Business School

School of Taxation and Business Law

TABL2751
BUSINESS TAXATION

Tutorial Program
Semester 2, 2016
You should bring this document to each tutorial.

ORGANISATION OF TUTORIALS
To complete this course a student must attend at least 80% of tutorials in the group to
which he or she is allocated. This equates to 10 out of 12 tutorials (tutorials are run from
Week 2 to Week 13). As provided in the student handbook, if you fail to attend the
required 80% of tutorials, you may be refused final assessment (i.e. you may not be
allowed to sit the final exam, which will of course result in failing the course). If you miss a
tutorial due to medical reasons, you should provide your tutor with a medical certificate in the
following class.
In the first tutorial, each student will be assigned a tutorial problem on which that student will
be expected to answer questions in class as the tutor works through the solution to the
problem. (You are not required to give a presentation as such i.e. you are not required to
stand up in front of the class and give a step-by-step solution to the problem). Rather, the
tutor will direct questions about the tutorial problem to the students who have allocated a
problem.
NB: Where there is more than one tutorial problem for the week, you are required to
answer ALL problems.
A total of 5 marks will be awarded for your response to the problem. (Of course,
attempting the tutorial problem each week, even if you are not assigned that question, will
certainly help you in completing this course).
All students should come prepared to contribute to discussion of general discussion
questions. To prepare for a tutorial in this course all students should: review material
covered in lectures; read the required readings (text, legislation and cases) for the previous
week that have been listed in the reading guide; and think about the issues raised by the
tutorial problem and general discussion questions for that week. A total of 5 marks will be
awarded for general tutorial participation. Please remember that attendance does not
equal participation. It is not sufficient to simply attend the tutorials.

(NOTE: Please note that Monday Week 10 is a public holiday. If you are in a
Monday tutorial, information will be posted on Moodle offering you a number of
alternative options for the Week 10 tutorial).

TUTORIAL OVERVIEW
Note that these are the main topics to be discussed each week in tutorials. However, the
tutorial problems and general discussion questions may raise issues that cover topics
discussed in earlier lectures/tutorials.

Week 1
No tutorials
Week 2
Analysing and answering a tax problem
Overview of Australias taxation system
Week 3
Tax calculations
Income
Week 4
Income (continued)
Tax accounting
Week 5
Capital Gains Tax
Week 6
General Deductions
Week 7
Specific deductions
Trading stock
Week 8
Deductions capital allowances / capital works
Week 9
Taxation of partnerships
Taxation of trusts
Week 10
Taxation of trusts (continued)
Taxation of companies
Week 11
Taxation of companies (continued)
Week 12
Fringe benefits tax
Anti-avoidance
Week 13
Goods and services tax

WEEK 2
Analysing and answering a tax problem
Two documents have been placed on Moodle:
1. Learning skills in answering tax problems by reading tax cases
2. FCT v Anstis (2010) 241 CLR 443
Students should read this material before the first tutorial. The learning skills document
contains an activity which will be discussed during the tutorial.
General discussion questions (Overview of Australias taxation system)
1. What are the primary sources of taxation law in Australia?
2. What is the status of ATO Rulings, Determinations, and Guidelines?
3. What is the formula for calculating taxable income? Which piece of legislation and which
section provides this formula?
4. What is the difference of a social good and a merit good? Provide an example of each.

WEEK 3 - TAX CALCULATIONS / INCOME

Tutorial problems
Problem 1
Sandra, an Australian resident taxpayer, operates a restaurant in Sydney as a sole trader.
For the income year ended 30 June 2016, the assessable income derived from her business
was $120,000. The deductions from the business were $42,000.
She also had an evening job as a waitress from which she derived assessable income of
$14,500. Her personal deductions (e.g. gifts to charities, tax agents fee, work related
expenses) amounted to $1,800 for the year.
Sandra has a tax offset of $850 for the year. She has an accumulated higher education loan
program (HELP) liability/debt of $6,500 as at 30 June 2016. Sandra does not have private
health insurance.
(a) Calculate Sandras liability to the ATO for the income year ended 30 June 2016.
(b) How would your answer change (if at all) if Sandra had private health (hospital) cover
for the year ended 30 June 2016?
Problem 2
Sarah and Michael are married and both Australian residents for tax purposes. They do not
have any children.
Sarah is 35 and her taxable income for the income year ending 30 June 2016 is $190,000.
Michael is 32 and is currently studying a post-graduate degree full-time. His taxable income
for the year ending 30 June 2016 was $8,000.
Neither Sarah nor Michael have private health (hospital) insurance. They also do not have a
HELP debt.
(a) Calculate the tax liability to the ATO for the 2015-16 income year for both Sarah and
Michael.
(b) Assume that the taxable income of Sarah and Michael income could be split equally
between them (i.e. each would be taxed on $99,000). What would be the tax liability to
the ATO for the 2015-16 income year? What observations would you make in regard to
Australias income tax system (e.g. tax rate schedules, the tax unit) as a result of your
answer?
Problem 3
XYZ Engineering Pty Ltd (an Australian company) enters into manufacturing contracts with
various companies. It receives $100,000 compensation in connection with the cancellation
of a contract made in the course of the companys business with Logo Pty Ltd. The contract
would have taken up 15% of XYZ Engineerings manufacturing capacity for the next two
years, and provided it with revenue of $150,000 over that period.
Would the $100,000 received by XYZ Engineering be assessable under s6-5 (i.e. ordinary
income)? You do not need to consider the statutory income provisions.

General discussion questions

1. Oz Co is an Australian resident company. For the year ended 30 June 2016, the
company has assessable income of $500,000 and deductions of $120,000. They have a
tax offset of $15,000. What is the companys tax liability?
How would your answer differ if the taxation year in question was the year ended 30
June 2015?
2. How does the taxation of resident and non-residents differ?
3. Are any of the following receipts ordinary income? Why or why not?

A cash prize won in a lottery

A cash prize won in an art competition by a professional artist
A house provided to a security guard, rent free, which is situated on the employer's
premises

WEEK 4 INCOME / TAX ACCOUNTING

Tutorial problems
Problem 1
Philip is a student studying accounting at UNSW.
The following information relates to the financial year ending 30 June 2016.
From 1 July 2015 to 31 January 2016, Philip works as a waiter at a local restaurant and is
paid $18.00 per hour. He works 3 x 5 hour shifts each week. In addition, he often receives
tips from diners. The amount he receives varies, but is generally between $30 - $50 each
shift. In September 2015, Philips employer gives him an employee of the month award.
This award is given to an employee each month based on positive feedback received from
customers. The award is a $200 bonus. In December 2015, all restaurant employees
receive a Christmas gift from the restaurant owners. The gift is a bottle of wine valued at
$70.
In November 2015, Philip received a prize for receiving the highest mark in the subject
Advanced Taxation. The prize was a non-transferrable $100 gift voucher to the UNSW
Bookshop.
In February 2016, Philip starts a graduate position with an accounting firm in the Sydney
CBD. His annual salary is $65,700 inclusive of 9.5% compulsory superannuation. He
signed the contract for the job in November 2015. When he signed the contract, he was told
that he would receive a $2,000 sign-on bonus, which would be paid once he completed his
first week of work. (In other words, he would not receive the bonus if he did not complete his
first week of employment). His employment contract states he can quit his job if 2 weeks
notice is given. Philip received the $2,000 bonus at the beginning of March.
Required:
Advise Philip as to whether any of the amounts or benefits he receives under the above
transactions are ordinary income to him (i.e. do not consider statutory income provisions,
FBT or CGT).
Problem 2
Matthew is employed at a local government department in Sydney. He is employed full-time
and works 38 house each week.
For a number of years he has been trading shares, with these activities taking approximately
15 hours each week. His share transactions take place during the ordinary working day. He
has an agreement with this employer to work after hours to make up any time he spends
during the working day trading shares.
Matthew has a home office which he uses to research various shares and engage in some
of his share trading activity.
In 2014, Matthew had 40 transactions involving the buying and selling of shares, with a
turnover of $950,000. In 2015, Matthew had 25 transactions with a turnover of $400,000.
Matthew has claimed a number of deductions in his tax returns for the years ended 30 June
2014 and 30 June 2015, on the basis that they were necessarily incurred in carrying on a
business of share trading.

The ATO is arguing that Matthew is a passive investor and has disallowed the deductions.
Required:
Is Matthew carrying on a business of share trading? Think about factors that support
Matthews argument, and also factors that support the Commissioners argument.
General discussion questions
1. What factors are relevant in determining whether a business should use a cash or
accruals basis in determining taxable income?
2. Jamie is an Australian resident taxpayer who is employed by a large law firm. On 25
June 2014, she is told she will be receiving an end of financial year bonus of $10,000.
The amount is deposited into her bank account with her next pay, on 5 July 2014.
Will the bonus be assessable? If so, will it be assessable in the 2014 or 2015 income
year?
3. What two principles can be extracted from the decision in Myer Emporium?
4. Can a royalty that is taxable under s 6-5 be taxable under s 15-20?

WEEK 5 CAPITAL GAINS TAX

Tutorial problem
On 1 March of the current income year (i.e. the 2016 year), Mr Smith, an Australian resident
individual sold the following assets:
Asset

Date
purchased

Purchase
price

Sales price

House

1 September
1992
1 June 1996
1 February
2007
1 March 2002
1 July 2009
1 July 2015

$200,000

$820,000

Other
information
(if required)
1

$30,000
$22,000

$150,000
Nil

2
3

$40,000
$1,500
$7,500

$60,000
$200
$18,000

4
N/A
5

1 July 2010

$6,000

$8,000

Vacant Land
Car
Vintage Car
Television
5,000 Shares in
ABC Ltd
2,000 Shares in
CAB Ltd
Other information:

1. The house is jointly owned with his wife. The purchase and sales prices reflect the total
price of the house. Mr and Mrs Smith have lived in the house since the date of purchase.
Other costs associated with the sale included:
Advertising: $2,000
Stamp duty: $10,000
Agent commission: $20,000
2. The vacant land is a completely separate block of land (in fact in a separate suburb) to
the house. Other costs associated with the sale included:
Advertising: $1,000
Stamp duty: $2,000
Agent commission: $4,000
3. Mr Smith gave the car to his son. Market value at time of disposal was $9,000.
4. The vintage car is a 1924 Bentley. Before the sale, Mr Smith paid $300 to have the car
serviced, and paid $200 in advertising expenses.
5. Brokerage fees associated with purchase were $300 and brokerage fees associated with
the sale were $500.
6. Brokerage fees associated with purchase were $200 and brokerage fees associated with
the sale were $400.
Mr Smith has an unapplied net capital loss of $5,000 from a prior income year.
Calculate Mr Smiths net capital gain for the current income year. You should assume that
he wants to make any possible elections/choices to minimise his net capital gain.
You can ignore indexation for the purposes of answering this question.
Note: Even if a gain or loss is exempt, for the purposes of the tutorial, you should still
calculate the gain or loss (before identifying the exemption).

General discussion questions

1. What are the CGT consequences that arise in the following situations:
(a) On 1 November 2015, Michael holds an open house for the sale of her Sydney
city apartment. John liked the apartment so much that he decided to pay a nonrefundable holding deposit of $10,000 on the property. Unfortunately, John could
not raise the finance to purchase the apartment and forfeits the deposit on 1
February 2016. (Bonus question: will the main residence exemption be available
in relation to the deposit?)
(b) Garry disposes of trading stock and depreciated plant to Robert on 1 December
2015.
2. Jane is an Australian resident taxpayer.
On 1 June 2016 she sold shares as indicated in the below table. She has always been
considered a passive investor (i.e. not a share trader).
Company
Blue Pty Ltd
Red Pty Ltd
Gold Pty Ltd

Date purchased
1 August 2009
1 November 2015
1 March 2014

Purchase price
$8,000
$10,000
$4,000

Sales price
$5,000
$18,000
$7,500

In the year ended 30 June 2015, Jane had a net capital loss of $2,000 from the sale of
shares.
Calculate Janes net capital gain or loss for the year ended 30 June 2016. You should
assume that she wants to make any possible elections/choices to minimise her net
capital gain.

WEEK 6 GENERAL DEDUCTIONS

Tutorial problems
Problem 1
The Matsu Motor Co Ltd is the Australian subsidiary of a Japanese car manufacturing
company. It imports cars from its Japanese parent and sells them in Australia. The
company has been enjoying considerable sales success in Australia and was rapidly
surpassing local car manufacturers in sales volume. Because of the threat to local
employment if this situation continued, the Australian government announced its intention to
impose a quota on the annual number of cars which could be imported from Japan and sold
in Australia (assume such a system did not previously exist).
In the current income year Matsu spent $950,000 on placing advertisings in the Australian
media attacking the quota system and demanding its repeal, and asking the Australian
public to petition parliament in this regard in order to preserve their freedom of choice in
obtaining the quality, low-cost car which the company had been importing and selling. The
amount spent was five times the companys normal annual advertising expenditure.
Will the expenditure be deductible under the general deduction provision? Fully explain your
answer.
Problem 2
Toxical Pty Ltd was incorporated on 1 July 2009 in Sydney by a group of chemical engineers
for the express purpose of carrying on a business of treating toxic chemicals for various
businesses in Sydney.
The company came across a new business opportunity of developing toxic chemical
processing plant on a disused industrial site on the NSW Central Coast. The company
purchased the site for $4,000,000 in December 2013. On 1 September 2014, after obtaining
the appropriate planning permits form the local government authorities, the company began
to prepare the site for business use.
Shortly afterwards, a local Central Coast environmental protection group lobbied for the
development to be stopped in order to protect local wildlife from noxious chemical run-off
from the site. After a series of legal proceedings, the planning permits for the development
were held to be invalid in March 2015, and Toxical Pty Ltd decided to abandon the Central
Coast investment all together.
The company was liable for the following expenses with regards to the project for the
2014/15 tax year:
1. $200,000 in clean-up expense for pre-existing pollution on the site
2. $250,000 in legal fees in defending the proceedings brought by the environmental
group
3. $40,000 to defend a criminal prosecution action against one of Toxical Pty Ltds
directors who assaulted one of the environmental protestors at a rally on the site in
November 2014.
Advise Toxical on whether any of the above amounts will be deductible under ITAA97 s8-1.
(I.e. you do not need to consider any specific deduction provisions).

General discussion questions

1. Kayla is an auditor with a large accounting firm. During the current income year, she
incurred the following expenses:
(a) Travel expenses: (1) $500 cost of public transport getting to and from the accounting
firm from her home; (2) $160 cost of taxi fares travelling to client premises from her
accounting job (she would leave from the office and return to the office after visiting
the client).
(b) Suits: $1,200. Kayla purchases new suits during the year. Although her company
does not have a uniform, she is expected to wear a suit on all days except casual
Fridays.
2. Jane is a lecturer in accounting at a university in Sydney. She has an office on campus,
but 2 days per week she works from home as she finds it easier to complete her
research. She has an office at home (which covers 15% of the floor area of the house).
The rent for her home is $1,300 per week. Will she be able to claim a deduction for part
of her rent? Why or why not?
3. Matthew requires some advice about whether several expenses he incurred during the
2015/16 tax year are tax deductible:
(a) Interest expenses of $1,300 incurred on a margin loan account use to buy Australian
shares the shares pay dividends each year.
(b) Brokerage fees of $420 incurred in relation to share trading on the margin account
with the stockbroker (Matthew is a long-term investor)

WEEK 7 SPECIFIC DEDUCTIONS / TRADING STOCK

Tutorial problems
Problem 1
Jackie McKenzie purchased a house in Sydney for $600,000 on 1 September 2015. When
she purchases the property there are already tenants living in the house. Jackie continues
renting the property to them for the remainder of the 2016 tax year.
Jackie provides you with the following information in relation to her rental property expenses
for the 2016 tax year:
A loan of $500,000 was taken out on 1 September 2015 for 20 years to purchase the
house. Interest paid on the loan from 1 September 2015 to 30 June 2016 was
$28,000. The borrowing expenses (mortgage establishment fee, legal fees
associated with preparing loan documents etc) were $3,000.
The roof of the house was damaged and replaced at the time of purchase at a cost of
$18,000.
In November 2015, some local teenagers throw rocks at the house, breaking two
windows. These are replaced in the same month at a cost of $300.
$1,800: fees paid to a real estate agent to manage the property.
Advise Jackie as to what deductions (if any) she might be able to claim for the tax year
ended 30 June 2016 under the following provisions: s 8-1; s 25-10; s 25-25. You do not
need to consider the capital allowance or capital works provisions.
Problem 2
Blue Pty Ltd is an Australian company that sells a specific type of tablet computer. On 30
June 2015, Blue valued their trading stock at $50,000 (cost method).
During the 2015-16 income year, purchases of stock were $600,000. Sales during the year
were $1,150,000.
It is now 30 June 2016. The cost price of Blues trading stock on hand at 30 June 2016 was
$70,000. The replacement price of the stock is $40,000.
What will be the impact on Blues taxable income for the year ended 30 June 2016 if the
company values their closing trading stock for tax purposes using replacement price rather
the cost price?

General discussion questions

1. During the year Adam, an Australian taxpayer, donated $20.00 per month to Surf Life
Saving Australia (a deductible gift recipient (DGR)). In addition, he purchased $100 of
raffle tickets in a raffle that Surf Life Saving Australia was running the first prize being a
new car and luxury holiday. He did not win anything in the raffle. Can he claim a
deduction for any of these amounts?
2. Why is it important to determine whether trading stock is on hand? What is the most
significant factor in determining whether trading stock is on hand?
3. Marcia is the proprietor of a retail clothing store. During the current year, Marcia took
from stock clothing for her own use: cost $800, market selling value $1,000. What are
the tax consequences of this?

WEEK 8 DEDUCTIONS: CAPITAL ALLOWANCES / CAPITAL WORKS

Tutorial problem
Problem 1
Jack, who has qualifications in computer electronics, purchased shop premises (land with
shop) on 1 September 2015 for $385,000 with the aim of carrying on a TV and DVD repair
business. The premises are located on a busy street in Parramatta, Sydney. Completion of
construction of the premises by the previous owner (Jill) occurred in June 2006. It cost Jill
$160,000 to construct the premises.
Jack borrowed $300,000 from an Australian bank to finance the purchase.
The shop (when owned by Jill) had previously been operated as a florist and Jack, after the
purchase was completed, has discovered that the wooden floor of the shop is totally rotten
due to continual seepage of water from plants. No business could possibly operate from the
premises in the condition they are now in. Accordingly, Jack decides to replace the (whole)
floor with a concrete floor. Jack sought quotes to have the old floor taken up. The cheapest
quote was $3,000, so, to save money, Jack decided to do it himself (with some assistance
from his brother). Removal of the old floor is completed on 30 September 2015.
A new concrete floor is installed at a cost of $11,500, by a local contractor. The installation is
completed on 15 October 2015.
On 15 October 2015, Jack spends $15,000 on work benches. These are delivered to the
premises on 31 October 2015. On the same day, (31 October), Jack pays $1,000 to have
the work benches bolted to the concrete floor. The work benches have an effective life of 15
years.
Jack is able to commence business on 1 November 2015.
Interest amounts paid to the bank on the $300,000 loan were as follows: $2,800 for the
period before Jack commenced business (i.e. 1 September 2015 to 31 October 2015); and
$11,100 for the period 1 November 2015 to 30 June 2016.
Advise Jack on the deductibility of any of the above amounts (and the amount that will be
deductible). If relevant, you can assume that Jack wants to use the diminishing value
method of depreciation.
Problem 2
ABC Pty Ltd is an Australian company that runs a printing press. On 1 October 2015, one of
the major pieces of equipment that ABC Pty Ltd uses in their business caught on fire. The
machine had been purchased (and installed) on 1 July 2013.
The cost of the machine was $90,000. The machine had an effective life of 15 years and the
company had always used the prime-cost method to calculate the decline in value. Due to
the fire, the machine was destroyed. The machine was insured, and the company received
an insurance payment of $70,000 on 1 January 2016.
Advise ABC Pty Ltd on the tax treatment of the transaction in regard to the 2015-16 income
year (i.e. explain whether any amounts will be assessable income or an allowable deduction,
and if so, calculate the relevant amounts.)

General discussion questions

1. On 1 September 2014, Sheldon purchased a laptop computer, used 40% of the time for
his work at the local university (it has an effective life of 3 years). The laptop cost
$3,000. He has been using the diminishing value method of depreciation.
Calculate the deduction for the 2015-16 income year (i.e. his second year of ownership).
You can assume he has continued to use the laptop 40% for work purposes.
2. Ida Pty Ltd carries on a manufacturing business in a building in which the roof supports,
which are of timber construction, are in need of replacement. If they are not replaced,
the roof is likely to fall in. The taxpayer is unable to acquire enough timber beams at
short notice to replace all of the former wooden beams. As a result, the taxpayer
decides to replace the timber beams with steel supports. The total cost of replacement
is $50,000 and is completed on 31 December 2015.
What deductions (if any) would be available for the 2015-16 year?
3. If a repair is not deductible under s 25-10, what other provisions should you consider?

WEEK 9 TAXATION OF PARTNERSHIPS / TAXATION OF TRUSTS

Tutorial problems
Problem 1
Jane and George are married. Between them they carry on a family business involving the
sale of new and repaired bicycles. Jane carries the main burden of the business, running
the shop and working around 50 hours per week. George has a full-time job with an
unrelated company, earning $60,000 per annum.
To recognise the hours Jane works in the business, George and Jane agree that Jane will
be paid a salary of $30,000 per annum. The partnership agreement states that after
payment of Janes salary, profits (or losses) will be split 60% to Jane and 40% to George.
Gross receipts of the partnership for the year ended 30 June 2015 were $200,000. Business
expenses (including Janes salary), were $180,000.
Jane and George also jointly own a rental property (unrelated to their business). Details of
income/expenses associated with the property for the year ended 30 June 2015 are as
follows:

Rental income:
Interest on mortgage:
Rental agent fees:
Council/water rates:
Minor repairs :

$32,000
$18,500
$2,800
$1,000
$400

Calculate Jane and Georges assessable income for the year ended 30 June 2015. (You
can assume they have no other income or deductions apart from what is mentioned in the
question).
Problem 2
Bill and Ted are partners conducting an architects practice. After all expenses are paid, the
accounts reveal a net income of the practice of $95,000 for the year ended 30 June 2016.
This is after payments of $90,000 to Bill and $35,000 to Ted by way of salary. Interest of
$7,250 was also paid to Bill on an advance of money to the practice. This advance was used
as working capital of the business.
The net income of the practice after payment of salaries is to split evenly (i.e. they each
receive $47,500). What is the taxable income of each partner for the year ended 30
June 2016?

General discussion questions

1. Compare the definition of net income of the partnership in ITAA36 s90 with the
definition of net income of the trust estate in ITAA36 s95. What differences do you note
between these definitions? Why do you think those differences exist?
2. Kirk and Spock operate a space tourism business as partners. The partnership
agreement provides that the profits or losses of the partnership should be divided equally
after Kirk, the active partner, receives a salary of $60,000. Calculate the net partnership
income (or loss) and the distribution to the partners in the following circumstances:
a) For the year ended 30 June 2015, the partnership made a profit of $40,000 after the
payment of Kirks salary.
b) For the year ended 30 June 2015, the partnership made a loss of $80,000 after the
payment of Kirks salary.
c) For the year ended 30 June 2015, the partnership made a loss of $20,000 after the
payment of Kirks salary.
3. What does it mean to be presently entitled to a share of trust income? Is a physical
distribution required?

WEEK 10 TAXATION OF TRUSTS / COMPANY TAX

Tutorial problem
Graham is the trustee of a discretionary resident trust estate created by deed. The Deed
names Graham, his wife Ann, and their two children Lachlan (currently 15 years old) and
Kristen (19 years old) as beneficiaries. All are Australian residents for tax purposes with the
exception of Kristen, who is a non-resident living in the United States.
For the year ended 30 June 2016, gross receipts of the trust were $140,000 and expenses
were $40,000. However, $10,000 of these expenses were not deductible for tax purposes.
On 30 June 2016, Graham makes a resolution that states the profit of the trust will be
distributed as follows:

Graham: $30,000. Graham has $20,000 of income from other sources.

Ann: $30,000. Ann has $180,000 of income from other sources.
Lachlan: $10,000. Lachlan has $4,000 of other income from a part-time job.
Kristen: $20,000. Kristen has $30,000 of other income, of which $5,000 was sourced
in Australia.

The remaining $10,000 of profit is not distributed.

(a) For each of the above distributions, advise whether the beneficiary or trustee will be
liable for tax, the amount that will be taxed, and what tax rates will apply. Ensure you
refer to the relevant legislative provisions.
(b) What are the tax consequences of deciding not to distribute the remaining $10,000
profit?
(c) Suggest to Graham how the income should be allocated to minimise tax payable by the
family as a whole (you do not need to provide calculations, just some general advice).
(You can ignore any general or specific anti-avoidance provisions when answering this
question).
General discussion question
1. Sesame Pty Ltd (the company) is an Australian resident private company for tax
purposes.
The company incurred a tax-loss in the 2014-15 year of $100,000. On 1 July 2014, the
ownership of the company was: Ernie: 40%, Bert: 40%, Oscar: 20%. On 30 September
2015, Ernie and Bert each sold half of their shares to Oscar.
It is now 30 June 2016. Has the company passed the continuity of ownership test? If
they did not pass the continuity of ownership test, what other test will they need to pass
in order to be able to claim the tax loss in the 2016 income year?
2. What would be the problem with a system of taxation that did not tax companies, and
only taxed shareholders? (Consider both a tax system where shareholders are taxed
only on distribution of company profits and one where shareholders are taxed annual on
the profits of the company, regardless of distribution).

WEEK 11 COMPANY TAX

Update dates and figures
Tutorial problem
Alpha Ltd (Alpha) is an Australian resident public company that sells various electronic
equipment. The following information relates to the year ended 30 June 2016.
Details of Alphas income during the year is as follows:

Sales: $3,000,000.
A fully franked dividend of $120,000 was received on 1 October 2015 from Beta Ltd (an
Australian resident public company for tax purposes)
A dividend of $70,000 received on 30 March 2016 from Gamma Ltd (an Australian
resident public company for tax purposes), franked to 70%.
Alpha holds 10% of the units in the Zeta Unit Trust. This entitles them to receive 10% of
the income of the trust each year. For the year ended 30 June 2016, the income of the
trust was $200,000. The net income of the trust was $230,000.

Alpha Ltd had the following expenses during the year:

$310,000: staff salaries and superannuation. In addition, the company made a provision
for annual leave of $15,000.
$1,200,000: purchases of trading stock. Trading stock was valued at $200,000 (cost
price) on 30 June 2015. Closing stock at 30 June 2016 (at cost) was $170,000. Alpha
has always used the cost method of valuing stock for tax purposes and has no intention
of changing this practice).
$530,000: other expenses (you can assume these are all deductible under ITAA97 s 81).

As at 1 July 2015 the balance in Alphas franking account was $30,000. On 28 July 2015,
Alpha makes their final PAYG instalment for the 2014-15 year of $40,000. On 31 October
2015, Alpha makes a final tax payment of $28,000 in in relation to the 2014-15 year.
For each quarter in the 2015-2016 year (i.e. quarters ending 30 September 2015; 31
December 2015; 31 March 2016; 30 June 2016); Alpha makes a PAYG instalment of
$70,000. Any final payment of tax (or any refund due) for the 2015-16 year is paid/refunded
on 31 October 2016.
(a) Calculate Alphas tax liability for the year ended 30 June 2016. Advise Alpha of the
amount of any final tax payment (or alternatively, any refund amount) for the 2015-16
year.
(b) Prepare a franking account for Alpha and calculate the franking account balance as at 30
June 2016 and 31 October 2016.
(c) On 1 November 2016, Alpha declares a dividend of $1,200,000. Assume that apart from
the transactions previously stated in this question, there have been no other transactions
that affected the franking account. Calculate the maximum franking credit that Alpha can
attach to this dividend. Assuming Alpha does not want the franking account to go into
deficit at the time the dividend is paid, advise Alpha of the percentage to which it should
frank the dividend.

General discussion questions

1. Assume a company pays a dividend of $120,000 and attaches $60,000 of franking
credits. Is this allowed? What would be the consequences of a company doing this
(from both the company and the shareholder point of view)?
2. In the 2016 tax year, an Australian resident individual receives a fully franked dividend of
$2,000. Assume the shareholder has no other income for the 2015 year apart from this
dividend and no deductions. Calculate the taxable income and tax payable of this
individual. Will they receive a tax refund?
3. Pauline is a resident of Hong Kong (and a non-resident for Australian tax purposes).
(Note, there is no double tax agreement between Australia and Hong Kong). In the 2015
tax year, she receives a dividend from an Australian company of $5,000 that is 50%
franked. Will the Australian company need to withhold any tax from the dividend? If so,
how much? Would you answer change if the dividend was fully franked?
4. Does the reduction in the company tax rate for small businesses (turnover < $2,000,000)
for the 2016 year onward have any impact on the franking formula?
I.e. Are these companies allowed to use the 30/70 formula? What will be the potential
ramifications if they do this?

WEEK 12 FRINGE BENEFITS TAX / ANTI-AVOIDANCE

Problem 1
An employer makes the following payments in respect of benefits provided to employees,
during the FBT year ended 31 March 2016.

$1000 paid for an employees home telephone bill (30% of the telephone usage was
for business purposes and you can assume this would be deductible if the employee
had incurred the expense himself) (GST included)
$200 paid for a subscription to an employees professional journal (GST included)
$4000 relocation expenses paid for an employee and his family to move interstate
(GST included)
$1,200 for private health insurance reimbursed by employer (GST-free)
$900 gym membership reimbursed by employer (GST included)
(a) Calculate the taxable value of each fringe benefit provided
(b) Calculate the amount of fringe benefits tax payable by the employer.

Problem 2
On 1 August 2015 an employer purchased a new car at a cost of $40 000. The car is given
to an employee who uses it for both business and private purposes. Of the 12 000 km
travelled to 31 March 2016, 9000 km were for business purposes.
Expenses (all paid by the employer) were:
Registration and insurance for 12 months from 1 August
$1200
Petrol to 31 March 2015
$800
Servicing / repairs
$650
Calculate the taxable value of the car fringe benefit, using the two different methods (i.e.
statutory fraction and operating cost). Use the statutory benchmark interest rate of 5.65%
for the year ended 31 March 2016 to calculate the imputed interest. Assume the car is
garaged at the employees home each night.
Problem 3
What is the purpose of the personal service income alienation provisions? How do they
operate?

General discussion questions

1. What do you think is meant by the terms tax avoidance and tax evasion? What is the
difference between the two? What amounts to tax avoidance for Part IVA purposes?
2. Why is fringe benefits tax imposed on the employer rather than the employee?
3. The taxable value of fringe benefits provided by ABC Ltd to its employees for the current
FBT year (i.e. year ended 31 March 2016) is:
a. Type 1 fringe benefits: $8,000
b. Type 2 fringe benefits: $5,000
Calculate the fringe benefits tax payable for the year.

WEEK 13 GOODS AND SERVICES TAX

Tutorial problem
Problem 1
You can assume all relevant parties in this problem are registered for GST unless otherwise
stated.
Singer Pty Ltd (Singer) is an Australian company that is registered for GST purposes.
Singer runs a management consulting firm from an office in the Sydney CBD.
They give you the following information for the month of September 2015. All income and
expenses are inclusive of any applicable GST.
Income:
Consulting fees (billed during month of September): $190,000
(Of this $190,000, only $100,000 has been received. During the month of September,
$75,000 was received which relates to invoices issued in prior months.)
Expenses:
Rent on office (commercial premises): $16,000
Staff wages/salaries: $35,000
Purchase of new office furniture: $22,000
Staff training: $6,000. The staff training is provided by a private firm and will not result in
staff gaining any further qualifications.
Office cleaning: $1,100
Milk (for office fridge solely use by staff): $40.00
Coffee (instant coffee powder) and tea bags (solely for use by staff): $30.00
You can assume Singer accounts for GST monthly, on an accruals basis. You can also
assume that all entities are registered for GST.
Required:
Calculate Singers GST payable to or refundable from the ATO for the month of September
2015. Show all workings and fully explain your answer.
Problem 2
Are the following transactions subject to GST? If so, what would be the amount of GST?
(You can assume all parties, if required, are registered for GST).
(a) A purchase of a photocopier for $5,000, of a photocopier for use in an accounting
practice
(b) Private health insurance premiums of $2,000
(c) Goods worth $77,000 sold to a manufacturer in Japan

General discussion questions

1. What input tax credits, if any, are available in respect of the following: (You can assume
all parties, if required, are registered for GST).
(a) A fax machine, costing $1,100, purchased by a partnership of accountants carrying
on practice in a large country town
(b) A mobile phone costing $770 purchased by a dentist for use by his daughter who has
just started boarding school.
2. What is the registration threshold for GST (for a regular business, not a non-profit
organisation)? Are you able to register for GST if you are below this threshold? What
are some of the advantages/disadvantages of voluntarily registering for GST if you do
not meet the threshold?
3. What is the current GST treatment for low-value taxable importations? Why is the
government looking at reforming the current treatment and what are they proposing?
(You should also think about the pros and cons of the proposed approach).