Antique ceramic bowl | 4000 | 6000 | 2000 | |
| Antique vase | 5000 | 1000 | 4000 | |
| Painting | 15000 | 5000 | 10000 | |
| TV sound system | 10000 | 9000 | ||
| Shares of listed company | 6000 | 26000 | 20000 |
Calculation of net capital loss for the year
| Loss on antique vase sale | 4000 |
| Loss on painting sale | 10000 |
| (-) Gain on antique ceramic bowl sale | 2000 |
| Total collectable loss to be carried forward | 12000 |
Gain on shares = 20000. For this reason, the net capital gain of the year is 20000 and cannot be adjusted with the collectable loss
Question 6 (7 marks)
What is meant by two terms, tax evasion and tax avoidance? Give your answer with examples of each.
ANSWER:
Tax evasion- it is a comprehensive process, and it has caused much economic imbalance in business operations or management, and it has a vulnerable effect on the development of the nation. It is said to be the illegal activity that is conducted by the firm or management of the firm to evade tax payment (Fuest and Schneider, 2012 (p3)). It is said to be an international activity with assurance, and it is said to be fraudulent activity, for example hiding of interest, misrepresentation of documents, etc.
Tax Avoidance- it is also a technique for evading the tax payment that generally means income payment, but in case the taxpayer used the policies and rules, they minimize the tax liability (Abney and Monnin, 2018 (p56)). Tax avoidance does not essentially mean committing fraudulent actions, but it comes under the sections of saving tax and evasion, for example, expenses misinterpretation.
END OF TUTORIAL ASSIGNMENT
Submission instructions:
References
Fuest, C. and Schneider, F. 2012, “Tax evasion, tax avoidance and shadow economy: introduction”,International Tax and Public Finance,vol. 19, no. 1, pp. 1-4.
Abney, G. and Monnin, P. 2018, “Tax Avoidance vs. Tax Evasion”,Tax Executive,vol. 70, no. 6, pp. 54-58.
Gouveia, C 2019, Tax residency of Australian expats, Cbp.com.au, viewed 14 June 2021, <https://www.cbp.com.au/insights/insights/2019/may/tax-residency-of-australian-expats#:~:text=In%20Harding%20v%20Commissioner%20of>.
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