FINAL ASSESSMENT
Unit Name Taxation Theory, Practice and Law
Details Code HI6028
Trimester, Year Trimester 1, 2023
Assessment Name Final Assessment
Details Due Date 21 June, 2023
Due Time 9.00 am
Weight 50%
Student Number
First Name
Family Name
INSTRUCTIONS
Duration 24 hours
LATE SUBMISSIONS ARE NOT ACCEPTED
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paper.
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Submission Instructions are listed at the end of this paper and must be followed.
Information
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Penalties Reference sources must be cited in the text of the assessment, and listed
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Penalties are associated with incorrect citation and referencing.
Question 1 (10 marks)
Dipali is an Australian resident individual. She purchased a block of flats in Melbourne, Victoria as an
investment on 3 March 2005 for $950,000. She paid a stamp duty of $40,740 on the purchase and
$3,000 in legal costs.
Dipali sold the block in December 2021 for $1,600,000, incurring $6,000 in legal costs and $108,000
for the agent’s commission.
Dipali incurred interest on the amount borrowed to purchase the property of $220,000 and council
rates totalling $14,000.
Required:
a) Calculate the cost base for this asset. (4 marks)
b) Calculate the capital gain or loss for the disposal of this asset. (2 marks)
c) Calculate Dipali ’s assessable income for the 2021/2022 year, assuming she made a salary of
$40,000, a net rental income of $50,000 and a capital loss of $6,130 from the sale of some
shares same year (4 marks)
Answer this question in about 150 words and make a table for presenting calculations.
(answer box will enlarge as you enter your response)
Table of calculations:
Part A & B:
Particulars Amount
Sale Consideration $1,600,000
Less
Legal cost $6,000
Agents commission $108,000
Net Sale Consideration (A) $1,414,000
Purchase Consideration $950,000
Add:
Stamp duty $40,740
Legal Cost $3,000
Interest on Loan $220,000
Council Rates $14,000
Net Purchase Consideration (B) $1,227,740
Capital Gain (A-B) $186,260
Part C: Assessable Income
Particulars Amount $
Salary Income $40,000
Rental Income $50,000
Capital Gain (Refer Note below) $1,221,610
Assessable Income $1,311,610
Note
Capital Gain (Income purpose)
Long term capital gain $1,227,740
Less:- Short term capital loss $6,130
Net Capital gain for Income purpose $1,221,610
The net sale consideration is about $1,414,000 which obtained from deducting the legal cost of
$6,000 and the agents commission with $108,000 to the sale consideration which is $1,600,000.
Next we calculate the net purchase consideration which is $1,227,740 which also obtained from
adding the purchase consideration of $950,000, stamp duty, legal cost, interest loan, and the
council rates as shown on the above table. We then minus the net sales consideration by the net
purchase consideration to get the capital gain which is $186,260. We didn't utilize the cost
inflation index throughout the calculations we performed because one was not given.
Furthermore, it is presumable that interest costs and council fees have been paid explicitly for the
goal of buying a piece of property. Next, we have Assessable Income of $ $1,311,610 which
derived from adding the Net Capital gain for Income purpose with $ $1,221,610 [$1,227,740 -
$6,130], salary income and the rental income.
Question 2 (10 marks)
Jasmin is a mechanic. She runs her own business specialising in repairing electric cars. During the
year, Jasmin incurred the following expenses:
a) salary costs to her two regular employees of $150,000 (paid electronically through the
business’s payroll system, which automatically applies the relevant tax withholding and pays
the amount to the ATO);
b) $5,000 on special overalls and eye goggles for Jasmin and her employees to use when they
are repairing cars;
c) childcare costs of $22,000 so that Jasmin can go to work every day;
d) $1,000 on a one-day course on a new accounting software program that Jasmin wants to use
in the business to better comply with new tax reporting requirements.
Required:
Advise Jasmin whether the above expenses would be deductible for income tax purposes.
Answer this question in about 300 words.
ANSWER:
Jasmin needs to consult with a tax professional or expert whom can offer her personalized advice
based on her particular circumstance and the tax laws in her nation. Nevertheless, we have included
all of her costs below and indicated the possibility that they can be deductible on her taxes.
a. Salary paid to a worker virtually that currently has withholding tax deducted is eligible for an
income tax deduction. Hence, the wages provided to regular employees are frequently deductible
under company costs for income tax considerations (Richter 2004, p2(3)). Nevertheless, it's
imperative to confirm that the remuneration is reasonable and consistent with industry standards.
The required tax withholding as well as payment should also be submitted payable to the taxing
authorities as necessary
.
b. Normally, the cost of specialist overalls as well as eye protection would constitute a deductible for
Jasmin and her crew. These items are regarded as necessary tools or safety equipment that are
closely related to business operations. As an outcome, the cost of business accessories that are
particularly helpful for manufacturing might be deducted.
c. Individually funded childcare costs are frequently viewed as private costs and are therefore not
tax deductible. On the contrary hand, childcare expenses might be entirely or substantially
deductible or qualified towards tax benefits in specific circumstances or locations. In order to figure
out if any incentives or deductions applicable to Jasmin's unique situation, she should consult with a
tax specialist. The cost of child care is not tax deductible. Child care expenses are viewed as personal
costs. Furthermore, no expenses incurred for home use or for personal purposes may be written off
as a tax deduction.
d. A one-day accounting training is going to assist Jasmin adhere of the tax provision adequately. The
cost of a one-day training session for a new software accounting application is normally deductible
as a business expense. The seminar will help the organization's accounting practices become more
compliant with tax reporting rules. Consequently, any funds put towards company-related costs or
items that could help manage the firm is done so for reasons related to the company. Therefore, this
becomes a deductible expense.
Question 3 (10 marks)
Niranjan, an executive of an Indian corporation specialising in auditing consultancy, comes to
Australia to set up a branch of his company. Although his stay is not certain, he leases a residence in
Brisbane for 12 months. His wife accompanies him on the trip, but his teenage daughters, having just
commenced college, stay in Delhi. Nirajan rents out the family home. Apart from the absence of his
children, Nirajan’s daily behaviour is relatively similar to his behaviour before entering Australia. As
well as the rent on Indian property, Nirajan earns interest from his investments in Singapore. Because
of ill health, Nirajan returns to Indian 11 months after arriving in Australia. Discuss residency tests
and source issues.
Answer this question in about 400 words
ANSWER:
While you are considered an Australian resident for tax purposes when you dwell in Australia, you
are not need to apply for one or more of the other residence tests (Ng 2022, (3)). Among the factors
that are able to be utilized to determine a resident's status is their physical appearance. Therefore,
for Niranjan's example below, we have covered the residency tests and source issues.
Tests of residency: A person's tax-related residency in a country can be ascertained using a variety of
residency tests. Some of the following residency tests might turn out to be applicable in Niranjan's
case.
Physical presence test: This test records the number of days a person has resided within a certain
country throughout an agreed-upon time frame. Niranjan's 11-month stay in Australia certainly
unquestionably satisfy the residence requirement for being physically present.
The domicile test identifies a person's primary home or place of abode.
Niranjan has a permanent residence in India plus a rented residence in Australia.
Such can make it challenging to determine his domicile for tax purposes.
It is probable suggesting Niranjan was physically present there, knowing that his wife accompanied h
im on his trip, and the ongoing care of an Australian home are all indications that he resides there
(Ng 2022, (10)).
Niranjan occupies his home in India and only leases it out whenever he's away, his children are there
as well and he retains the assets he has invested overseas, so it could also be claimed that he doesn'
t consider himself a resident of Australia.
Test of the center of essential interests: This examination looks at a person's greatest financial along
with social connections. In Niranjan's instance, his wife and kids stayed in India while he kept making
money off of his Singaporean assets. It indicates that while residing in the nation of Australia, he
continued to be mostly engaged towards India.
Source of issue: Regarding taxes, the basis of income is equally crucial. In this case, Niranjan received
rent from the Indian home in addition to interest from his assets in Singapore. Throughout Singapore
as well as India, taxes might be levied to these kinds of sources of income. Nevertheless, Niranjan's
income from Australia, including any pay he could have received during his employment there,
might also is taxed.
In Niranjan's situation, the residence along with source concerns becomes difficult. The final
resolution will be contingent on the peculiarities of his case. The residency tests and source issues
stated earlier give a rough idea about the elements that needed are going to be considered in the
account. There are additionally a number of additional elements that could impact Niranjan's tax
liabilities along with to the previously discussed. He might be qualified for a tax arrangement among
the two countries [Australia & India] for example. He ought to consult a tax expert for advice on his
particular circumstance and to calculate his tax obligations.
Question 4 (10 marks)
Aussie Real State Ltd provides a wide range of rental services for business purposes. Aussie Real State
Ltd derives Australian sourced income for the current tax year comprising net income from trading of
$90,000, franked distribution from public companies amounting to $42,000 (carrying an imputation
credit of $18,000), unranked distributions from resident private companies amounting to $24,000
and rental income of $11,000.
Required: Calculate the net tax payable by Aussie Real State Ltd for the year ended 30 June 2022.
(Assume the company tax rate is 30%)
Answer this question in about 150 words and make a table for presenting calculations.
ANSWER:
Taxable income
Particulars Amount $
Net income [Trading] 90,000
Franked distribution 42,000
Unranked distributions 24,000
Rental income 11,000
Total taxable income 167,000
Franking credit
Particulars Amount $
Tax rate 30%
Tax payable [30% @ taxable income] 50100
We have total taxable income of $ 167,000 which is calculated from adding the following Net income
[Trading], Franked distribution, Unranked distributions, and the Rental income values as shown in
the table above. The tax payable has been calculated by simply multiple the tax rate of the company
which is 30% to the total taxable income of $167,000. The eighteen thousand dollars imputation
credit is eligible to be utilized to reduce the amount of tax due. - In the event the imputation of
credit is greater than the amount of tax due, the difference may be repaid. -The balance of the tax is
due assuming the imputation credit is smaller of the amount due. In this case, the net tax owed is
$532,100, which was computed by subtracting the $18,000 imputation credit from the tax due of
$50,100. Consequently, Aussie Real State Ltd is scheduled to pay $32,100 in net tax for the fiscal
year that closes on June 30th, 2022.
Question 5 (10 marks)
Ashok is an employee at a large accounting company (Aussie Accounting Ptv Ltd). He has negotiated
the following benefit with his employer:
• Provision of a car for work and personal use. Ashok was provided with the car from 1
April 2021 to 31 March 2022. The leased car value was $22,000 on 1 April 2021, and the
car had only been leased for a year at that time. Ashok is required to pay for any petrol
costs, which he has determined to be $1,300 for the period 1 April 2021 to 31 March
2022. (5 marks)
• Provision of the latest model smartphone on 1 April each year as Askhok needs a good
phone to do his job. Ashok estimates that he uses the phone 70% of his time for work
purposes. The phone was purchased new on 1 April 2021 for $1,100 (including GST).
(2 marks)
• Advise Ashok’s employer on the FBT consequences (including calculation of any FBT
liability) arising from the above information. You may assume that any benefits are Type
1 fringe benefits and use the statutory formula to calculate the car benefit. (3 marks)
Answer this question in about 200 words.
ANSWER:
Provision of a car for work and personal use:
Offering a worker access to an organization's car counts as offering them a benefit for purposes of
the fringe benefits tax, and in most circumstances, this produces a car fringe advantage ( Shearman
2018, (6)). Whenever an employer permits a worker to use an automobile that belongs to or is
owned by the company even if it is being used or made available for the employee's personal use, it
is regarded as the granting of a "car benefit." The IRS has outlined exactly what constitutes "cash-in-
kind" and how gift cards that serve as fringe perks for employees are required to be incorporated
into wages because they're covered by federal employment tax as well as withholding. Regardless of
what the employee is not permitted to use the card for.
Gift = 10 x 50 = $500
Withholding Tax is about $110 derived from [500 x 0.22].
Having 7.65% as withhold for Social Security together with the Medicare taxes of $38.25 which
devrived from [ 500 * 0.0765].
Provision of the latest model smartphone:
Considering there exists no such clause throughout the law, the answer would remain the same if
the vouchers had been employed to purchase gifts for clients and the new proprietors with sales
that were finalized in December.
Advice:
For the tax year beginning on December 31, 2021, cell phones or a single other portable electronics
were no longer regarded as listed assets, and employees are now required to give their employers a
declaration outlining what proportion that they have of their internet and telephone connections
the fact that is used for company purposes, in addition to the type of expenditure they paid. The
employee's income had to be reduced to cover the cost of the cellphone, which was nevertheless
considered a taxable fringe benefit.
END OF FINAL ASSESSMENT
Please complete the following details:
Integrity I have read and understand academic integrity policies and practices and my
Declaration assessment does not violate these.
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References
Ng, E 2022, An Evaluation of the Proposed Changes to the Individual Tax Residency Rules – Impact on
Australian Expatriates, Austaxpolicy: The Tax and Transfer Policy Blog,
https://www.austaxpolicy.com/an-evaluation-of-the-proposed-changes-to-the-individual-tax-
residency-rules-impact-on-australian-expatriates/
Richter, WF 2004, ‘Efficiency Effects of Tax Deductions for Work-Related Expenses’, SSRN Electronic
Journal, https://www.cesifo.org/DocDL/cesifo1_wp1311.pdf
Shearman, O 2018, Fringe Benefits Tax: Obligations for employers, Apiary Financial - Stronger
Together, viewed 20 June 2023, https://apiaryfinancial.com.au/fringe-benefits-tax-obligations-
employers/
