Unit Code: HI6028
Unit Name: Taxation Theory, Practice, and Law
Assignment: Tutorial Questions Assignment (Individual)
This assignment is designed to assess your level of knowledge of the key topics covered in this unit
Unit Learning Outcomes Assessed:
Each week students were provided with three tutorial questions of varying degrees of difficulty. The tutorial questions are available in the Tutorial Folder, for each week, on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions from topics 7 to 12 inclusive and submit these answers in a single document.
The questions to be answered are:
Question 1 (7 marks)
(Note this question is based on the Topic 7 Lecture: Fringe Benefits Tax)
GoodMates Pty Ltd loaned one of its staff, Munir, the amount of $5,000 (interest free) for one month. Due to personal life issues and financial hardship that Munir was suffering, it turned out that demanding the loan will endanger his health and will cause him not to be able to provide basic needs for his family. At the discretion of the board of directors, this loan was waived on compassionate reasons and Munir was informed.
Is the company required to pay any fringe benefit tax? Kindly use the template below and discuss in detail.
Rules and or cases:
(7 marks. Word limit: Minimum of 120 words. Maximum of 150 words)
Question 2 (7 marks)
(Note this question is from the Topic 8 Lecture: Capital Gains Tax)
Ajay Ltd purchased a depreciating asset with the value of $5,000 on 31 March 1989. On the same day, the company paid $50 to transfer the ownership. One year after, on 31 March 1990, this company spent an additional $1,500 for the asset functionality improvement. Later, on 31 March 1992, the company moved to a new place, and paid $200 to transfer this asset to the new location of business. Finally, the asset was sold in 2020 for $12,000 (Ignore GST effect in all calculations of this question).
Calculate cost base, and capital gain (Loss), and capital gain tax, if any, considering Ajay decided to index (if applicable) and the relevant corporate tax rate is 30%.
(You can use your presentation slides for indexation, if required, and round to two decimals only, only use tables and no narration format is allowed, otherwise, the answer would not be marked).
(7 marks. Word limit: minimum 120 to maximum 150 words)
Question 3 (11 marks)
(Note this question is from the Topic 9 Lecture: Goods & Services Tax)
A large company in Australia, called Alex Ltd, supplied $22,000 (GST Inclusive) worth of products to one of its local customers, Beta Pty Ltd, on 1 August 2019. Beta paid this bill in two equal instalments of $11,000 on 10 May 2020 and the second instalment on 15 September 2020.
Discuss how each entity should account for GST. Alex Ltd is a GST-registered entity with ATO and accounts for GST on accrual basis, files BAS monthly and remains registered, while Beta is not registered for GST at all in both years. (No law sections or cases are required to be included in your answer, calculation of GST amount if any is required).
(11 marks. Word limit. Minimum of 120 words. Maximum of 150 words)
Question 4 (11 marks)
(Note this question is from the Topic 10 Lecture: Taxation of Companies)
Calculate the tax liability for Andre, a single tax resident, receiving $1,000 dividend (80% franked) from a large company, called Margin Pty Ltd, which uses imputation tax system and 30% corporate tax rate. Other income and expenses of Andre are as below:
(No law sections or cases are required to be included in your answer. Please use a table to answer this question, no decimals are required. Tax year 2019/2020).
(11 marks. Word limit: Minimum of 120 words. Maximum of 150 words)
Question 5 (7 marks)
(Note this question is from the Topic 11 Lecture: Tax Avoidance, General Anti-Avoidance Provisions, Income Tax Returns, Assessments, Rulings, etc)
Briefly explain what factors significantly affect tax avoidance. (At least two journal papers from google scholar, from 2019 onwards, must be used with Harvard intext citation and referencing style. Please note that you must include the link of your chosen journal papers when referencing them. No direct copy and paste are allowed and you must answer in your own words. You can choose the country or context, meaning the research should not necessarily be done in Australia or for Australia).
(7 marks. Word limit: minimum 120 to maximum 150 words)
Question 6 (7 marks)
(Note this question is from the Topic 12 Lecture: Trading Stock, Partnerships, and Trust)
Ryan, Maria and Mike are partners in a law firm. The partnership earned $1,200,000 net profit during the financial year ending 30 June 2020 and did not pay any salary to any of the partners during the year. On 1 July 2019, Maria loaned $100,000 to the partnership and received $10,000 interest from the partnership over the 2019/2020 fiscal year, which is already considered in calculating partnership earning for the year. Meanwhile, Maria also earned $200 from gambling. Allowable deductions for Maria during the year consist of $300 paid for allowable professional subscriptions. Calculate net tax liability for Maria.
Q 1: Case law related to FBT:
Facts of case law:
The facts that are provided in the question are as follows:
Applicable taxation law:
As per the taxation law of FBT, there are fringe benefits for the employee in case of benefits provided to the employee during the employment such as car benefits, accommodation, interest-free loan, waiver of loan, etc. and the employer is liable to pay tax on the fringe benefits provided to the employee (Potgieter, 2019).
However, there are certain exceptions in the fringe benefits regarding waiver of loan liabilities for the employee. The waiver of a loan is not considered as fringe benefits if the following conditions are satisfied:
Impact of taxation law in a given case:
As discussed in the taxation law, there is a question of whether the waiver of debt is considered as fringe benefits or not. However, as per taxation law, the waiver of loan given to Munir has satisfied the following conditions:
Therefore the waiver of a loan is not considered as fringe benefits as it satisfied the condition of exception of fringe benefits. However, the interest on the loan is considered as fringe benefits and the employer is liable for FBT on the interest amount.
|Benefits ||Tax liabilities||Amount |
|Waiver of the loan amount||No FBT liability as it is not considered as fringe benefits||Nil|
|Interest on the loan amount||Considered as fringe benefits and FBT is applicable for an interest amount of one month.|
(5000 * 5.37% / 12)
= $ 22.4
|Details||Total amount |
|Calculation of cost base |
|The purchase value of an asset (5000 * 1.33)||6650|
|Cost of transfer ownership (50 * 1.33)||66.50|
|Improvement cost (1500 * 1.22)||1830|
|Total cost base as per indexation||8546.5|
|Consideration received against assets ||12000|
|Less: Indexed cost base||8546.50|
|Capital gain on sale of an asset||3453.5|
|CGT (3453.5 * 30%)||1036.05|
CPI as of 30th September 1999 = 123.4
CPI as of 31st March 1989= 92.9
CPI as of 31st March 1990= 100.9
Index factor for purchase= 123.4 / 92.9 = 1.33
Index factor for improvement = 123.4 / 100.9 = 1.22
Q 3: Calculation of GST:
|Details||Value in $|
|Sales amount including GST||22000|
|A standard rate of GST applicable||10%|
|GST amount included in the sales (22000 * 10 / 110)||2000|
Q 4: Tax liability for Andre:
|(Joseph, & Mallon, 2019)|
Q 5: Rules of tax avoidance:
The process through which the taxpayer can avoid tax liability due to loops in the tax law and hide information is known as tax avoidance. The tax avoidance increase to avoid tax liabilities and make arrangement to exploit the taxation law (WANG, 2020). Many factors significantly affect tax avoidance which is as follows:
Q 6: Taxable income of Maria:
Calculation of taxable income of Maria:
(Trad, & Freudenberg, 2018)
The Australian Taxation law does not impose tax liability on the income earned from hobbies and gambling is considered under hobbies. Therefore there is no tax liability on income earned by Maria from Gambling (Armstrong, & Carroll, 2017).