TLAW603 Mid Sem Exam T22023
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Jan 9, 2024
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MID SEMESTER TAKE HOME EXAMINATION Unit TLAW603 Taxation Law Semester 2 2023 Date:
Saturday, 23 September 2023 Time Allowed
:
4 hours (9.00 am – 1.00 pm Sydney, Australia Time) Total Number of Questions: Part A
20 Compulsory Multiple Choice Questions = 40 marks Part B
8 Compulsory Short Answer Questions = 40 marks Part C
1 discussion question = 20 marks Total Marks:
100 marks Unit Coordinator Contact Bernadette.favis@imc.edu.au Instructions:
•
The examination will be a take-home examination. You will log into MOODLE and access the mid-semester exam via Top Hat. •
If you experience technical difficulties accessing the site, YOU MUST EMAIL THE UNIT COORDINATOR AND academic@imc.edu.au IMMEDIATELY. •
You will have from 9.00 am to 1.00 pm on Saturday, 23 January 2023 (Sydney, NSW time) (4 hours including reading time) to complete the exam. •
You MUST submit your answers to the exam via Moodle, using the Exam Answer Sheet no later than 1.00 pm Saturday, 23 September 2023 (Sydney, NSW time). •
Late submissions will not be accepted and may result in you failing the examination. •
Any attempt to use cheat, copy or help a fellow student (including using AI, WhatsApp groups to discuss your answers) will result in an immediate cancellation of a student’s paper and a FAILURE mark issues for the course. •
You must not circulate the exam paper or answers to the exam paper or you may be subject to disciplinary action by the IMC.
2 References throughout this examination to ITAA97 and ITAA36 are references to the Income Tax Assessment Act 1997 (Cth) and the Income Tax Assessment Act 1936 (Cth), respectively. Part A Multiple Choice Total of 40 marks, each question is worth a total of 2 marks. YOU MUST ATTEMPT EACH QUESTION 1.
Can the States pass laws concerned with taxation?
a.
Only the Commonwealth can pass laws concerns with taxation.
b.
States can pass laws concerning taxation so long as it is consistent with the provisions of the Constitution. 2.
Under which provisions of the Constitution can the Commonwealth pass laws with respect to taxation?
a.
Section 52(iii)
b.
Section 51(i) c.
Section 51(ii) d.
Section 52(ii) 3.
Janet is a resident nurse who derives Australian source employment income during the period 1 July to 31 December of $30,000. She also derives employment income from Fiji of AUD$40,000 during the period 1 January to 30 June, with appropriate tax being deducted from the salary in Fiji. Janet has private patient hospital cover. What is Janet’s net tax payable, including Medicare levy, if applicable? a.
$6,567.28
b.
$6,577.28
c.
$6,577.82
d.
$6,557.28
3 4.
Some of the main factors the courts look for in determining the Australian tax residence of a person include: a.
the extent to which they are physically present in Australia in the year of income b.
the frequency, regularity, and duration of their visits c.
whether they maintain a permanent place of abode in Australia or overseas d.
where they maintain their family and business ties e.
all of the above are correct. 5.
The High Court in the case of Scott v FC of T determined that: a.
amounts that are mere gifts, such as the gift of a large sum of money Mr Scott received from his friend who was a widow and the wife of a former client, are not considered to be ordinary income b.
amounts that are gifts must always be treated as ‘ordinary income’ c.
amounts that are mere gifts, such as the gift of a large sum of money Mr Scott received from his friend who was a widow and the wife of a former client, are fully tax deductible to the person making the gift d.
None of the above. 6.
Which of the following statements is correct? a.
Gains that are ordinary income will be assessable income under s 6-5 of ITAA 1997. b.
Gains will be ordinary income if they are the type of gains that courts of law consider to be of an income character. c.
A gain that comes in regularly/periodically is more likely to be ordinary income than a lump-sum gain. d.
Whether or not a gain arises from an illegal activity does not affect whether it is ordinary income. e.
All of the above. 7.
On 1 December, Jane, 18-year old American student arrives in Sydney on 1 January to study a Bachelor of Accounting degree at IMC. She works part-time
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4 in a local restaurant to help pay her way. Her earnings to 30 June are $10,000. Unfortunately she does not spend enough time studying and fails all her subjects. This leads to her return home on 1 December. Did Jane become an Australian resident for tax purposes? a.
Yes, Jane became an Australian resident for tax purposes b.
No, Jane did not become an Australian resident for tax purposes 8.
Alan, has lived in Brisbane for the past 4 months and who works as a rigger on a large building project. On completion of the project Alan will return to Holland, his native country. Is Alan a resident within the definition of section 6 of the ITAA36? a.
Yes, Alan is a resident within the definition of section 6 of the ITAA36 b.
No, Alan is not a resident within the definition of section 6 of the ITAA36 9.
Sandra Bynes, an American film star, lived at a hotel in Sydney during a visit to Australia from 28 January to 28 November, the purpose of which was to film a TV series set in Australia. The series was not a success and Sandra returns to the United States on 28 November. Is Sandra a resident within the definition of section 6 of the ITAA36?
a.
Yes, Sandra is a resident within the definition of section 6 of the ITAA36 b.
No, Sandra is not a resident within the definition of section 6 of the ITAA36 10.
Testra Pty Ltd, is a company incorporated in South Australia as the wholly owned subsidiary of a company incorporated in New Zealand. No business will be carried on by the South Australian company in Australia in the income year. Is Testra Pty Ltd a resident company within the definition of section 6 of the ITAA36? a.
Yes, Testra Pty Ltd is a resident within the definition of section 6 of the ITAA36 b.
No, Testra Pty Ltd is not a resident within the definition of section 6 of the ITAA36 11.
A company, incorporated in the United Kingdom, which opens a branch in Tasmania to conduct geological surveys for overseas clients. Is the company a resident company within the definition of section 6 of the ITAA36?
5 a.
Yes, the company is a resident within the definition of section 6 of the ITAA36 b.
No, the company is not a resident within the definition of section 6 of the ITAA36 12.
Robert Earnest has collected stamps for over 20 years. Although Robert has not acquired any since 19 September 1985, Robert has over 10,000 stamps. Recently, Robert had them valued and surprisingly, they were valued at $800,000. Robert decided to sell the collection and to facilitate this, Robert has engaged a sales and marketing agent to sell his collection. Robert has also spent $5,000 of his own money to pay for advertisement in magazines and online to promote the sale of his collection. Is Robert ‘carrying on a business’ for tax purposes? a.
Yes, Robert is carrying on a business
b.
No, Robert is not carrying on a business. It is merely a hobby. 13.
Beatrice opens a savings account with a local credit union. The account was opened during a promotion for new customers. The credit union offered a $1,000 prize to one of its new customers. To be eligible, customers had to deposit a minimum of $1,000 and leave it in the account for a minimum of 6 months. Beatrice was the prize winner. Is Beatrice’s prize assessable as income? a.
No, Beatrice’s prize is not assessable as income b.
Yes, Beatrice’s prize is assessable as income 14.
Legal expenses incurred by a company to provide general legal advice is an allowable deduction under s8-1 of ITAA97. a.
True b.
False 15.
Travel expenses from the school to the sporting field, which a schoolteacher incurs. The schoolteacher coaches a local soccer team as a casual job. The travel expenses are not deductible under s8-1 of ITAA97. a.
True b.
False 16.
Legal costs, travel and accommodation expenses a jockey incurs in the course of appealing against a disqualification for poor handling of a horse at a race and the appeal was successful. These legal costs, travel and accommodation costs are allowable deductions under s8-1 of ITAA97. a.
True b.
False
6 17.
Jane has been practising accounting for 5 years and working for KPMG, a top tier accounting firm. She’s always been interested in interior design and decides to undertake studies to become an professional designer. Jane resigns from her role at KPMG to study. The duration of the studies lasts two years. Is the cost of of the interior design course an allowable deduction?
a.
Yes b.
No 18.
Sportswear Pty Ltd spends $5,000 to produce a new type of clothing, perfect for cyclists. It has never produced nor designed new clothing before as its business model is to purchase and re-sell clothing from manufacturers. Sportswear Pty Ltd claims a deduction of $5,000 for the new product development as an allowable deduction. Is Sportswear’s treatment of the new product development costs a correct treatment of that cost from a tax perspective?
a.
Yes b.
No 19.
Advocate News Ltd publishes the Advocate Herald
newspaper. In July 2021, it printed a defamatory statement about a sportsperson. It was sued and lost, having to pay damages of $20,000 to the sportsperson. Is the damages amount an allowable deduction?
a.
Yes
b.
No
20.
Alice is required to wear only white-coloured stockings by her hospital employer. The hospital does not provide her with the stockings and, due to wear and tear, she finds she must buy a new pair every two to three weeks. Is the cost of Alice’s stockings an allowable deduction?
a.
Yes b.
No END OF PART A GO TO PART B
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7 Part B Short Answer Total of 40 marks. YOU MUST ATTEMPT EACH QUESTION Questions 1 – 6 Instructions: With reference to each of the situations below, outline the Capital Gains Tax consequences of the transactions. Refer to legislation, case law and/or principles of tax law in your response. 1.
Marianne purchased an asset on 1 June 2008 for $50,000 and on 29 June 2018 the asset is destroyed by fire. What are the capital gains tax consequences of the fire in relation to the asset that was destroyed? (5 marks) 2.
On 1 June 2018 Jane grants Ashleigh the option to purchase her beach house in Byron Bay. Ashleigh pays $2,000 for the option. Explain the specific capital gains tax event that relates to the above situation. (5 marks) 3.
Paula owns a boat that her neighbour, Ethan, is interested in buying but Ethan wants to try out the boat first. Paula agrees to hire the boat to Ethan and the agreement provides that Ethan will buy the boat at the end of three years unless Ethan decides to buy the boat sooner. Outline the capital gains tax consequences of this agreement. (5 marks) 4.
Steven purchased a property on 1 July 2012 in Sydney. He immediately moved in and established it as his main residence. He moved abroad for 2 years on a work contract on 30 June 2014. The property was rented out from 1 July 2014 to 30 June 2016. When his contract was finished Steven moved back into his house in Sydney. Explain how the main residence exemption applies to this situation. (5 marks) 5.
What are the capital proceeds for capital gains tax purposes if Mary-Anne were to gift an apartment with a market value of $285,000 to Michael? (5 marks) 6.
Jordan is a boat builder and owns his own business, building exclusive yachts. He is building himself a yacht and took some building materials costing $5,000 for his own use. The materials could have been sold for $6,250. State what amount, if any, is assessable in respect of the above. (5 marks)
7.
Question 7 What is the tax formula for calculating your tax liability every income year? Write the formula out in full. Explain each element of the tax formula with reference to the relevant provisions of the ITAA97. (5 marks)
8.
Question 8 Li earned a salary of $75,000 for the year ended 30 June 2019. She also received additional income and paid expenses as follows: •
Net rental income of $9,000 •
Capital losses on sale of shares $8,000 •
Bank charges of $150 on her investment account •
Tax agent’s fees of $500 •
Purchase of a raffle ticket for $100 from the Royal Children’s Hospital. The prize was a motor vehicle
8 Calculate Li’s taxable income and tax payable including Medicare levy for the year ended 30 June 2019. State any assumptions that you make. Where possible questions should be answered with reference to legislation, case law and/or principles of tax law. (
5 marks) END OF PART B GO TO PART C
9 Part C Discussion Question Total of 20 marks YOU MUST SELECT ONE OPTION AND ANSWER EITHER OPTION 1 or OPTION 2 Option 1 Erica came to Australia from the United States on a working holiday on 1 December 2019 when she finished college. Her parents were separated, and she had been living between their houses over the last 3 years. All her belongings were packed in a box and stored in her father’s basement when she left for Australia. Over the last 7 months Jane has worked in various jobs in Sydney staying with various friends and relatives then she went travelling down the east coast of Australia. At the end of September 2020, she left for New Zealand and intends to go back to the United States in 2022. Outline the tax residency consequences for Erica. Explain your answer with reference to the relevant legislative provisions, case law and the relevant guidance provided by the ATO. Option 2 Discuss the income tax implications of the following. Include references to the legislation, case law and taxation rulings. (a)
Profit of $25,000 made by a manufacturing company on the disposal of one of the machinery it has leased to carry on its business. (b)
Gifts and payments made by a soccer club and its supports to a star professional player, largely in their delighted response to his being selected to play for Australia. The club gave him a car valued at $35,000; supporters through a collection at one game, gave him $2,900. (c)
An exchange gain of $750,000 made by a manufacturer in respect of money borrowed in 1997 and used to finance construction of a new factory building. (d)
A boat valued at $75,000 given to an amateur tennis player to turn professional. (e)
A $20,000 bonus paid by the Australian Cricket Board to the captain of the Australian cricket team for outstanding leadership during a successful tour around Australia. (f)
A waitress in a restaurant receives flowers every week from a regular Friday night customer.
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10 (g)
Patrick Mills, a non-resident, arrived in Australia to play basketball for the Sydney Kings team. His earnings for the year ended 30 June were $200,000 for playing basketball, $20,000 for coaching and $550,000 for advertising sportswear. (h)
A lump sum received for the sale of a right to use your trademark. (i)
A $100 allowance paid by a husband to his wife for doing the housework. (j)
A cash payment of $30,000 won by Sarah on a TV quiz show, she also wins a car worth $75,000 and when she is invited back the next week she wins another $70,000. END OF EXAMINATION