2011 Past Mid Sem Paper[1]

SCHOOL OF BUSINESS LAW AND TAXATION

LEGT 2751 BUSINESS TAXATION

MIJI,TIPI,IE CHOICE TEST 52 2OO9

FEEDBACK TO STUDENTS

I hc rvcnsc mrk rbr rrc 'cs

&\ r:l rq

th. igh$tmrk wb 18/20

rhc lbllowingiocumcituo x,is

(r) comncnron hoq $cll studq,ls!sawhol.pc'romrcdon cnch

(b) lrchils orthc romcr rnswcr rbr cach qucstioni and

r, l \Fl'n ' J rbJ ' ".o-!dc qc, fn cd l q Fri l

srrdcns vho lailcd rhc ra should .onracr John Taylor via c mail.rtr . r'Lf\r.ntr b rtunsc an xppolntmcnt to obtain

'norc d.hiled fcedback

aborl thcn pcrlbnaicc n rhc tc$.

GST Free Supplies diffe.irom npur Taxed Supprtes for cST pu.poses in rhar:

(a) Wilh an nput laxed suppy the enlerpnse makno the supoiv does nolcharge GST on lh6 supply and does not gei an nput tax credit for GSTpaid on pu.chas€s lhat reate to the input iax€d supply With a GSTffeesuppy lh€ ontsrprise making the suppy do€s nol charge Gst on rhesuppy and does not pay GsT on ts purchases lhar relate io lhe suppy

wlh an inpul taxed suppy tlre enteQ se makng the suppy does nolcharqe GST oi the suppy and do€s not get an nput tax cr€dit for theGST pad on lne purchases that rerate 1o the suppy. With a csTf@esuppy tlre enloDrs€ maklng lhe supply does nol charae GsT on thesuppy blt geG an input lax cedl lor the purchases rhat retab to lh€

Wilh a GST ti€e supply lhe enterpdse makng the suppy does not payGSTon ls purchas€s but musl charge GSI on ils suppties Wlthen npultaxed supply rhe €nt€lpris€ maki.g (he supply does nol charoe Gsr onthe supply and does notgol.n npul lax credit for GST pa d on puEhasesthal relate to $e nputlax€d slppy

wirh a GsT fiee suppiy rhe enteDdse does notcha.ge GsT on rhe supptybul gels an input l.x credit for the purchases thal €bte to rhe suppyWith an npul laxed supply the enteFrise makng tho suppy does notcharge GsT on the suppy and does nol pay GsT on rhe purchases ihar

(e) None orlhe above.

Mosr studenis answeiedihis quesrion corecny.

Cotect answet 13 !b). The tens 'input taxed suryly' an.J'GSr tee suwty arcsonewh.t nislddlng. rhe tm input tax.d supply' is ft.nt b convey thatGST is payzble on yout pLtchases (ioputs) but that tou .1o n6t cha/ge cST onyoul input tated sales and do n6t ger ao input ta' credit lor th. csf th.t youpaid on wu. putchas.s. Hence you inputs ate taxed but your Bales arc not.fhe lffi csf fi@ is n.ant to conwy that you don t charge GSf on yo'lsates but get a credit for the GsI pald on yout inputs. fhis credit can beofiset against GST payable on othet sales that you nay nake th.t arc not csriee ot input tated, lf yout GSf lnprt ta' crediE exceed Wut othet cSTliabitities the excess is refundable. Hence there has be.n no GST o, thepurcha.e an.t sate tmnsaction.

The ment goods arcumentfor laxaton suggests ihal:

(a) Thal setoi.es sucrr as heatth and €dudalion. shoLd be prcvided bygovemment as padcu ar users cannot be erc uded rom benefitng nom

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LEGT 275 L Muhiplc Choicc 1n*. Sl 1003

As shared on...

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Thal *ruc€s lch€s helt(h trd education. shoutd dever be prcvided bygovehmenl as parr c! ar us€rs dannot be exctuded trom beneii( ng flo;

Thlt seruices such as heafih and educaUon sho!d etherb€ prcvjded or\,brdr.o b, 9o,4 re I _q61ed b-.4 I rr d rhe !o cure, i-La,.e. d. o @.rd o..ere 1.F. el 6

QUESTION'THREE

Amie and Jane re both esid€nts ot rhe newty ,ndependent cou.t[, Euphoraanler.ddE-ao. ,0 ,u.- o. $50000 aln ^d.,"orh de Fd ro I T cataru oc a t.d, -e orL.al,t a. d ..o, d dno.agp. . dErddaEubh'roae $ro0.o0011.qa:{torro-;"oron

ile ecr-,-1-ru-o'ld bdn., Jrar'neE'o o.a1ld....!irdtal q d.pdar,.rr " o'2506 Ioa t sf ,e tsr".. r tr,"d dr d ra.e or'o;o Ior $I the Luon.,,in

(€) Consisten( wth hoizontat equ ly as t raxes 91 of inieest ncome differ€nltvItu- tle

^a\ i d,e.9to..e.crJ . oi-

(b)Cons,slent w lh vedicat equry as il laxes someone on a ower incooe a( ac\c, qofoo.do. d .qne.in@f4

k) co.ssredtwith vedicatequ ry as rraxes someone on a hishe.incohe arrhesame rale .s it lax€s someone on alowerincome.

(rd'I o..,>re,, ^r

.-. .or-qur. r rra.cd<oreonoFPo-P or o h9-. , .o1. d d

rnconssrenl with horzonlat equ ly as ir laxes int€resl income al: tower rarelhan it lares salary li.one.

(e) lnconsistenl wlih horizontateq!ry as i( taxes nlercst tncohe al a tower rarethan I tax€s sa ary with vo.licat eqlly as laxnqinterestal a lo@r rere prcmoles savings

trtost studenls answered this q!esdon corEcdy

corecl ahswq @< p). ver cat equity ..ys that ta,payere .n diffdcnrhr6ne teftk shoutd be E e.t.tfihen y. Thc u,uat exp,easequity prlncipte is rhat ta,par6 on hight h.one tevel; shoutd pay norc ta,(.nd at a hishet tatet rhan u'payets an bw ln.one tevets. tto;z;n@ o1ufiysays t!1t 6xe6vq' on the sane incotu ,..vet shoutd p.y the ,"." .^.,h ;tt.x. white this sounds tike sinpte connon icnse ii ia .tso usu,tty ,ad toheah that-a taxpayd e*nks t1 ot int rest iocome shoua pay ke saneanounl of k., on it a< a E payc' eaming S1 ot ,atary inco."

"i u turp"y.,@mks s1 ol dividend incone.

Vr orn ar-AuJk r.,e oF- \rahrorTloto^,na nroa-a od,p-,.e.for p

T,eFor h, one u rc*tT^a --.^u fo, o oor. ro F9' ..\.- g20ooo\rla . 'or Bo B" o,anau.qJa' "s'de.rbd-ij t30OOOlnterestfom Bg Bank Ltd $ 5.000Rent from inveshenl prcpeny ar Manty NSW $15,OOO

le) None orrhe.bove

About 70% ofsrudonrs answ.re

fhe corect answ. Ms td). answet @t is ctose to c'tcct hut the neritg.oods aryunent do.t not rcqui,e that theonty.uppti.t ot snch setukes bethe gouptnnent. Rathet it say\ thar na*et p,hes wir not ftttect that vdheor srch seryices /o rhe wder cohnunny it gofthnenr d6es nor eil]:,ctptovt@ then ot subsidisc ben. tn othe, wotds nt6s the,e is <onegowtnnant c,pnditure phhet dnT y .r thrcLshsu6'diest socicty as a whot. wi undwpend on them. Studenrs whoa4sw€d ra) ere po.ribty contu,e.t bet€en thc tetn .he t goods, an.Jthe t.m soci.t soods. things that penkutat users cannot be.x.tudednon (such 6 steet tighttnst are s@ial goods. thea'sunent.hete is that these have to b? tunded by a totn of taxation a3 isnot posstbte o. pacticar to have

r EcT 275r MtrhipLcChoi.e resl. St 2003MtrlriIeCl$iLe Ie{. Sl 2008

As shared on...

Ll.franked dividend from shares in No News Lrd

nlereston oan usedloacqu6 Ma. y pbperty $1O,OOO.h.tGn .\cdbr.q. e. FVdn..p,oo6r, i5a /.id

d"dJcl'o- orAu.iar"n oF€'d, o-.oo<esvJLotm. !,ab.. in6re ro..,c '€d.endnq loh iun€ 2003 wtlbe.

(a) $r90,000(benslhesumorarhsi.come lems)ressglo,ooo(beinshisnlerest deduclions) = 9130.00C

(b)$170.000 (beins the sum or a his rncome lems orhe. than lhe ncomeexempl under s23AG) l€ss $10000 (beng his int€resl dedlclons) ess hslax offsel of$30000 for thedividend catcutared as $7o.ooox 30/70 rhe endresultoflhe € cu aton wiLbe a tax.b e incomo of$130.000

( \l 0ooo bqna rA <-n o an h , lha, n. ir.ore--i\aro u-de .2)A', 16<. { 0.000 oa.nq 1 nEe,t d"du4o.ar

(d)$170 000 (beng rhe slm of ar his ifcom€ irems olher than lhs tncomeexempt under s23AG).

le) $190,c00 (beina the sum or aL his income Lleds) ress gloooo (beinq htsnteresr deduclions) 6ss h s rax offset of $30.000 fd the d v dend alc! at€das $70,000 x 30/70 The end resul ot lhis €cualion wilbe a laxabteincome of $160 000.

70'lo of students answered this question corecrty,

fhe corcct aBMr was (c). rhe boton tine in aBwd (e) w atsonuturieally corect bul o.ly becabe there was an enot in ad.thion. rhe endrcsun of he calcularlons in le) shoutd h.ve b@n s150p0o, fhe tnpo,lantthing to rctunbet here js that faxabte Incore equar Assessable ,rcore ressDeductions. Non Assessabre o, Ex.npt tncone is not inctude.t in4ssessab/e /r.ou e, A tax ofset is aot a deduction. A .te.Juction is subtt.ctedttud assessab/e lncore to dot.rhtne taxabte incore. A kx ofiset i.subtacredfrcm gro.sta\ otho ke payabre to detetninenet tax payabte.

('O. y avaiab e to taxp€yers who have some fore gn source ncoms.

slbl€cted aft€r ta! othetuise payab e has been delem ned

always lppied aqalnst rhe ncome oi a taxpayer grossed up for foreign$urce income and lax pad by compan es on dividends.

Sublracted from laxab e income betore appy nq th€ re evant lax rates.

Onlyava iable to laxpayerc who receive divdends on shares.

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70% of sl udents . nswe.ed this question correcfly.

Tha corcct answer was (h). Both the forcign in.ome tax offser retet.d toin la) and the hankinq credh ta, of8er retetred to in F) ate exanptes of taxoft'ets but ther are not the onry c,anptes or tax oflses. Answc, tc) is atsoinconect as, 4fthough tax ofi.ets arc son tines apptied b th6e sjauations.th.y arc not atwys applied. Fot etanpte. sone typos ot toGign source

rcceived in rclatloD to thgtu,

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r IicT 2?1t Multlrl€Cholcc lcn. SL 2003 LtcTtT5r Mu tipleChoi.eTen.Sl :008

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v

Wh dr or lhe rollow ng was nol sbted 1o be a reev:nl faclor in delerminirc whelherth€ Ofi was Lncome in Stull vFcI

(a) The racl thal the sol ctor had aways charged full profess ona fe€s for h s

(b) The r.ctthal the donor mad€ other glts atthe sam€ time.

(d) rhe dono. s morives

dl ."'rc hrrr'.qr^as€ou! lolh..d(6or'.F.-^.Fsoo.o-ob.

(e) rhe lactlhatlhe s ftwas unso icr6d and unerpe.red.

60% of sludents answercd this question coiiectly,

fhe [email protected] @s (d). AII the othet factots wete henti.ned as beinsrc|ev.nI in detetnlnhg whethet ot not the gfii was ordlnary(d) was nor mn oned at al and in fa.t tho gih horc no apparent rch o6hip tothe valu. of the saic.s ptovid.d W S.ott- fh. gift was probahly grGsly inercess ot the vatue of the seNices th.l S@I ptovided.

.r.-ouEsnoN sEvEN

n arcrl vFcllhe paymentlo Mrs Brenl was nome b€causel

(a) Sh€ €nstructively rec€iv€d itwlren she *id Donlpaym€

(b) Lwas a Aa n fion th€ pbpedy thal she had in her siory

(:y . nd " rcrdd n',er .F,.rd r e p! id.d in .Ll 9 \. .o 1

(d) l was a prcducl ol heremploymenl by the newspap€r and TV slaton

(e) ltwas a Aa n from her business oflurninq hff Ial€nl to.c@!nl fbr profrt

Mosl stud.nts answered this qu*tion coiiecdy.

fhe c. ect answet Ms (c). Mts Brcnt had no opedy in the sto.! becauseshe didn't have .oMight in it as she didnl wrile it. she was not an enployeeof eithet rhe ne*papet ot the fv stati6h. This was the fi6t aid onty lime thatshe did 3onething tike this .nd therc was no finding that she was t' t e6/srress of lelrlrg storres ,el atone lurning het talent lo account fot profil.Ahhough thete waj discussion of lhe iss@ of eonstuctive Beipt in the asethat was in rctation lo the batanee ot the anaunt payable, fhe question wasdneated al the anount paid to he. the paynent to Mrs Brcnt . The recejpa wastabhle as a rcwatd b. the seryic6 she Novided, nndy t6 inq hq stoty to

,&tiiesrror,r etosr

Assume rhat lhese we€ th€ facls n Whilatds Baach:llislori€ dosl olthe land lo the company $100,000va ue of th€ and when I was venlur€d n the solted veitu.e bus ness aflerlhe dhange ofoM€rship or the company $200 000Cosl of intemed ale works a.d ofsrbdivson $500 000Total sal€ prc€otal lols ailer subdivis on $5 000.000

The efiecl ol th€ Hgh Couddecis on adoptnq th€ lax accounl ns agreed by counse

(j,."-.prcrro-$.00 000 m,. or 6 c i200 000 .d .6 or d d 4L cn

d w:s ventur€d n the busifessi = 54300000 was ncuden in Wh lrords

Baach assessabLe ncone.s odinary ncome bul$l00,D00was a capila

oa n and was nollaxed

(b)The net proft rrom lhe venue. n€mely 55000 000 (sae pEc€eds) l€ss

$500000 (dosl or nle.medale works)l6ss 5200.000 (value orlandwhonil was venfured n lhe busn€ss) = $4.300,000 w6s n.uded in WhitfordsBeaoh assessabl€ income as drdnary income bulF100,000was taxed as

(c)rhe n€t prorl om lhe venturc namery $5,000,000 {sae proceeds) ess

$500,000 (cosl ot lnrerdedalo wolks) less $100,000 = 54400.000 was

included ii Wlr lfods Beach assessab€ incom€ as ord narv n@me

(d)The gross prod€eds ol llre see, namely $5000.000 we/6 in.llded in

Whlfods Beach as*ssab€ ncome as ord nary ncom€ Whlllords

Beech was a so alowed a ded!.lion lor lhe $500,000 dost ol inlemedial€wo Gbulwesnolalowedanydeducllonsforthecoslofte end

(e) lhe trading slock provis ons included the gross proc€eds of$5.000,000 n

Whifods B€ach s assassabl€ income and Wh lfords Beach was. rowed

.d.du.rontrndersB l tdthohstorcalcostotthe and

30% ot students answer€d this a'estion corectlv

fhe cnect answor was (a). fhe dfiference between the Voceens ol sate ands venturcd in the buskess was l3mble undet

the thq equivalent of s6-5. Alsthlia did not have a qenenl capital gains ta'atthe ne the $1oo,ooo being the difference hetw@a hislorical cosl ahd the

s connitted to the busk6s was a ta' tree

d Egenon WahLnon tne anolnls €c€iv€d by lhe hlher were:

(a) Texab e under lhe then equ valani of TM97 s6 5 as a busin€ssqan.

LECT 275t Mulirpi! Choice Tes. Sl 1003 Nrulriple choicc Tesr. s! 2003

As shared on...

G' the payhents wete able to he chahctetised as the purchase Nlce of a capiElTaxlbLe und€r (h€ lhen €quvaent ol TMST s6 5 as a perlod c reciplbecause no ixed gross sum was pavable (o lhe lallrer lnder rh-" contacl

N.l'r,br€ underrhe rhe^ eauva enl of 1TM97 s6-5 as thev represented(he sale price lor a apilalassel

Taxabe under the (hen equivalent of lTM97 s6_5 as a gan lrcm

'e 61cou,a an o J65orrallhe ourchase or.e ol an annuit

70% ot srudents answered this question codecllv

fhe cotect ats@t was (b). Although the fathet hznsfetred th' Fopedv to th'.iii n etcnanqe Ar ne ,iqat b iceive thc pavnents the p'tncipte th't was.^i"a ;" o" i.. *". oai ttt

';; d. une of a caoitat.seet, as no ftxed srcss sun w's as'edatntbta honrne contaa. ror exinpte it was inpossibte to knos how tons the t'thet wttdfi@ .fter entedig into lhe agreemenl

QUESTIONTEN

ln Faftsay v /Fcthe a ounts paid bv (he denlisl who p!rchas€d (he pradice weG

(a) oeduclble because thev €presedled a lixed gtuss sum pad io acqu € a

>se'.rolc ' '@n. oF o ie6 r\'/ w' e a ficd

orosrq,m Fre8ed on lhe sale ota.aeilalassel

\ D.c .o"@ a "oloo:' ould /"\a.@rd'nq lowha rhe prc[ls oflrre bus'nes5w€re

'ii.*. *"-"0r" "",,. "' *c.crv oerc' reo 01 p!r'ro in'rar1 e' ! r'' vs

v qross sum srrted in thednxacr would be pavable

(e) None ol tre above.

20% ol srrd€nts answeBd thls qu€stion correctlv,

fhe corcct answet w.s (d) Although we Each this case in the contett of.ssessabte lncone lhe.ritial i*ue in the case was *helher the dentst couldobtain a deductoo fo/ the payhen,3 The cold nonelhel$s applied lhe sane&si, ,n€ ,?xed grcss sud l;. a s it awti.s in the lncone context bul stetchedi h h. timits. Alrhourh lhe qi.e under the contact coutd ary dccurling to;h"

","fiE "t the bus;ess, the coud tocussed on lhe hct th.t. 6 the event ofdet';uh. the ti'ad qost sun seted in the conxa.t wout.t be p'vahte Hen'e

LLCT 2?5] Mulhple Chol.o Tcsl. Sl 2003 LECT 2r5l MulL p e Cho(e T.e. Sl 200R

As shared on...

,r'-ouEsroN ETEVEN

ln Federrr cor-" lhe Federar c.!d hor.rh,r

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a ae'e s'r o, tr'10,d sa,lbe au<drlF"^". op ,i./of o ? be *Fe- FedF d LotFddLc\'.Fi

(b) Tlre .eceipt by Federa Coke was income be€use it mutd have be€nincome if Belambi had received il

(c) The receipt by Federa Coke was incom€ to Belambibecause il wasconslruclively €ceived by Belehbi

(d) Ihe payment to Fede6lCoke was deductbte ro Le Nickt€.

(e) Thal rece ol bv Fede.al Cok€ was ncome lo it as it cosen down ils

Mosr{ude.ts answer€d lhjs quesllon cotrectly.

The corect aBwet was (a). fhe key point of the ca3e ls that the cha@ctet of areceipt depends on hs quafttes in rhe hands of the reciptent. what itschaactet hight have bee, if had been [email protected] by anothet aaxpayot (such .sBe ahbi) was htetevaoa, Son. .onnentatots point out ahat, if theComnissrorer had assessed Be anbi it woutd have been incone to Beltanbias a constuctve rcceipt but the Connissionet did not do this aad the pointw6 not at issue in the a.e.

lfan amounl s ord nary indome to a recipent

{a) ltwil never beforeiqn source ndone

(bl ll may.lso be included in rhe recip ents ossessabe in6me va astatutory

'ncohe provis on but trre ru es about ordinary income wt prevait.

The key d srinction belween ihe facts in Ro/s Ro/ce y Jetrrey and th.sein Ma air vEvans MBdicat Supplies was:

(a) The taxpayer n Ralls Ray6 v Jetney \|as pi\tig up an ex slin€ harketwhe@as the taxpayer in Morirdy v Fvads Medl.at Slppres was nor

tbi, -1e ?.G - n Mana-' \ rt--. MeoLr ,rodFs qd o,,no -p a.v a.,sr,g -e,.-t 1,.r.'z.pd.6i,1Ror.po,!d Jdh€. ^d.d,por 9

m.*els were il was unabre lo pmdue iGef

(c) Therc was no pdvity ol conlract berween Ev.rs r'redical Sdpp/tes and rheBumese govefrm€nl.

ld) The taxpayer in Ma ady v Evans Medicol Srpp/tes wes expoirng amarker where it was uiab e to prdduce tsetfwhereas rhe taxpayer ii Rol/Rolr€ v Jetr@y was e vina up an exislina ha*ei

(e) None ot lhe above

Mosr studenG answered thisquestion c6rectty.

fhe conecr ansret was (b). the distincton dawn w.s bet eeo exptoi ng .n.set in darkeE wherc you Neviousty have not been abre to prcduce (Ro sRoyce) and being conpensated for the toss ot an exbttns na*et tEvansItedlc.t Suppties), fhe na*et w.s significant enough to Evans MedicatSupplies fot cohpensatio, f.r iis ,oss ro be charaderised as a c.p at re.eipt.rhe orhet point to note about Rotts RoWe v Jeffrey k that the .hatactq of anasset can b. changed because of the circunstarces of lts rcatisation, That isthe patenb and t chnlcal knowledge that Ro|s-Royce pdtted with had ontybe4 c.pit t assets ol its uK nanufacturi.g opehtions hut by exptoitins thenin the My lhey did they werc corctdercd to be revenue assets to sone extqt,

fthe lacls in Cook r She/de, were (o omuraga n today:

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Mosl stud€nis .nssered rhis question correctty.

rhe curcct answet eas ld). answet (c) was atso p.tti.Iy coaect in the sensethat the sane lten can be included in a reciplenl's assessahte ircone unddboth a s6tutoty ptoelsion and as odinary incohe btt answr (d) is norecorrect as it goes on to s.y vhat happans in this sluation - that is, generattythe rules about otdlnary ihcone prevail.

ll may aso be incuded n the recipienls assessabte income via aslalutory income p6v son

lfitisarso ncuded n rhe r€cipenls assessabe ircofre via a slarutoryinomepovision lhed gener. ry the statltory incone provision w tprevat.

llw lalways beasscssbre ncomeeven ifilisexempt ncone

(b)

( ta / t a,o .ro,.' ano -lA n. o' o'1J'o rouo de.errne hdr rne,"tue opaoroC@ladc"d"

^asrrparsp'St ," ue o.r'eholldays d sreo.rding lhe facr lhar the hoidays we@ nol t€nsfe.abie reducedby any rhe non deductibte enlerrainmenr perceniaqe and any amounlremainlnq woud be rexed as a business gain under tTM 1997 s6-5

The przcwourd belaxen under lTM36 s21 aid s21A in combiarion

lTM36 ss2r and 21A n combinelioi woutd determine rhat rhe vaue ot lheconsideralion pad ro Cook an! Sherdei was (he ams enqrh veue of rhehoridays dsegarding rhe facl rhat lhe hotidays were nor rransrerabte andTAA07 s15 2 wourd rax lhe anounr so delermined

1TM36 ss21 and 21A in combinaton woud derermine that rhe vatue of theconsideralion p€id lo Cook and Sherden was the arm's teigth vaue ot the

Nlu l tle Cholcc Tc$. S12003 MLI'inlcah,,i.c leq. Sl 2UUB

As shared on...

hoid.ys disro!ardna the fa.r that the hoidays werc nor transfe€bre end theamounrso delemned wo!d be(arcd as a businessgain und€r TAA97 s6-5

(f) Tho solt drlnk manufaclu€r would pay Frnge Bon€lits Tar on at the rat€.146.5% on lhe qrossed up laxable va ue ol the holdays

,10ql. ofstudenls answered this qu€slion cotrocdy.

,he cotect answe. was (a). fhe idpo anl point to note here is that s21aods21A ate valuation prevkions rol asessirg prcvisions. fhe oths inpotEntpoint to note b that .21A is only concsed with non E bustness beretls. /tCook and Shetden the non convenibilw ol the holidays lnto cash prcrentedthen lrcn helng tated undet the then equivzlent of s6-5. The L& th.t theactivities ol cbok and sheden eerc in rcspect ol hen owa in&pen.tenlbusiness activiti€s and werc not in rcspect atry enploytunt by ot setuice lothe soft dtirk nanufa.tutet @nt lhat lhe hoti.hys werc not assessable tothem undet the then equivalenl of s1r2. fhe cotubine.t eEe.l or ss21 aad 21Ais that the holidays witt be valued at thet artu s lenglh vatue dErcgatding bennon tansfetabitity. section 21A then saes on lo rcduce the vatue by a',yamount th.l reprcs.nts non dedu. ble enlet€hn.nt .xpenditurc ro the payerA. Cook and Shsden w.rc cl.a y in business th. valEtion ru|. rculd thenhav. ov.rcone tha only rcton why they were not ass*ed undar the thenequivalent of s6-5. llence they would be assessed under s6-5 or aryramahing amount attet vatuing the holidays at theh an s length anouot ardrcducing that valuaion hy any non deductible entertainnqt conponent.

l't OUESTION FIFTEEN

Oaze lndustes Lld s an Auslmian residen(companywilh fourdvsons These are(i)the srease divsion (i)lhesumpordivson (ii)the landrrldvis'oniand (iv)lhebEke tlud divson Allthe sales oflh€ b6k6llud dvsion areton dis(ribulon ofFasl Slop Brake F ud a product manufaclured by a Ch nese company FromlJuly2000 unll30 June 2009 Ooze ndustres Lld has h€ld thesore ALsrraran dslributonr ghts for Fasr Slop Brake F uid. Sal€s fiom the b€ke fud dvson €presenl5% olthe revenue ot Ooze lndustrios Ltd On I Juy 2009 the Chrnese company canco sooze rndustdes Lld s d strbutro. rjqhls lor Fasl stoD Brake Flu d As a rcsulr oozenduslies Ltd decdes to cos€ down ls brak€ nuid division entir€y. The Ch ies€company pays Ooze lndustries Ltd: lump sum of$500,000 as comp€nsalion ror theross of ls bdketluid divison. Thecompensation paymenlwolld b6lkelytobe:

(a) AapilalreciptloOoze nduslr€sasilwasa umpsumdalculaledwlhoutreturence to Ooze ndustes ostsal€s ol brake iluid.

(b) Taxedassiatutory ncomeundersl5-20asabyaltyunderlheordlnarymeaning ol royalty whch is not incomo und€r ord nary donceprs

(c) A cap ralreceiptlo Ooze ndush€s as mmponsaton for the oss ofastructural asset be.€use diskibu106hLp accounled for all the sales of th€bEk€ flud d vision

(d) Tax€d as odlnary income be€use il was cohpensation for oss ofsales of

^brrL€ 1-d rl F ser rh€ .,(e,lNoned he

'b.veLess than 1ovo olstudenls answ6r.d this quoslton coiiectly.

fhe host conect answer Ms (e). I the sales fron the bruk. fluid divislon hadep@ented a hote siabte propodtutn of ooE lndustrias Lrd's sares f,enanswet (c) woutd have been co.rect as tt was wn rhese sates reprcsentinsonty s% of totat sats lhe principte in alied Mitts (narely that you have to takeinro accoanr rhe rckttue significa'Ge or t e asser !o &e bust€ss as a whote ]ndetetnlnlng whethq ot not it is a stuctuht asset) @utd be rctewant. Thiswutd man ttnt note of tho auenatives (a) to (.1) werc M6l which heansrhat atGnative (e) is the nosr cotecr answ6-

-{ ouEsloN srrrEEN

Und€r the fi6t strand of rels 6dtnq n Mrcr Enpaiun:

6

Alga ns fmm commercaltransaclions enlercd iolo by laxpayers who areoth€Mise in business w r be ordrnary income

interestpayable over mo.e lhai oneyea. s onydeduclble in the y€artowh ch il s Pbperly referab e.

Ihe chense D the share ownership ol lhe @mpany was a c lcaevidentary ractor in establishing thal lhe purpose of lho company had

A proft from a lEnsacton outslde tho ordinary colEe .l the laxpay€lsbus ness may be in.oma t the raxpayer had rhe nrenrion ol pror I makngby the (ransaction lmm lhe nception .l tho thnsaclion

MultlplcChoicc ld( Sl 2003 Mulrip e Cho ce 'ei.

Sl 2008

As shared on...

Most srudenrs answer€d this questton cor@cuy,

fhe corcct answet was (d). fhat is ir a trcnsaction k oLtside the otdinatycource ol a t xpaye, s business lt nay stitt be incone ll the taxpayet had thehktton of pt'fit making by the tansaction fren its tnception, Answt (a) ktoo br@d to be conect and wuld not take into account cases tike wes$ietd.

Ia- eueslor severreen

lTM97 s15-20 rzvpi

@{b)

Amolnts lhar are rcya l€s under the od nary mean nq ot rcyaty.thal a/€

A.oL 'lq

{ ar d e 'o\ari."

o., u

Amdnrs lhalare rci Dyallies underlh€ ordinary meannq ofhyary.bul\ara..o.dna\ '.oac nd.r'hFod. ronp.op.n p.- pd

Amounrs paid to non r€sidonts thar ae rcyattes wrhin ihe exlendedme€ninc of'my.rly in TM97.

A -o.n s odd ro -on..nde- s - d a'p no. ath "r" o d -"D nr"n q o

'ov.lv buL Lhar are nol 0rd na^ ncome

M ost stude nts answered th is qu estion cotr€ clly_

rhe cottect .ns@t was (a). fhis rolow ftom the |'oftts ot the prevldM irsefi,fhd is h taxs .noun! thar ae rcydfiies undet the Mcc."iv neanns ot'totElt'y but which .ft hot otdioary tncone. Royahi6 undet the otdi;atyMnlng rhich are otdn.ty ircome ate taxed tndet s6-5, fhe $econditionafor the opehtion ot s1r20 tuan that there can onty be retativety fea ir anv,receipb nhich a.e tax.d undet it. L is inportant to note that the sktutotydelinition of 'rcyafty is not r.levant ro. s1r20 putposes. one area where thest.tutory doflnttton ot toyatty is

'etevad is rcyahy w hhotdins tat pay.btc

fi4 a rcyalty is patd by a .esident ro a for.tsn reeide .

*r oUEsTloN EIGHTEEN

DrOOer Lld. an AusrGrian resdent company, has b€en nvo ved in @d mnnqoperalions tor many yea6 Oigler Ltd devetops a new syst€m (lhe ,Dtg Deepsyslam )for lhe min nq ol coa. The unque tealure ol lhe Oiq DeeD sysl€m ia that ildoes nor invove ex€vation. DiOOe. Lld enterc rnlo a @nl€cl wirh Oz Mne Ltd-ndF w !h rag e-. ro o-o,'de tu fd.on aoo

't.ho Do Deep,yser to o.Mac

system. D gger hes n€ver tod anyone aboul rhe detar s or the Dig Deep syslempreviousy The rece pls bv D qoer Ud wi be:

(d ln @d d - b itol e u.oc. !b.1 r. o€ rDvbusnessoa,n oras a r€w:rd r"'."^.".(b) n.luded n assessabe dcone undersl5-20 asan amount that is a.oyatry n

Iheodinary meaning bulis nolordinary ncome

{c) Noltaxable ro D qqeras il snotl ggered by the exer.ise ota rohl

ldl Td,"be o Diaq"r 'rd€

s c.ro ". i.. ade[nironor royaly

(e) None or lhe abov€.

i\lullipcChons en S 2003 LEG t 2r5r \'Ttrlrflr Ch, rs lcn. S 200q

As shared on...

30% ofstudenrs answered rhis quostion corEc y.

fhe conect answt was (a). fhe racts are very sinllat t6 sheri', cudon Minswirh the difier.nce lhat the laxpayer is an austatiai resident mrhs th.h aCAnadian rcsident. Sheu,tt G'rdon Mioes is authdfty that the paynenE wsenot rcyatties hecause they @te not in rcspect ol the exercise of a dght.Rathet they w.te p.yments for the proision ol lnfornation_ As a CanadianNident the Double Tax Agteenent betwen Arst@tia and Canada neanl thatsherilt Godon Mines @uld only he taxe.r 6n Austmtian some I'usrressptoftts if they wde ad.ibutahle to a petnaneot estabtishnent that the conpanyhad in Australh- As Sheftitt Gddon ttinos djd not have a p nanentstablishment in Australla h coutd not be taxed on that basis, Ot the olhethand if the pawents derc rcyatties, at the rlne, a rm of n.r b*iswithholding tat wouid be rcqui.ed to be deducte.t lron then by the paveLThar js why the cohnissionet aryued that the payments rere rcy.hi6. tnDigge/s case as the Expayar is an Austatkn resident thar is t, business andis providing a setvice to another taxpdyer it is tikety that tbe paynent wutd b.assesebte t6 Disset un.tet s6-5 as otther a business gainseNic6. Myet Enpoiun shoutd neaa that the f.ct that Digg.r h.s nevetdbne ahis hoforc w||l nor prcvent the .ecejpt fron being drdinaty incone. RotrRoyce v Jetuey should ne.n that the ract that the tntotnation has previou3tybe6 a @pital asser of Digget .toes hat prevent gains lrcn s e'ploitation trcnbeing otdinary incon.. fhe p.ynents wi still rct be 'rcyatties urdet theddinaty neankg af layaky' fot the satue reasons as wrc stated in shenj(Cotdon Mines. Thaa is the paytunts rete not in respect .r the s6nt otexercise ol a ight in retation to propett that Digget has. Not th.t the slatutorydelinhion of rcyafty, which woutd he., that rcyahy withholding t.x woutd bepayable if the actuat facts i, sherjtt 6ordon Mires occutred .gaih, is notrclevant tot elthd s6-5 or s15-20 putpo*s.

QUESTIOII NINE'EEN

Drew s Vc€ Chance or of Euphoria Univers'ty pty Lrd (a new prtvare un vebrty nlhe Northern subuds of sydfey). Euphora univercty pty Lrd s tak€n ov€;bys.ienta Ltd (!n AuslEtan res deit company) Drew is irnhappy aboul the rakeo;and lhreat€ns b res qn fmd his empoyment as V€ Chancetor. Scienta Lrd toencou€ge DGw to renain in h s pos tion as Vce Chancetor ol Euphora Un verstyPly Lld agrees Io pay h h an eddronatannue bonus ofgl0O.OOO and to pbvide hi;wlh a new B[,lW each year wilh a lease va]ue of 9200 OOO. The provsion ofthe

(a) Od nary n6me to Drew as a reward for seryices provided n retation bh s employmenr by Euphora Universry Ply Ltd.

(b) A non cash busne$ benefit to Drew whtch w I be laxed ar irs markelvalue under s21A.

(c) Not subrecr ro Frinse Benetits rar as Drew was nor an enpoyee or

(d) No( subj€c1lo Frince Benenls Td as Drew does nor receive satato orwaqes iiom Sc enua Ltd

( G) j Noneo he abov€.

30% of stqd€.rs answered this qu.stion corec(y.

fhe @rect ansEt Ms (e). fi th. ptovision of the cat had been thn.fe,abtethen it wuld have been otdinary iicohe to Drcw but I the cat is pravided byan a*ociate of Drew's emptoyet in respect of Drew's enptoyment it ts nostlikety to be a hinge benelil which woukJ nean thaa jt wolt.r bnon exenpt ihcore under lfAA 1936 s23L_ fhere i. no evjdence that Drew ish business which wil nean that ss21 and 21A in conbinaton wil not apply inhis situation to v. tue the caL Fot FBT putpose s it js hreh4vant that Drcw is notan enploy.e of Scientk as long as the benefrt is prcvtded by ar asso.i{e otorew\ enployrent ln rcspect ot Drew,s enptoyrent wjth Euphotia UnireBityPty Ltd. CorsisEntly with Dean & McL.., Dew is prcbably in rcceipt ot sal.tyot eag* trcn scientla (which woutd ftan that he would be a. enptoyee ofscientk fd FBf putposes) but in any ewnt ||hethd he is o. k not is ndtevantif the prcvisiot is by an assocraie of hts ehptoyet in respect of that

fthe facls ii Payre we.e to recur today th€ mosr rikey tax consequences woutd be

(a)The frequenl ilye. befenls woud be assessabte ncom€ to pavne under

(b) Ihe ams efglh vatueofft€ frequeit flyer b enet rs woutd be ncuded nPaynes assessab e income und€r TM1936s21A

fl 'lriplcO

un. l<{ (l luu3 Ltct )ri Mu lpleChorco Tc\i,St 2003

As shared on...

(c) KPMG wou d have been subject b rnnge benerIs tax oi rhe taxabte va ueof the ifequenl flyer benefls od Ihe bas s lhat ih€ benefil uas provided byan associate ot he. emptoyer to an empoyee in respecr of herefrpoymenr Because KpMG woud be subi€cl b FaT on lhe ben€titslhey would be non .ssessabte non exempr income lo payne under |TAA

(d) KP[/C wou d nol have been subjecr lo tnge benetils lax on rhe taxab]evalue olthe frequenl tyer benefils bemuse payne was n @ceipt of satary

o rrporre lor.d^ dr TAA'd10s ,Aqouonol appry to the tequenl flyer benefits as lhey wore ndl bus ness benefihKPMG rculd not be subi€ct 10 tinge ben€lib lax on lhe lrcquent fryerbenerlsastheywer€ norprovdedto resp€clorheremploymeni

Moslsludenrs answe.ed thb question coiiec{y,

Ihe corcct answt eas (e). pryre wo!/d ror be assessed un.rer s1S-2 for the\ane t€sonasshe Ms nor assetsed undet th. dlcn equiv.t nto!s15-2inrhe

business and hen.e s21A eoutd not .ppty bvalrc then as lt onty arylt s to 6usiness berei?rs, XPMG would Dot be a;t;jectb Faf. fher. w.s no suggestion i4 the case of therc t6ins an atange;enth.treen KpMc and eantas tot the prevision of beoef^E which woulitflggerthe opehtion ol FBfaa s'4a,

^luh,pl.ChoiceTe!. St 2003

As shared on...

f

MULTIPLIE CHOICE TI]ST SI 2OO9

DURATION:40 MINUTES

READING TIME: 10 MINUTf,S

In each case choose lhe most cotrec1 ansser

Indicate rour an$\tr in pencil on lhe ans$€r sheet provided

Each qu€stio. is $onh one nark.

Cddidates nay bri.g an un annotated copy of either: CCH Core Td l-caislarion: ATPFundame.tal 1d LeEislalion: or Lcxh Nexis Concic Td Leglslatio. into the exanimtion

ElecLionic cnlcllato( nay be brought inlo rhe dahination r@n

Mobilc phones fray be brought into the exmralion roon but mNt be switch.d olt andmu$ be placed underyourdesk.

Fred onducts a l-la al butcher shop in Hu6tvire. He purchases 10 trho e sheep€€$eslor$l10each. Healsopurchasesl0 live sheep ior $ ss ea.h wh ich he slauqhle6 h msellHe bulcheE lhe sheep €@ss and the s aughteed sh@p inro wdous cuts such as chopsleg of lamb, shouder of lamb and so on. His totaleles eeipts lor the cuts fbF eachsheep €@ss aE $220 whl e tlre lolal sa es €elds nom ihe cuts trcm eacn s aughleredsheep are $220. Assume that F€d has a suffcjenl annua lumover to reOisteEd fo. GSTand do6 in lacl €s sler ior GsT The GsT consequences for Fred of rhese tGnsactions

(a) Al the purcnases are GST lree and al lhe sa es are GST fr€ as purchases andsles of t@d Hene F@d does not €e @ any inpd lax crediis on the purc$asesaid is not liable lor GST on hls sa es

(b) The purchase ol the sheep €rcases is GST f€e as a purchase of food Thepurchas ot the live sheep ws rol a purchae of lood and hen@ F€d r€eres annput lax credit of s55 x 11]10 x 1cy! = $5 for each live sheep he purchass.Ho@ver, lhe lnput tar credits €inol be €funded to F€d as h s sates a€ cST fce

(c) The p!rchase of the sh€ep erssses is GST rre as a puBnase of food. Thepurchase of the live sheep Ms not a purchase of f@d bul Ms inpd tared Thism€ns thal no GST was payab e on either of FEds puEha*s and henc Fred€nnoft4eive any ifpul tz; c€d ls A I of Fred s sales are GST f€e

(d) The purchase of ihe sheep ercasses s GST f@ as a plrchase of food Tnepurchas of the llve sheep was nol a puehase ol food and hene F@d r@Es annputlaxcreditol$55x 11110 x 10% = $5 toreach live sheep he purchases. F€dssales a€ GsT lree and afy ex@ss lipLl lax cEdits rh.t Fed has a€ €lunded io

(e) F€d re@ives an lnput ld @dl of $55l 11/10 x 10% = $5 for each tile sh6p hepuEhases Fred also re€ws an inpur lar credit ot 5110 x 1llro x loEq = $10lo.each shep €rcass he purchases. F€d is IabteforGsT ofs22ax 11I1a x1oo =$20 for the tolal 4is of each shep caEss and $220 x 11llo x 105 = $20 for lheloralcul6ofivesheepthalhe*ls. Fred otrsets his ioia npll ld credits ot$5 perliw sheep and 110 per sheep eMss against his GST tiabitiv ot 520 per tve sheepand $20 per sheep €@ss and €mits lhe ba ane 10 the ATO.

cored .nswer rs (d)

THE UNIVERSITY OF

NEW SOUTH WALES

SCHOOL OF BUSINESS LAW A}ID TAXATION

LEGT 2751 BUSINESS TAXATION

ir@i'lffi+6

As shared on...

Ann e and Jrne are both residenls of the newy independent country Euphora Annie had a

tarab e n@me in lhe year end nq 30 June Y1 of550,000 ufilch @s who y dedved lbm her

salary as a teacher of Engllsh as a se@nd langlage Jane hrd a takble in@me in thesame year of $100.000 which @s trholy deived lrom nteEsl in Euphoran banks underthe Euphor an lax system salary s taxed al f al ru te ol 25% frcm 51 vlhi e inlerest s tded a1

a rate of 100% frcm $1. The Euphodan 1ax sysled is:

{a) co$isleft wlth horzontal equ ly as I iaies S1 of interesl n@he d fieent y frcm iheMV il laxes $1 of salarv income

(b) li@is stenl lith vend equly as it laf,es $meone on a lorer nmme at a higherrale than i lales someone on a h gher n@me

(c) cons stenl wlh veni€requity as ii laes someone on a h ther incone at lhe samerate as 1 taxes someone on a orer income

(d) nconsislentwth vertcalequiry as I laes someone on a rorer in@me atlhe same€te or a hgher rate as it laxes sofreone on a high$ ndme and inconsstenl wilhhonzontal equly as I t4es inlere$ nmme at a o@. €te th:n t taxes elary

(e) nconsisle.t wlh honzoniai equ ly as it laxes iiterest in6ne at a lo@r rate than Iirxes salary income bul @nsistent wilh veni€l equ ly as t inq nteresl a1 a o@rEte P@froles savings

assum ng thal lh€ nleresl on the oan used to acqu re lhe lvlan v pmpedv ls a w id

deducrionforausteianin@melaxpurposesMacolmslaxablencomelorthevearending

(a) $1c0,000(beinsthesumof alhslnmmeilems)less$r!,000(beinqhs nterest

d€nuc1€ns)= $13o.ooo

(b) $170 0oo (be ns the sum ol al hls lncome items olher than tlre n@me qempt under

s23AG) ess$1o,ooo (being his n1erest deductons) ess his tax ofisel ol $30 000 ior

the dvidend € culaled as $7o,ooo x 30/70. Theend Esult of lhe *c! aiion wil be alaxzble income of5130 000.

(c)$r7O,OOO(bengthesumolal his income lems oiherlhan the ineme dempl under

s23AG) l6s $10,000 {belnq h s intered deductions) = $r60.000

(d) $r7oo0!(beinglheslmoralhisin6me lemsolherlhantheLncom€exemptunder

{e) $rso,ooo (belng lhe sum or all his iicome items) es $10.00c (beins his interest

deducions) Les his lax oflset of $300c0 tor the dvdend € dlaled as $70.000 x

30/70 Theend resu l ofthis€lculation wll be a laxable incomeof$160 000

corcct answ€r is (c)

Annie, an AuslEian resldenl purchases a va€nt block ol land at Leu€ Nsw on 1 Julv

2OO7 for $TOO,OOO The @nveyancing costs assiated wlh the purchase rere s2000Ann e borowed $50 ooo rrcm Bi! Bank Ltd {an ausl@ ian €sldenl bank) at 5q/" Io ass st ln

iunding lhe purchase ln the year ending 30b June 2ooe Annie paid nlerest on the l@n

fom Big Bank Lld ot $2 5oo ln lhe sme penodAnnieaso pad ound ralesol$30o0in€sre.l of the LelE pbp€ny The redu@d cost base ollhe LeuE popenvbAnne as at

(a) $100,000 (bens lhe purchase pnce) p us $2000 {be na th€ conveyaicing cosrs) pus

$3000 (beino the muncll 6tes) = $105.000

(b) $loo,ooo (benq the purcha$ price) plus $2000 (bens the @nleyanonq osts) =

(c) $1oo,ooo (benolhe puEhase pnce)pus $2000 (beinsthe conveyancing @sts) plus

$3000 (beng muncil €tes) plls $2,500 {being nleresl paid io Big Bank Ltd) =

(d) $1oooo0 (beins $epurchas pd@) plus$2000 (benslhe @nveyanc nq cosrB)pus

12.500 (be ng inleest pad to B g Bank).

(e) $100,000{beinslhepurchasepnce)plus$2s00(bens n1e€slpaidtoasBank)corccl answe. is {a)

conecr answe. is (d)

QUESTIONTHREE

Malcolm is a n Auslralian €sideft who had lhe lollow n g n mme and ex p€ n ses for lhe yea r

Exempt income under ITAA s23AG for 91 days toreion sewlce

Sa ary irom B g Bank Lld (an Austra ian €sidenl bank)

lntercst irom Big Bank Ltd

Rent from nv€shenl properry al lvlanly NSW

Uniianked dvidend frcm shares in No News Ltd

nte.est on oan usd to acquire Manlv prcperly

As shared on...

Assume ihal these we the facls d Wifatds Beach

Hlsiori€ €stolthe and to the @mpany $100.000

Value of the and when it @s ventured n lhe soaled venture business alter lhechanqe ol owne6h p otlhe company $200.000

Cosl ol iniemediate @fts and ol subdiv sion $500,000

Tola sab pnce of all lors after subliv sion $5 000 000

The etrecl oflhe High coun decision adopt ng ihe tax a@ounrna aqreed bv@unse in the

(a) The nel p@fl from lhe renlu€ namety $5000.000 (sate pF@ds) ess$500000 (cosr of intemediate Mfts) ess $200 000 (vatue ot tand *ien itMs€nrured in ihe busness) = $4300000 was inctuded in wtiriods aeachassessab e income as ordinary ln@me but $100,000 Ms a €pila aain and was

(b)The nel prort om the venue namely $5,00c,000 (sate pb@eds) tess $5a0,000(@st of nlemeniate M €) ess 5200,000 (vatue ot and when it Ms reniur€d inthe busness): $4 300 0oo was ncluded in r'!fi fords Bech assessab e n@measordlnary jnmmebut$100,000waslaxedasa€piia qatn.

(c) The nel prolir trcm the wnture namely $5 000,000 (sate prcceeds)tess $500 000(cost of inlemediate w*s) less $100000 = $4,400,000 Ms incuded in!4,hillords Beach assessab e ii@me as ordinary income.

(d) The grcss prc@eds ot lhe sale, nahe y $5,000 000 @re nc uded n ltfi lfodsBe.ch asessble in@me as ordinary iicofre. lthinords Beach Ms atea owed a deduclion i' ihe $500,000 @t ol niemediate mfts blt was notal ored a ny d€ductions for tte @st ot the and

(€) The tEding stock prousions included the qrc$ peeeds of $5.000,000 tnWhtibrds Beach's.ssessabe n@me and t hlfo.ds Aeach was alto@d adeduction unders3"1 tor the h srori@ @sl oflie taid.

correctanswer is (.). Nore rhat at lne time ofihe decbio. Aust6[a did nolhave a gene6l capltal gains td.

A lax d ffeB irom a user chaQe n that:

(a) A person pay ng a usr charge muld be p€paEd to pay tor b€nefts to societyas a whole whe€.s funds raisd by ldes a€ noi appljed to pan cu ar g@ds orseru es pmv ded by the oovemment.

(b) A user chaqe s ony ever appied to goods or sefri€s !!heE particutar use6€nnol be exc uded frcm beneft ng

(c) A user chaae s apF ied arblrE ly ln @*s ol ehergency v/hereas a td isapp! €d systemat e y a nd a@ording io p redetemiied pnncip es

(d) A usr charge s app ed to a panicotar qood or seru€ suppted bV the

(e) That spices such as health and educalion, shoutd be povided by govemmentas parl cular usrc €nnor be qc uded fbn benelit ng from them.

corEct.nswer is (d)

QUESTIONSEVEN

ln arerl v FC7 the payheit to Mrs Bent Ms n@me be€use:

(a) She @nsttuctively BeiEd I shen she eid Don t pay me'

(b) h Ms a rwad for seNt€s lhal she pbvided in leling her story

(c) I I was a qair trom rie properly that she had in her story.

{d) t Ms a prcducr of her employment by the neftpaper and Tv station

(e) ltMs again rbm €nyins on herbusiness

As shared on...

--

AUESTION EIGHT

h rqe/an waroLnol fe aa. {s e4 red b/ L'elt'"' @ P

a, Ta^aoe uroe' lhe rnan eq. valF-rcf lAAq sb-5 rs a p'-@c ?cau bea-sanol.eoq'osslur waspaydbe orF ilre_-_oq lqeconmc 4th h'sons

Nor taiable und€r the lhen equivalenl ol TM97 s6_5 as lhev represenied the

sa e prie for a €p 1al assel.

(c) Taxable u n d er the then equivalenl of lTM97 s6 _5 as a g ain lro m pmpe'ry'

(d) TaEble underthelhen elurvalenl of LTAA€7 s6-5 as a business gain

(e) Notlaxabe underlhe then equi€entofs6-5 becausethev €p€sented the

purchas pnce of an ainuitv

OUESTIONNINE

n Fedenl Cok€ lhe Fede€ Coun he d thal the €€ pl bv Fede€ Coke was

(a) heme be€use ( would havebeen n@me fBellambihad e€ven t

to A-e'eono 'nda 9r - oeau* ln6t w$ no o'\ $ o (onr5Rbd^a'nFede€ Co[e and L€ Nickel

(c) ln@me to Bel aFbi beeuse I was onstruct velv ree ved bv Bellambi

(d) Deducl be to Le Nicke

.F. No' -@. a o feda6 co a^ ooe<'o' hrr'eaae-erale mbursem€nL pnnqp e

QUESTIONTEN

Under lhe second strand of reason ^9

1n Mvet Enpdiun

_come lFe td$ve 'ao a '_

@se o! orol aa\ nq nfn t 'nleedLnlo th€ tansaci on

'n quesrcn

to A oo4 I o- a D_sadon ul oriv be'rcTe I FA rr\oave hao a D!4 nrli'sinE on arlhe I ne ra Eleran asserqaspu-ra!e!

[email protected]@r sonyd€dudlble nthev*riowhch I is proper y referable

l"r'ter@fe roroloen who$asro- ng Lle

,-. "'no

o.o"r '".'se-'Eles a non 4abeGoD 9d-

-x4 an as< gnnF-r of c rchr t" irp:-ty "r-,i,'"*'e r' -noe'vni coo'nv *"'w Ib' oro''aa icor'

as ompen*ron lor lhe tulure income

corect.ns{er 15 (s) lt is ihpoft.ntto @cognise thatthe qoestion asrc aboutthe

'seond strand ofie.soning ln Myet Enpo un'

OUESTIONELEVEN

".,, "" 1""t" i"" ""'0""

i"""stment banker who.esdes na manslon al Darins Port

rn"r i.u o*n" *uFa ro u .ong.se of $2 mil'on to Thal Bank Ltd Paul purchases a home

,dt a e."1" "'"

tr,' J"*",! ioo6 icr $3OO OOo and puah6es 10,000 shaes in That

"""" itc L" o,*"r"" *" o"'it tank) ror $30 pe' share on the same dav oi 1 JuLv 2003

",, -*"**, * "*

*.* - R{rem'o $l0oooo Folio -d re h'a-dd oc\ n

i* iooi ;","'-"' " .* ' --"Fp o eo c-o I de'pe?E nem or cah -o '

€ve't r har

J,"r irct "er

ns L "

oaal"g point home under a moitgasee's po@r or sae Paul sells lhe

;;me un 1 at B;n!e for $aoo ooo and the teme hou* at R€dtern ror $400 000 and the

;;;r;s F rhal Ba* ror $2oo ooo. All s es l?ke p a@ on 27s Deember 2003' For €pita

gains ld puqEses PalL will obtain $e most lax adva'lageus €sult f:

(a) H€ ollsels the €pila oss on the That Bank L1d shares againsl the caplalqan on

the Brcnte hom€ un I ri6l.

(b) It he appodions the capltal toss on the ihat Bank Ltd shacs againsl the capital ga n

on bolh p@peftles equallv

(c) lf he @des th€ €piial loss foNad as a net epila oss and ofisels ii agalnst fuiure

€piial gains on other assels

(d) rf he ot'sels the €p lal l6s on the That Bank Lld shares ag6insl the €pita gain on

the Redleri Teme frsl

(e) Noneottheabove

(b)

As shared on...

corEt arcwer is (d)

Eiza G ensldedno enleing into a salary sacrilice aftangemenl fith her emplove' uider

which she nill be prdided with a new B[4W wth a lease vahF or $90 000 She esiimales

ihaishe wl only us the mr for pnvaG purposes and lhat she wil l6reL 30 000 kns per

'.-' r^" "".t=' "',

n\- a.e and ru-1_9 co<rc o- t'" t d are'sr aieo o oe $3 500

i'; ** p,;ec - r* - ieicr-a.e u--i-s cossr r- "sd-ars o be $2000 oe'

nonth Elz ; drenlly on an annua sa ary of $2oo 0oo per annum lfElzaenlereinlothe

.,i";" ";.^""",--""'"", *s. nro rar re, 'ro ovq Fd-ces -e sa arv ov rhe a'e ra

."" .l .-.* _- -, -O ,rv rBl pa{abe on ne ororcio

ad€nlageols amngementlo E iza @uld be

(a) For the slatutory fom ula m€th od to be used b valle ih e €r ft nge benefl'

(b) For the op€Gling costs melhod to be used b value the €r if nge benelt

fr -o F 7a o @'trio-16 b I e _ocr o orovoi-o q'A-oeoe_e'lo Io he_ alie laY

q:hru 3nd lo use lhe opeGlmq @sts method

o -o. -tzd o co-l.bu. lo h. @sr o' prcv'drg -e' -d" oe."r o-'1 or re'1er l:^

lalarv and to ure rhestarubrv fomua method

oorob" used rovaue so ru(" o the l''nge oenerl rsp, e< rc mrl ?aredravJa'o lo' lhpooe6r-o esis Ferqoo obeu*d ovaLe

lhe rema nder ol lhe tEve

corEt amwer is (.). s4 detailed explan.tion below

OUESTION IHIRTEEN

Joseo- D-<Fases,acan. ard arKaioo+bco- seorenba los5'o $20 000 o4'i"", .* moq r." *ro rr'" -"'o rdn_a_'o 52oo ooo _" cG 6_*o"eEe' 'o'

Joseph or the eLe on 1 February 2OO9 are:

: ccf everx p, -aDp._" b-l t ' €pral gar 'c o !eg!{ed @€ se lne and sas a

.'" .cr ^*t . loseDh AsCG e'dA' -aope_s CGT e!er'D ooec ot

rbl cGT event A1 does nol happen be€use the land @s a pre ccT assetlo Josph' ' acT eventDt happens be€use Josph has crealed cont€crual rights n Ha'nah

,-, c.T e\p.lA' happens a-a loseon F l+ed on lhF €!lalda- ol $ 30000 b_r

n orco ad,s(o-n o,500 .-,(. .-ouc"<"is€ora,9an.oS90000

o'cph '<

La^ed o_ ihe a'rrl9a- ol $ 30000b'l s

r o@o a d.@un o {io ^-(- rFoler -! €Drai 9!' o $90000 Bea !e

Joseph s lzxed under CGT event A1 he is nol taxed u^der CGT evenl D1

!e, Lc e\enl p uprd_c io losp- o ' rt €otu gar'c dBeda ded cGT e?en'

o:rr"or"pp-.srortsep- tr. r.ecrDla or,n soqFgr-dedbad-sd rhe E_dMs

OIJESTION FOURTEEN

Hamld and VM Lian are neighbolF Re@nllv they had a maiorargumenl v!'illiam enle6

rro . ."r,ta * -*-" "ith ".D d lnder *h ch wlliam prcmises lhat he aill not enter lhe

r""o oi.ntrr g."ros rt"t. i. ouilt lor a period ol 1o vea6 Haold pavs Wliam $10 000

to, "gr""ing

ro tl," o"ul,uu" "ovenant

The cGT 6nsequen@3 olths tBnsacuon lor

(a) cGT evenl A1 wllhappen as vMliam has disposed of hls ngft to €nler Habd's and

'b. LCr eve Dl { I'appe^ ior W !r ard re $'Oooo ltss _caenrr co<F c'

caan dr beaLaplaloar lowlar

{( CGr e!"r' D ur' -4pe_ lo Wlrn r_o rne $'ooOO esq nc oe_ral @qls ol

e1a'lqrlo hF es_dw,Fna'rw b'o'dr.ryi'o"'bw iaf

,.r cGIerenLO fl l^.!pe-'o W izr' t-etuoLa aa"qlb"€lcJEr'da'S10000ess nooenlr' @$s ot e-rer ! . t"e up tal oai- w I

lhen be €duced bv soyq as Wll am has held ihe @ evant asset lor mo€ than one

re CGtev.nlD w qappe- oulr'€pE oa-"31o0O0w be'educ"d lo zeb

oedu* I wii be or na_v _o1e ro ila od a< a_ o o''ary ncdp{ o oto"rv

corecl answer is (b)

QUESTION FIFTEEN

Ll the fads in Payre @€ lo recur lodav the most likely lax onseqlences @u d be as

{a) The lrequent ilyer benelits MU d be assssable in@me lo Pavne under s15 2

6) The arm s length value ol the freqlent iver benefls @uld be ncluded h Payne s

a$essable n@me undor ITAA 1936s21A

c kPMC rc-d have oee- c-bjec lo linge @n'.F la? onrhP ld€bla!rl-e ol 'herrouenl flver @nelle on lhe bass fal lT oe^er'@s ltr'ded o/ a_ ae'cia(a

o n* ".prov*to

u" ""oro"."

r €sFc o' l'e entovl'n B'€ se lt.ovc

Mld be subjecl to FBT on the benents thev wuld be non a$essab e non

exempl ln@ne 10 Payne underllAA 1936 s23L

As shared on...

d ^PMC

woulo -olha?"oee- rube' oi-q'be''r' E o- -e edbevoueo!

lne -aaLen '/e oanFlls o'a-e' Prvn' mr'"ce'oror*aryo kaqes

F. Tnekeduedlc oenc'rsM oer' 5' a'revFend'' . *."Jiia

".,*'* . eto(es -IJ' e36 s? A wo-rd aor apph o l.e

"..,.ir n,", t-""''t,.

""t *'e oi b-'iaess be_e|s tDMc @_Ldrolb'

'.;'"';'." ""-"". *

" b' errs as he\ re'e 01

ptoulo"o in ,""p*t ot n", ".povt"ntcorrcct .ns{er is (e)

OUESTIONSIXTEEN

The key disl'nct on beNveen the lads in Folls Rdvce v Jotrey and tiose in Mananv v Evans

'r rherd^oarer'.PoJ3Po,(F / JetFJ @<gtrno odn'rJ''grarlF w!644>- , : ri,i*:.' ^ ut".t ' ' r'd, s v'o( ar s,pprs war -or'

'. Tne G,Da'e_ - Mod4y r E a's Meoldt '!DD

e'- ;;;":i; :' -,-p"," d Ro* pa/', Jetrev ra\ e\oo'I-e -d'ie* ree I

was unable 10 lrodu€ rce f

o'hveen EL'r! MedlcJ Suolres r'o tFe

o r'- rarpdre n Vo'dat E\sns Meca S'DoFs wa' e^oo'mg a r'1"'' ;".';,,

^" rnaoa ro P'ooLe ' Pa earce '

Jefrrev Ms s vin! up an exlslmo mailet

(e) None olthe above

OUESTIO SEVENTEEN

lt the lacts in C.ok v Sh€rde. were lo @c!r again iodav:

r ITAA -936 s'21 rnd ? A '' 6-b''rlo_ @'a oelen-e rdr lhe 'aue o rhe

."*.n.."." *o. c-" ".0

s eo -ehoda\s

ai"!i:",i,:,1#.i" d. .- -1oa /< re? -or r,ans e,abre eo-ced ov an! rqe -on

;;i;;;;i;;"--* p.-*€s' d^o a va-ou ( Frr ' 'rs

@- d De r&ed ' rbusiness ga n urder ITAA 1997 s6_s'

(b) The pnze would be1arcd under llAA36 s2l and s21a ln @mbnation'

r, fAAso s>2. a-o - A " Lonb aro_ M.'d oerF-n'lhar re val-e o't"'Ililj".i"'

""'i'" c,i"l a"d s-erd"-

^ari',il!.ii,l ,:i,,"".., '. ,€'{e;oF "'d r-Aro s 5'2

MU d ta^ th€ amount ro detem ned

,d, IlMr6 !s?'a_a 21a - o_onaro""

-*0"*.- """ " C""\ d"o Sne{e- '2" le" a'r' e_glh /' e or rA tl'dare

;'il;:; ':;:";i; ." r'o ou" *- '"o*o'oe and rqe anou-r <o

;;;;**"b"'-* * " "usne*ea- "oF

'rAAe7 e5-5

e, The aft drnh na-.raa.e'w.ld oa! ' -qeBe'e!lsl&o dr'?t'or'65'to'Uie q@s*d up tatabe va ue or tne holdavs

QUESfION EIGHTEEN

under the I rst strand ol €asoning n ltlyet Enpaiun

t or 'a o"r'_s ro !".rhe-n4i* Ln bus'nss sl beordlnary n@de

b, lnr. eslpavaDreo\e-ToF re ed roMch '

s PrcPerY reledb e

a c'rG eeo'nt af' i"jJ.n';i€o .-';ql';ri" pu'oo* o Lt'e 'o'o" '

'uoc'u"eea

ours dF lne odrary co- >e of lh- ;;"'; ";;

i-;;,a(pave ndo 'e aenr'o- or p@ ( ld{-s ov he

va;sad on iiom lhe in@pron ol lhe i€nsacton

(e) Al or the abov€

OUESIION NINETEEN

(a) Amounis lhal are rovalties under the orclnary meanln! of rcvaltv thal ae nol

odlnaryincome

jbj A-oun6 rlt ae ova\'es o-/ nearng 0' 'oldN i-Lr^Ao7 thrt ar€ nol od narv n@me

., am.-^rs Lhat are _o' ovaltes__de'__eord_da 1ean-go'o'!tv outihataF'-' .;;;; ;;m" m*-';e qan -or ooperv o ncpre

delq -r. a'e 'o\E

I'e( wihr he edeno'o 'e21 9ol'rcYaq

'n TM97

e Arou s pao o_ M5_ he od-a1 -ea nd o'

rovallv bui rhai are nor ordinary rncohe

As shared on...

A benelt wil be a frlnge benefl

(a) lf lis pmvded lo an emplovee vfieheror nol it s salaryorwages

o) ony lit sprovidedbvlheempoveescurcnlempover

(c) Whelher or nol it ls provided in lhe reqpient s €pacilv as an enplovee

(d) Al or the abole

(e) None or the above

DETAILED EXPLANATION OF ANSWER TO OUESIION TIVELVE

ln oeneBllems. as Ms pointed out in ledures the Stalulory Form! a melhod wllusualv

i.""*r*lr" ro,..p t",gt"L €te raxpaver unless lhe€ 6 a €larivev hilh blsnss

i",i""eo" * l. "dift

* G. statdory Fomula merhod b€@m6 mo€ p€r€rabre as the

kilomet€s Per Year incrca*

Hence here yourinilia th nking al least should be that the stalL{ory Fomu a fie1hod is likelv

;;";J;r;. Note rhat h;e lhe bus ness pecnraqe is zerc in rhe absence or sarary

i""L!,a a,o" " " "o .*n.a 6re tatpaver and rhe kilomeh€s dnven per vear wll! be

,3 nr €16 tdYDrr'' tren b"efqili"'-iil i* r-.'-.4-oo ov'u"'q-n'ou'o-''p'owharmuoohefr sebe

;;;;;..;;*'.". * *-4. --oe'-" sra.t"ry'o- u -Fnod r"sw Fdue

i"" "* "-.

. " "l

* "*"

*'c (loz'!a-o_en€wile'__areFBTont''€r' 1s*i J." .."i in"r rn"

",plv* *l nor ha@ 2 reportable rhnse beneft li €specr or the €r

and henewllliol have her Med @rc lew nc€ased

whai makes lhis queslion a bit lhckier is that the saary sacnr@ miqhl meai lhd E ia s

i,,1*' ""i o',i" *' ** He-ere r '€ed to chec' 'r

a-

aner larco 'ouron br E iTa t l oldce h' na b"le ooc'ion

'the delai ed calculat ons arc as follM:

(a)M/here value frlnge benefit Ging staiutory Formul' method and make no

CalculaUon of taxabie €lue. Wlh 30 Oo0 kmvannum lEve led slalulory f'acilon wLl

s90 000 x0.1r = $9 €00.

Thi3 is a type one benelt so the gbss up is

$9 900 x 2.0647 = $20440 53

FBT payabie is $20,440 53 x 465=519250

The sa ary educlion wuld be e dlaled as fo lM:

Aner €x 6st of prcvlding lrLnge beneit

52; ooo (ease esc); $500 (runnins cosrs) - Gsr lnFul lax credit $2750 =

$9504.35 (FBT) x 70 = $6.653 39

Thereio.e lhe bral salary redlclion @ul! be 524 153 39

Hei@ the salary slld be $200 000 $= $175.34€'61

T* on $175.34561rcu|d be $56,333.30

ln addilion the grcssed up € ue of the frlnge benelit @! d be 'dded

as rcpodable

fdnge benelit in €ldlaling E iza s lvedi€e @nlribulion

Hen@ Ellz s elary plus her €podable linge benefLls would be $196'237 14

Medlca€ lew rculd be $r 9€,237 14 x 1 5% = $2944 31

Sum of Td and M€di€re Lev] = $5e €3 r1

sa ary after Td 2nd iredi@@ lery $116,563.50

(b)lvhetevalueF .g.Ben€fitlslng operatingcostsand m'*'nocontributlons

$24.ooo (eae @sts) + $3 500 (runn ns costs)= $27'500

$27 slo x2.0647 = S56 779 25

FBT payable $56.779 25 x 465 = $26 402 3s

Aller 1ax @sl of prousion ol f nge beneft

As shared on...

S27 5OO essGST nplt lax red t $2750 : $25 000 70= $r7 500

$26,402.35 r 70 =$13481.65

Therelore the tolalsaLary reduclion wu d be $35,931 65

Hence the slarywuld be $2oo ooo ' $35,931 €s = $164 013 35

Taxon$164.013 35 @!ld be $516c7 20

ln add ton the goss€d up valle of the tnnge benetit Muld be added as a rcponab e

tnnge benefl1 in € cu alin! E iza s Medi€€ ew

Hen@ ELiza s salary pLus €podab e fringe benells @uld be$220,79760

Medicare lew mud be $3,311 96

th. sum olEliasTdand I ed]mre eWrculd be$5491s 1€

E Lza s salary after T4 and N4ed are Lew MU d be !109 0€9 19

(c) lvhere statutory Fomula is Ged to valuethe benefit bul conklbutions ate

mad€ bY th€ enploy€e

For iLluslralve puaoses ih.ee levels of @ntbution w I b€ analvsed herc: (i) a

coitr but on up lo the p€ grcssed up laxable value ol the benelit (ii) a contnbuton

equal ro the ;as€ 6sls bul nol the ope€rins 61s and (lit a mnt bution eqlaL to

(i) C Utbdjo" equat tolhe prc gro$ed up nlue 'rthe

henellt'

$24.OOO + $3 5OO = $27,500less $2,750 = $24.7s0 x.7 = $rT,325lesscontibulioi

Salary becomes $2OO,0oo _ $7 42s = $192.575

Tax on $192.575= $63 653 75

[4ed ere lew $2833.63

Td and Med€€ LeW $66,547 33

Elza's salary afle.Tdand Trredicarc$1 .o27 62

Less Elzas co nbdon $ 99oo

Eliza s s ary after T4 and Medi€re aid @n1rib!t on $1 l6 127 62

(ii) cohtttbution equal to l*e P.vtuen's bdt not opfriihg cos6

$3 soo le$ $350 (GST inpu lax cedit) = $3150x 70 = i220s

The.efoe saary beomes $2OO.O0O _ $2205 = $r97 795

Tdon$19779s=$66.00775

Ta ann Medl@r€ lew 663 974.63

E ia s s ary less Td and Medl€e lew $123 32C 32

E iz s sa ary less Tax and Medica€ and her @nlibution 5104 320 32

(t11) Confibulion .q@t to tutn'nq cosls but 'of

/65e coslt

Grossed uP value of benont

$6 400x 1 0647 = $13,214 03

FBTpayable$13214.03r 465 = $6144 55

As shared on...

s 3500

$24000 ess$2,400(GSTinputtarcEdil)=$21.600x.7+$61t4.55x.7=

Hene saary beomes $20c.000 - $19.421.19 = $130,573 31

Taxon Sr30 s73 31= S53.260.46

The q@ssed up value of ihe fdnqe benetit wil beaddedasa€porlabletrngebeneflin € cu ating Eliza s i,ledi€€ le!y.

Hene E ia s sa ary p us reporiable ftinqe benefls will be 11 93 792.39

Eliza s lvledi€re rew w I be $2 !06 €9

The sum of E iz s Td and lvledi€rc levy si lb€ $61 1€7.35

Elza s salary aner T* and Medica€ 6vy oll be $119 41146

$23,!42.05x.70=S16 129.44

Salary €ducl on 5200,000 - $1s.120 - $16129 d4 = $163.7s0 56

Td on 5163 750.56 = 953.90040

The qrcssed up €lue of lhe ftnge benefl w Ibe added as a €ponab e flnge b€nef1in €lcu atn! E iza s Medica€ ew

Hen€ Eliz s salary and reporlab e ninqe benelits wlll ber 9214,303.36

Medi€re levl payab e on salary and reponab e ftinge benelits $3274.55

sum ofTaxand Med @re e!rypayable$57.174.95

Eliza s elary ailer Ta and [4ed]€E $11r 575.61

Less Elu s @dnbutui $ 3s00

E zassaary essTaxandlrediereandcontribution$103,075.61

(iD Contibution equal to IeBe c6rs

Grcsed up vaue$3 500x 2.0647 = $7.226 45

FBT payable $7 226.4s r 465 = $3,360.30

After tdx sst ol P@v s on of benefl

53,500 ess $350 (GST input iaf, credLl)= $3150x.70 = $2,205

$3360 30 x .70 - $2352 21

Hene salary eduction is $200,0oa ' 52,2a5 - 52352 21 = 5195,442 79

Eliza s *lary afler Tax and Med €€ le!,y and @nldbul on $115,911 46

(d) Where Operating CGts are usd.nd contributions ae nade lo the povision

Here if Eliza @nl bured the value ol lhe finge benell she @uld be beanaq the

vlhoe @st hetself and no saary packaglng @ud be involved Hen@ in this

slualion the filo ilust€live @ntribut ons thai haw b@n made ae: (i) a contdbdion

equalio nre running @sls only: and (il) a onnitudion equa to lhe ea* osls but nol

(i) Contibdlon eq@l 6 ?he tunnlng cosF.

varue of beneli s24.000

Grossed upwlue $24,000 x 2 0€47 = $49,552.30

FBT payable 549 s52 30 x .465 = $23 042 05

Afier tax 61 of pblision of benefit

$24.000less $2,400 (GsT npll lax cEdit) = $21 600 x 70 = $15.120

As shared on...

The gossed up value of the fdnge beneft will be added as a repodab e ninge benerlin €lculat ng El z.'5 iredi€€ le!y.

Hen@ E iassa ary and @pol€ble fringe beneiits wllbe: $202 669.24

Medi*re lew on Elia s saaryand eFodabb tn.ge benells $3040 04

SumofTaxand Medi€e eW $67.939.30

sahry aner ld and Med €€ levy $127,453.49

sa ary ess Ta Med€€ lew and corndbL{ion $103,453 4€

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